Graduation Year

Fall 2011

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Sven Arndt

Rights Information

© 2011 Spencer W. Mains

Abstract

This paper analyzes the various costs and benefits associated with the Economic and Monetary Union of the European Union, specifically with respect to Hungary, though much of the theory can be applied generally across all Central and Eastern European EU member states. It begins with an examination of factors that have potentially slowed Hungary's economic progress on the institutional and macroeconomic level.

Next, the political origins and significance of the EMU are considered. EMU membership brings more than economic benefit; it is a symbolic achievement that a country has advanced to a position that allows it to be put in the same category as the more developed economies of the West, and also signals a step towards the “inner circle” of the European Union.

Some of the theoretical foundations of monetary and currency unions are then presented: the optimum currency area theory (OCA), the exogeneity theory of OCA, the endogeneity theory of OCA, pro-cyclical fiscal policy as it applies to developing countries, costs of euro area accession, the effects of financial integration, and the effect of euro membership on foreign direct investment (FDI). Then, an empirical overview of how well the monetary union has functioned with respect to expectations is presented. After that, a comparison with Greece is made to determine whether the EMU would consider them as a member even if the criteria were met. Finally, a comparison of Hungary's economic data is juxtaposed with that of the Maastricht criteria.

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