SIMILAR ARTICLES

Q2 / Average monthly income per capita in Romania has risen to nearly RON 1,600: Changes in redistribution of family budget

Data published by INS for the second quarter of 2018 show that Romanians’ monthly incomes have reached nearly RON 1,600 per person. They were RON… Mai mult

Current account deficit flickers to red on dashboard

According to the data released by Eurostat, Romania’s current account deficit exceeded, in the second quarter of the year, the threshold of five percentage points… Mai mult

Strategic chemical industry: Romania, on top in import increase and ranking last in EU in terms of increase in exports outside single market

Data published by Eurostat show that Romania recorded the second highest annual growth rate in imports of non-EU chemicals from 2007 to 2017 (13.1% per… Mai mult

Economic growth in the pocket: Current accounts vs. saving accounts – 64% to 4.5%

  Rising incomes have fuelled consumption and, implicitly, the economic growth in recent years, but not the savings. Although a large proportion of the population… Mai mult

Domestic software and IT services market declines, growth will only be based on external market

Total turnover in the IT sector increased by 11 percentage points in 2017 compared to 2016 and exceeded the four billion euro threshold forecasted, according… Mai mult

Average income trap – danger for Romania and CEE states: Setting growth engine on innovation is the only solution          

de Mariana Bechir , 12.2.2018

In the absence of strategies to increase technological levels and raise wages, Central and Eastern Europe (CEE) will remain in the average income trap without any prospect of closing the gap with the West, warns Martin Myant, senior researcher at the European Union Trade Institute (ETUI).

The analysis takes into account the countries of the Visegrad Group 4 plus Romania (which comes from an inferior level but had similar economic growth).

In the 27 years of transition, these countries have developed economies dependent on foreign capital, where the main engine was the foreign direct investment (FDI) attracted by cheap labour.

This model has reached its limits and active state policies are required to stimulate a new structure of the economy.

That is why strategies with a two-directional impact should be developed, in Martin Myant’s opinion:

  • to influence the type of foreign investment that will be made (to stimulate FDI for high added-value industries)
  • to encourage autochthonous autonomous development to surpass the technological level of multinationals present in these countries

Dependence on foreign direct investment (FDI)

The first significant foreign investments came in the early and mid-90s when companies from abroad participated in privatizations started in the five states.

In all these countries, the peak moment (the year when FDI reached the largest share of GDP) was reached before 2008, the year that marks the slowdown in foreign capital inflows.

The pioneer was Hungary, where foreign direct investment accounted for 10.3% of GDP in 1995, a percentage reflecting the government’s preference to privatize companies by selling them to multinationals.

In the case of Poland, it is noticed that it was initially much more reluctant to accept foreign companies, and Romania is the last one to reach the maximum FDI/GDP (in 2006).

Between 2009 and 2016, Romania had the highest annual average – 2% of GDP, followed by Hungary, where the share was 1.9%:

In all cases, EU accession has not influenced the process, with multinationals anticipating it and having massive investments before. It can be seen even in the case of Romania, where the peak was reached in 2006.

The exception is the Czech Republic, where the highest FDI share of GDP was recorded in 2005.

Romania’s case – the worst

Foreign companies have become the major exporters in these countries and this way brought additional benefits. The main sectors where investments have been made are electronics and the automotive industry:

Over time, though, the positive effect of FDI has diminished and tends to be eliminated, as evidenced by the reduced impact of FDI in 2014 on the foreign balance (Romania is missing):

Romania, with even lower salaries than in the other four states, is a slightly different case than Visegrad 4 – here it has been relocated the production of goods for which factors such as highly qualified workforce or Western proximity matter less.

That is why Romania has come to dominate the car wiring sector. The volume of exports of such products has surpassed in time the Czech Republic (in 2001) and even Germany (in 2006).

The production of these wiring systems is the most mobile – they are relatively simple to do, do not require highly qualified personnel, infrastructure or significant investments, so that the activity can be quickly relocated to countries with cheap labour.

This phenomenon even took place in the region, with closures of production in the Czech Republic and relocations to Romania.

