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This paper presents an analysis of the linkage between Hungary’s and its neighbouring country, Slovakia’s special kind of political-, and economic relations over the past two decades. The author searches for an answer to the question what fundamental factors, internal and international, determine the long-term growth of the two countries’ bilateral trade and the often tensed bilateral interstate relation as well as how the latter influences economic development in the common cross-border areas. Applying the models of mathematical economics, the author carried out an econometric investigation to prove her hypothesis on the bilateral political relation affects bilateral trade.

Table of Contents
1 Chapter 1 – Introduction 1
1.1 Motivation 1
1.2 Literature Review 2
1.3 Methodology 13
2 Chapter 2-Qualitative Research 16
2.1 1996 – 2002 17
2.2 2002 – 2006 22
2.3 2006 – 2009 25
3 Chapter 3- Economic relations between Hungary and Slovakia 32
3.1 Bilateral economic relations after 2004 34
3.2 Capital ties between Hungary and Slovakia 36
3.3 Impact of the economic crisis on the bilateral trade relations in 2009 38
3.4 Comparison of macroeconomic indexes Error! Bookmark not defined.
4 Chapter 4- SWOT Analysis 45
5 Econometric Research 54
5.1 Multiple regression Error! Bookmark not defined.
5.2 Hypothesis test in the multiple regression Error! Bookmark not defined.
5.3 Omitted variables Error! Bookmark not defined.
6 Chapter 6- Conclusion 96
References 97

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