P33 - Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Relations, and AidReturn

This study evaluates Hungary’s equity market using Damodaran’s country risk premium (CRP) framework to estimate its cost of equity and assess investment attractiveness within the Central and Southeast European context. The paper integrates Hungary’s sovereign credit rating, default spread, and a volatility adjustment to compute an implied cost of equity of approximately 11.5%, placing it among the least risky regional markets. The methodology benchmarks Hungary against peers including Romania, Slovakia, Serbia, Bosnia, and North Macedonia using key structural indicators such as market capitalization, turnover, P/E ratios, and foreign ownership. Findings show that Hungary benefits from deeper market liquidity, broader investor participation, and stronger integration with global capital markets compared to its frontier neighbors. However, institutional and political risks—particularly EU governance disputes—continue to inflate its risk premium above fundamentals. The results underscore how sovereign risk, market structure, and integration interact to shape equity valuations. The study concludes that targeted reforms aimed at enhancing governance and investor protections could lower Hungary’s risk premium and align it more closely with developed EU markets, offering a roadmap for peer economies undergoing similar transitions.
Implications for Central European audience: The paper provides a replicable framework for evaluating equity risk in post-socialist economies. Hungary’s example illustrates how institutional quality, liquidity, and policy credibility jointly influence investment outcomes. These insights can guide reforms and capital market strategies across Central and Eastern Europe.

Studies on institutional support for the internationalisation of firms from transitional economies are inconclusive. This research contributes to the studies of institutional support in cases of firms with complementary innovation – internationalisation strategies. Mixed method research is used to support quantitative structural modelling. It uses qualitative interview data in combination with quantitative data gathered by a survey questionnaire on a sample of 88 telecommunications firms from the Croatia economy the year after it joined the European Union (2014). SmartPLS model is used to analyse data obtained through a questionnaire survey. The results show that institutions can assist firms in recombining their processes when they offer concrete product development support and, to a lesser extent, marketing support. The recombination of firms’ processes, i.e. its ability to openly innovate, leads to significantly better globalised-localised (glocal) financial and marketing performance, which results are robust. The results are inconclusive in the case of glocal growth performance. The structural model assessed the effect of readiness for open innovation on glocal growth as positive and insignificant, while the robustness check found it to be positive and significant.
Implications for Central European audience: The value of this study is twofold. Firstly, it provides support and direction according to which institutional support could be directed to strengthen the internationalisation effort of the incumbent industry from transitional Central European economy that has transformed from the socialist to a market economy and undergone a process of joining the European Union. Secondly, it shows managers weak spots in institutional support and enables them to mitigate them quicker by finding similar support either outside of the firm on international markets or by employing highly qualified individuals.

The paper provides an introduction to the special issue. It shows a sense in which Visegrád and Balkan EU countries are correlated in macroeconomic performance and integrated with the global business cycles. Using inflation rate levels as a starting point to characterize when these countries began their transitions, it shows that after 1996 both real GDP growth and real interest rates move together to a significant degree both with each other and with the US. This provides a background from which to view the paths since the collapse of the Soviet Union that these transition economies have taken. In addition, comparison is made to US money and banking policy, to provide an outline of how this may impact progress in the transition region. A subsequent summary of the other articles in the issue shows an inter-relation in their themes about how Central, Eastern, and Southeast Europe have progressed since 1991, and how these paths may be affected by Western economic policy.
Implications for Central European audience: The paper shows that transition regions can be impacted by international financial integration, including to possible detriment when capital markets are regulated by policy that pushes real interest rates below their natural levels. Negative real interest rate policy since the 2008-2009 financial crisis and again during the Covid crisis may hasten the rise of autocratic democracy and limit social, political, and economic freedom.