Romania is a middle-income southeast European country with a population of 22 million. The population is 90 percent Romanian with a 7 percent Hungarian minority (mostly in Transylvania) and a 2.5 percent Roma minority. The economy remains on the internal periphery of the expanded European Union (EU). The share of the urban population is low for Europe, at under 60 percent.
Romania achieved its independence from the Ottoman Empire in the mid-19th century. The internal democratic tradition was weak. Romania spent most of the 20th century as an authoritarian state. Like other southeastern European countries, it remained caught between the interests of the great powers. It joined the winning side in World War I, gaining significant territory at the expense of its neighbors. It was less successful in World War II, joining Nazi Germany in 1941. In 1944, an internal coup enabled Romania to switch sides.
After World War II, the Communist regime pushed forward a nationalist industrialization program. It fell out with the Soviet Union in the 1960s as the government favored the local coal industry, iron and steel, and engineering, pushing, as they saw it, Romanian national interests. Romania was courted by the West in the Cold War. However, in the 1980s, under the leadership of the dictator Nicolae Ceausescu, economic difficulties grew. The regime responded with isolation and repression. This led to Romania’s acquiring something of a pariah status.
Although the fall of communism involved more bloodshed than in other Soviet bloc states, the amount of political, social, and economic change was initially limited. Key figures and groups in the old regime established strategic positions in the new, pocketing former state assets. Poverty and inequality, already considerable in 1989, intensified and Romania came to be seen as a cause of European concern. Outmigration was considerable.
Romanian industry was inefficient, heavily reliant on “dirty” methods of production that had given rise to major environmental problems. A significant share of the labor force remains trapped in low-productivity agriculture. The economy slumped in 1992, began a weak recovery to 1996, and then slumped again in 1999. Over the decade as a whole, gross domestic product (GDP) growth per capita was negative. However, in the new century recovery and macroeconomic stabilization began, and strong growth has been sustained to date. Inflation was brought under control and reduced to around 6 percent and unemployment to around 5 percent. Romania is divided into 41 counties and the municipality of Bucharest, the capital. There is considerable regional inequality.
The country’s physical infrastructure needs improvement and the hope is that this can be done using EU structural adjustment and cohesion funds. Romania’s dissident position under communism led to engaging with the wider world economy at an earlier stage. But the difficulties of the 1980s and 1990s led to it falling behind. Romania joined NATO in 2004. It only joined the European Union, with Bulgaria, in 2007. As with a number of other transition countries, the Romanian political class also looked to Washington, strongly supporting the United States in Iraq. Brussels, worried about the levels of corruption and crime, insisted on reform as a condition of EU accession. However, membership of the EU appeared to lead to a degree of relaxation and there were also new sources of funds to contest. Infighting broke out, including a failed attempt to impeach the president. Transparency International still considers that Romania has one of the worst corruption scores in the expanded EU.
Today, Romanian trade is focused on western and central Europe. Seventy percent of exports go to the EU 27, with Italy and Germany taking around a third. Exports include machinery, equipment, metals, textiles, and footwear. However, Romania also has links to the east and southeast. Constantza is the largest Black Sea port and a significant transshipment point for legal and illegal goods.
Foreign investment was weak in the first decade of the transition. It took off from 2004 as the global and local investment climate turned positive. Western companies like Renault, Nokia, Vodaphone, and Carrefour have invested in Romania, as has LUKOIL from Russia and the Indian company Ranbaxy Laboratories. Ford is creating a major base for southeastern Europe in Romania, and Bucharest is the location of Microsoft’s Global Support Center.
Ironically, Romania has been forced to present itself as a low-cost competitor within the EU, relying on its low wage costs and low, flat-rate corporate and income taxes to attract multinational investment. To some extent, this is a return to what was once seen as a failed pre-Communist past. Comparative surveys suggest that Romania is now mid-range in terms of the difficulties of new business start-ups. However, whether this is sufficient to sustain the strong and sustained growth necessary to close the gap with the West, even Europe, is doubtful.
- Liz David-Barret, Adam Jolly, and Alica Henson, Romania’s Business Environment (Global Market Briefings, 2008);
- Tom Gallagher, Modern Romania: The End of Communism, the Failure of Democratic Reform, and the Theft of a Nation (New York University Press, 2008);
- International Business Publications, Romania Investment and Business Guide (International Business Publications, USA, 2007);
- Padraic Kenney, The Burdens of Freedom: Eastern Europe Since 1989 (Fernwood, 2006);
- Dimitris Papadimitriou and David Phinnemore, Romania and the European Union: From Marginalisation to Membership (Routledge, 2008);
- Romania National Institute of Statistics, www.insse.ro (cited March 2009);
- Ramona Samson, Cultural Integration Model and European Transformation: The Case of Romania (Copenhagen Business School, 2006);
- Debbie Stowe, Romania (Kuperard, 2008);
- Kurt W. Treptow, A History of Romania (Center for Romanian Studies, 2007);
- David Turnock, Aspects of Independent Romania’s Economic History With Particular Reference to Transition for EU Accession (Ashgate, 2007).
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