Growth by intervention: State demand and preferential allocation in the Hungarian construction sector since 2010

Abstract

Abstract

Abstract This paper examines the post-2010 expansion of the Hungarian construction sector as a case study of large-scale government intervention in a single market. A political economy framework conceptualises the intervention as two mutually reinforcing policies — expansionary demand (public procurement and housing subsidies) and preferential allocation towards politically connected firms — operating under inelastic supply through two mechanisms: market-level subsidy capitalisation and firm-level rent extraction. Using a structured descriptive case study design, the paper draws on Hungarian Central Statistical Office and Eurostat macroeconomic statistics, firm-level data on Hungary's largest companies (CrefoPort), policy documents, and a regional comparison to assess four propositions derived from the framework. The evidence supports all four: real construction output grew faster than in any regional peer except Romania; construction producer prices persistently outpaced the GDP deflator; ownership of the leading firms shifted towards politically connected domestic owners, whose profitability rose sharply while their exports remained negligible; labour productivity per hour worked returned by 2024 to roughly its 2000 level; and connected firms captured a rising share of sector profits, as the subsidies' value was partly eroded by the price increases they induced. Competing explanations do not jointly account for this configuration. The findings illustrate how combined demand stimulus and favouritism produce extensive growth without efficiency gains.