The dissertation examines the causes of a decision by Hungary's communist government to allow thousands of East European refugees to leave their country for the West during the final days of the Cold War. The decision eroded border controls throughout the Warsaw Pact and is widely acknowledged to have played a critical role in hastening the collapse of the Eastern Bloc. However, it has been the subject of minimal academic study. The dissertation utilizes newly accessible archival material and interviews to examine the variables that influenced the opening of Hungary's borders, with an emphasis on economic dynamics, the evolution of Hungary's domestic political system, and the waning threat of Soviet military intervention. The dissertation argues that deteriorating economic conditions in the 1980s undermined the viability of Hungary's communist regime by ending the state's ability to provide steady improvements in Hungarians' standard of living. The crisis forced the regime to seek alternate sources of legitimacy and financing in order to avoid civil unrest and service the country's large foreign debts. Political liberalization provided the only feasible answer to both challenges by facilitating the extension of credit from western lenders and the prospect of a new popular mandate through free elections. Asylum seekers in Hungary enjoyed considerable public support and the government would have faced high political costs for returning the refugees to East Germany. Harsh action against the refugees would have also potentially damaged Hungary's ability to secure credit from western lenders. The decision to release the asylum seekers was further facilitated by the Soviet Union's reluctance to undertake military action in Eastern Europe in the aftermath of the Red Army's defeat in Afghanistan. Faced with these conditions, Hungary's leaders sacrificed the stability of their partners in the Warsaw Pact and their country's own communist regime. Their actions were predicated on the correct assumption that Hungary's future lay in a more open, democratic system and were designed to maximize the prospects for individual members of the country's leadership to retain a role in the country's emerging order.