The Interplay between Innovation and Production Systems at Various Levels: The case of the Hungarian automotive industry

The paper first discusses alternative theoretical frameworks to analyse the impacts of FDI on host economies. Second, it provides an overview of major developments in the Hungarian automotive industry since the early 1990s, discussing both firm strategies and the macro level factors influencing the former ones, especially by highlighting the consequences of Hungary’s accession to the EU. A tentative taxonomy has also been developed, and applied when discussing the prospects for Hungarian suppliers. The paper concludes that diffusion models and the notion of sectoral system of innovation and production offer a more appropriate conceptual framework to capture the actual socio-economic impacts of FDI in this sector than the generally used spillover models. Notwithstanding the huge importance of globalisation, various elements and dynamics of national innovation systems still do matter. As for a major element of an NIS, namely government policies, it is more fruitful to create an attractive, favourable environment for R&D and innovation than focusing on the promotion of industry-specific R&D and innovation activities. It is also of crucial importance to co-ordinate several policies to enhance competitiveness.