The data that Martin Myant analyses show that the price per kilogram of such product exported from the Czech Republic and Romania is below the one from Germany (although the quality is the same) and even decreased as the export volume increased:

Multinationals have transferred to a much lesser extent the types of production that require a high number of highly qualified workers and complex activities (such as research and development) are not expected to be moved to the CEE in the future.

For political and image related reasons, these will be maintained in Western states.

The consequence is that this type of dependency creates limits for the convergence process, does not ensure the progress towards a competitive economy (from a complementary one where we are now) and even threatens the stability of CEE economies (by increasing the risk of relocating the production to countries with lower wages).

Conclusion: Full wage convergence of the salaries can only be achieved if the income increases is accompanied by measures to create high value-added economic activity.

For this, there is a need for the state to take a strategic role to boost investment in skills, education and research so that we can reach an innovation-based growth.

Mergeți în homepage ›

Publicat la data de 12.2.2018

Lăsați un comentariu


NEWS

Cluj-Napoca - only city in Romania that receives European funds for innovative projects

Only Cluj-Napoca is among the 22 European cities that will receive financing from the European Regional Development Fund (FEDR) for innovative solutions in addressing urban… Mai mult

Prime Minister Dancila dismissed 13 of 15 civil society representatives from Economic and Social Council. They were blocking legislation that did not gathered all opinions

Prime Minister Viorica Dancila has replaced 13 of the 15 civil society representatives in the Economic and Social Council (CES). Following a decision published on… Mai mult

West Quadrilateral / Four counties joined to directly access European money for major infrastructure projects

From right to left: Gheorghe Falca, Nicolae Robu, Ilie Bolojan. Emil Boc, Mayor of Cluj Napoca, misses Four mayors from the West of the country… Mai mult

Chamber of Deputies / PSD loses UDMR’s support for amending Offshore Law, draft returns to committees for a week

The plenum of the Chamber of Deputies decided on Wednesday to resend the Offshore Law to committees after a seemingly surprising request of UDMR leader… Mai mult

Government amended insolvency law. Guarantees given by Minister Teodorovici

The Government adopted on Thursday the draft Emergency Ordinance for amending and supplementing legislation in the field of insolvency, which provides among other things for… Mai mult

Romania ranked 7th in EU in terms of renewable electricity

Unlike the vast majority of the economic areas, in which we are at the bottom of the European ranking, Romania succeeded to rank 7th by… Mai mult

Resounding failure of PSD lobbying action in Brussels

There are clear signs that the lobbying action launched by the ruling coalition in Brussels in favour of the government in Bucharest will end with… Mai mult

MFP: Romania does not endorse a separate budget for Eurozone and rejects the idea of ​​taxing financial transactions

Romania does not endorse a separate budget for Eurozone and rejects the idea of taxing financial transactions, Minister of Public Finance Eugen Teodorovici said after… Mai mult

Finance Ministry wants to change rules for insolvency: state could also register claims after procedure is launched

Companies’ possibility to avoid paying creditors (and in particular the payment of tax receivables) simply by declaring their insolvency would be drastically limited, according to… Mai mult

Phil Hogan: Swine fever in Romania has an impact on neighbouring countries and EU trade in pigs

Prime Minister Viorica Dancila, European Commissioner Phil Hogan and Agriculture Minister Petre Daea The swine fever epidemics in Romania has an impact on neighbouring countries,… Mai mult

Infrastructure projects lost EUR 41.5 million following budget amendment. In what projects cuts have been made

Despite the assurances that Dancila government is concerned and intensely working on the road infrastructure projects, at the budget amendment the Transport Ministry has cut… Mai mult

European Parliament have decided to adopt in October a resolution on the rule of law in Romania

Leaders of the political groups in the European Parliament have decided to adopt in October a resolution on the rule of law in Romania. The… Mai mult

"Romania's buffers have deteriorated, the country is less prepared for a negative shock" - IMF will reduce economic growth estimate

Romania will be less prepared if the economy is hit by a negative shock, as the structural deficit has been deteriorated - IMF representative for… Mai mult

Premiere: CSAT asks Finance Ministry to amend amendment - session suspended until Government comes with a draft that does not affect budgets of secret services

President Klaus Iohannis suspended on Tuesday the CSAT meeting for discussing the budget amendment, as there was no consensus on the budgets of institutions from… Mai mult