FOREIGN INVESTMENT IN ROMANIA Introd

FOREIGN INVESTMENT IN CONTEMPORARY ROMANIA

This research examines the effects on foreign investment and economic growth and development in contemporary Romania of selected economic factors. The economic factors of interest are price inflation within the Romanian economy, wage rates within the Romanian economy, and currency controls affecting the outward flow of hard currencies from Romania.

Romania Since the Socialist Collapse

When dictator Nicolai Ceausescu was overthrown in December 1989, the country was impoverished, Romanians generally were xenophobic, and the productive base of the Romanian economy had been eroded (Keay, 1990, pp. 52-54). Five years later, the Romanian economy continues to suffer from over-centralization, a dearth of middle-management expertise, a general ignorance of market-economy business methods, and an absence of initiative and responsibility among a majority of the country's populace (McPherson, 1994, pp. 59-69). Worse from the perspective of the average citizen in Romania is the fact that, as bad as the Ceausescu years may have been in an economic context, the present economy in Romania is much worse. Economic output is down from the Socialist period, prices are up from the socialist period, and the social welfare safety nets that were in place during the socialist ear have all but disappeared.

The state of the Romanian economy at the time of the socialist collapse, together with the absence of substa

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tern propaganda had also painted a picture that envisioned Western capital flowing into the country to fund the coming economic transformation. No one bothered to tell the Romanians, however, that no Western capital was going to be invested is the risk of the loss of that capital was high, and that such risk would be high until both the political environment and the economic environment within Romania was both transformed and stabilized. The Westerners were not going to be Romania's economic saviors. Rather, the Westerners were going to exploit Romania's low wage structure as soon as such activity assumed a relatively low risk. As is true of most dreams, things look different in the cold light of day. Instead of an economic boom in which the west supplied the capital and Romania supplied cheap raw materials and labor, Romanians watched as the country's GNP (gross national product) plummeted--by almost 30 percent in the 1990s--and inflation soared--by more than 300 percent in the 1990s (Zhang, 1993, pp. 8-9). Some of Romania's economic problems stem from naive optimism on the part of the Romanians about the way that western investors would behave in the post-socialist era, while a part of the country's economic problems are

Category: Foreign - F