Could the Irish Miracle Be Repeated in Hungary?

Abstract: It is widely recognized that foreign direct investment (FDI) plays an important role in economic development. However, its impact on entrepreneurial activity has not been well researched. Internationalization theory is used to explore how inward FDI impacts entrepreneurial activity. Using data from the Global Entrepreneurship Monitor (GEM) we find significant differences in entrepreneurial activity between Ireland and Hungary in both the type of people starting businesses and the opportunities pursued. Economic development policies should focus on increasing human capital, promote enterprise development, and upgrading the quality of FDI. Excerpt: In this paper we build on internalization theory and use data from the Global Entrepreneurship Monitor (GEM), to explore if and how the policy of attracting inward FDI from multinational enterprises impacts indigenous entrepreneurial activity. We use GEM data to profile and compare entrepreneurial activity in Ireland and Hungary (Reynolds, et al 2005). We expect that countries will benefit from FDI spillovers when there is a strong cultural context that supports entrepreneurial activity. Such a context will lead to more individuals perceiving entrepreneurial activity as a desirable economic choice. More specifically, a strong supporting cultural context will lead to a higher percentage of the population having a strong personal entrepreneurial context. A strong personal entrepreneurial context is one where the individual perceives opportunities, believes that they have the skills, knowledge and experience to start a business, and has a personal entrepreneurial role model. The effect of a strong supporting culture and positive personal context will be higher levels of opportunity-based entrepreneurial activity. Therefore, we expect population-level differences between Ireland and Hungary in terms of (i) levels of opportunity-based entrepreneurial activity, (ii) the entrepreneurial culture of the population; and (iii) the personal entrepreneurial context of the population (Sternberg and Wennekers, 2005). Based on internationalization theory we expect that entrepreneurs in Ireland and Hungary will differ in terms of 'type' of person (or the absorptive capacity of individuals) exploiting entrepreneurial opportunities and the nature of the opportunities they pursue. First, we expect that for entrepreneurs to exploit opportunities that arise from knowledge spillovers, entrepreneurs will need the appropriate personal absorptive capacity or the appropriate 'knowledge' and resources. While these cannot be measured directly, we expect that higher levels of education might indicate that entrepreneurs are using higher levels of 'knowledge' in their entrepreneurial activity. We also expect that entrepreneurial activity in Ireland will be more pervasive in sectors where entrepreneurs are exploiting opportunities relating to MNE economic activity. Therefore, we expect differences between Irish and Hungarian entrepreneurs in terms of the (i) education levels and (ii) new venture sectors. Section two presents the theory of FDI and its role in Industrial Development Policy. Section three details the Irish case study. The fourth section features the Hungarian case study while the fifth section tests the hypothesis that entrepreneurs, as well as the population attitude towards entrepreneurs, are different in Hungary and Ireland. The final section examines policy options for Hungary.