Resource information
This Country Economic Memorandum (CEM)
sets a framework for a dialogue on inclusive economic growth
and income convergence in Romania. Generous Foreign Direct
Investment (FDI) and other financial inflows lifted consumer
demand, built up key industries, modernized wholesale trade
and unleashed the movement of labor from low-productivity
activities like agriculture towards high-productivity
activities like manufacturing. Public and private
investments in education lifted tertiary education
enrollment from 12 to 23 percent. Preliminary calculations
suggest that this growth was shared even after the crisis,
as the income of the bottom 40 percent of the population
grew by 5.5 percent on average during the 2000-2011 periods,
a pace slightly above the 4.8 percent growth in the income
of all households and the 4.1 percent average growth.
Achievements notwithstanding, there is little room for
complacency. The report discusses the immediate constraints
to economic growth in areas where the short-term pay-off is
high rather than covering all potential sources of growth
for Romania. Although these are only the initial steps to
reignite growth, the challenges of addressing each of these
constraints should not be underestimated. Tackling them
effectively demands a strong strategic vision, meticulous
planning, and policy coordination. A significant amount of
strategic communication of the benefits of the outlined
reforms for the country will also be required since the
roadblock to shaping and implementing these policies is
likely to be vested interests, institutional inertia and
lack of political consensus. In short, the crisis revealed
the weakness of Romania's past growth model: it was
based to a large extent on consumption and short-term
capital inflows rather than on sustained productivity
increases in tradable sectors and it concealed significant
inefficiencies in the public sector.
