The effect of costs and subsidies on trade reorientation in Hungary (1981–1990)

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Cost and subsidy driven adjustment processes have played a much more important role in the trade reorientation of the Hungarian economy than generally assumed. The link between export and overall profitability of export-oriented firms has tightened over the 1980s. Subsidies which had been used to compensate for export losses were largely eliminated and began to favour firms with profitable exports. In 1981–1984 a higher than average profit ratio of export-oriented firms can be explained by their better performance in dollar exports and in domestic sales. In 1985–1987 their profits from rouble and dollar exports were lower than the average of the corporate sector. After 1987 the profitability of dollar exports of export-oriented firms improved.