The Causes of Slow Growth in Hungary during the Post-Communist Transformation Period

In his 1966 Inaugural Lecture at Cambridge, entitled On the Causes of the Slow Rate of Economic Growth in the UK, the Hungarian-born British economist, Nicholas Kaldor presented a series of "laws" to account for the growth rate differences between Britain on the one hand, and the more successful economies like the US, Germany or France on the other. He called his method circular cumulative causation, a multi-causal approach where the interdependencies between the explanatory factors were strong, and where variables interlinked in the determination of the outcome. In Kaldor's interpretation, the UK's main problem was the slow growth of productivity, caused by the slow growth of the manufacturing sector. And why did that matter? Because he found that productivity of the manufacturing sector was positively related the growth of the manufacturing sector itself - i.e. the law of increasing returns to scale manifested itself in a strong way. The objective, the methodology and central analytical concepts of the present paper are similar. Now we look for the causes of the slow growth of the Hungarian economy. As it will turn out, increasing returns to scale, which Kaldor took from Young (1928) seminal study, occupies a central position in this paper, too.