REGIONAL DISPARITIES IN ECONOMIC DEVELOPMENT

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The development regions in Romania

The regional development has brought up the need for the implementation of the NUTS II statistics level system in the EUROSTAT nomenclature, in order to analyse and to monitor the disparities in the regional development. This system is undergoing further improvement. In each of the 8 Development Regions there have been established 8 Directorate General for Regional Statistics, in order to facilitate the analysis of the regional development process in our country. At present, the statistical data at regional level is relatively limited. In the framework of the technical assistance project "Support for regional socio-economic analysis for the National Development Plan" there has been accomplished a primary database which will be further developed in order to respond to the analysis exigencies of a Structural Funds Plan.

Interregional disparities in economic development

Apart from Bucharest, whose location is at any rate quite peculiar within the Country, economic growth has followed a broad west-east direction with proximity to western markets acting as a growth-spurring factor. Although statistical data show some vagaries over time due to local factors, it can be observed how economic growth has had a significant geographical component with underdevelopment concentrated in the North-East bordering Moldova, and in Southern regions along the Danube. Underdevelopment appears as mostly correlated with unemployment and the importance of rural activities, as well as with FDI attraction capacity. Table below provides an overview of regional development summarising key information on economic variables.

Key indicators on regional development in Romania (national average = 100)

Source: Statistical Yearbook of Romania, National Office of Trade Register.

Particularly, the North-East Region suffers from both its traditional heavy dependence on agriculture and its proximity to the border with Moldavia and Ukraine. To the same extent, the situation applies to the South-Muntenia Region, heavily depending on agriculture and hindered by the Danube acting as a barrier to cross-border trade. The western and central parts of the country have benefited more from their proximity to western markets and from their historically lower dependence on the primary sector. So far, they have also benefited comparatively more from foreign direct investments.

In spite of insufficient studies on regional disparities, we can observe that, along with the reduction of the state sector in economy, the interregional disparities have grown and worsened, with a tendency to become dominant in the Romanian reality.

GDP and labour force productivity evolution by Development Regions, 1998-2000

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Source: Calculus on the basis of data provided by the National Institute of Statistics

The comparative analysis of the GDP evolution in the period 1998-2000, even if short, reveals a raise with approx. 40% for Bucharest-Ilfov Region, while in the other regions the increase in the GDP is below 10%, or even stagnating (South-West Oltenia Region). The dynamics of the labour force is remarkable in Bucharest-Ilfov (50%), followed by Centre Region (13%), whilst in South-Muntenia Region stagnates. This situation shows that the relatively significant investments in Bucharest-Ilfov lead to an increase of the interregional disparities, which could lead in time to an overheating of the regional juncture, with undesirable consequences on the labour market, as well as the exaggerated price increase, including land prices, etc.

Among the major factors, which lead to the acceleration of regional disparities, are:

the location and the dimensions of the internal and foreign investments;

the loss of competitive capacities on external and internal markets;

special factors:

specialised workforce;

infrastructure potential;

proximity of raw material areas;

proximity of internal and external markets;

disadvantaged areas which benefit from governmental or international programmes;

areas benefiting from individual capital transfer, from people working abroad.

Further, there is a presentation of the main problems in the regional development, which have been taken into consideration at the elaboration of the regional development strategy in the NDP, in Chapter II. A more detailed analysis of the economic and social problems at a regional level has been undertaken in the previous chapters of the NDP analyses. As well, the Regional Development Plans elaborated under the coordination of the RDAs by each Development Region provide detailed economic and social analyses, both at regional and at intra-regional level, which have helped at the identification of the main interregional disparities and at the grounding of the national regional development strategy of the NDP.

Urban-rural disparities

Even though Romania has a dense urban network, with many urban centres that represent potential economic growth poles at regional level, there are few economic links between the urban centres and the surrounding areas, because they have developed independently one from another. As well, the urban transport system is not always favourable for the strengthening of the relations and the contacts between counties. As a result, even today we cannot say that there is a regional labour market in a mono-industrial towns, which explains why a shock on the labour market in a mono-industrial town has frequently led to the workforce migration towards the rural areas in the same county, where they undertake subsistence activities in farms, or towards Bucharest. Migration towards other more developed urban centres in the same region has been much lower.

Only recently appeared local systems in the labour market as a result of the increased specialization in the manufacturing industry. The increase of the local workforce markets has as a consequence, besides the increase in the training demands, a sustained monitoring in order to evaluate the effects at a regional level.

Source: Ministry of European Integration

As a consequence of the mostly positive economic evolutions in the West and Centre of the country, the urban population in these areas has a higher share, while the North-East, South-Muntenia and South-West-Oltenia Regions have a predominant rural population; the two large "poverty pockets" are located here. The South-East Region, with a general more reduced population density, concentrates a high number of inhabitants in a few big urban centres.

The evolution of the rural population

Source: National Institute of Statistics

The fluctuations in the population evolution are a consequence of the migration of the working population - especially the youngest - towards urban areas, in search of better-paid jobs, better infrastructure and a more interesting and attractive life standard. The migration towards the rural areas is met at the population over the age of 50-60, especially the ones from the restructured state owned enterprises, which have not succeeded to re-qualify in jobs needed on the labour market, thus being forced to return to the rural areas where they undertake activities ensuring their subsistence.

Disparities in the occupational level

After 1990, the unemployment has suddenly raised in all regions of the country, but the highest unemployment rates have been registered in the fragile economy regions, industrialised in the '60s-'70s: North-East, South-East, and the lowest ones in Bucharest-Ilfov and West-Romania.

In 2000, the highest unemployment rate was registered in North-East and South-East Regions, and, further more, the unemployment has almost reached the same level in South-West Oltenia, West-Romania and Centre Regions, as a consequence of the mining and heavy industry restructuring, which has affected the big state owned enterprises in these regions.

The unemployment decrease after 2000 can be explained through the high degree of retirements, the work abroad, the work in the underground economy, but also through the fact that most of the long-term unemployed are not registered at the workforce departments.

The evolution of the unemployment rate by regions and years

Source: National Institute of Statistics

The map of unemployment by regions and counties plastically underpins the penetration of the foreign capital from the West of the country. The areas with the highest unemployment rate correspond to the 11 areas identified as industrial decline areas (NDP 2000-2002), with unbalanced economies, where the shock of the loss of competitivity has not been overtaken by a foreign or internal satisfying capital flows. This is due to inadequate transport and public utilities infrastructure, as well as inappropriate qualification of the local workforce, which has not undertaken a re-qualification process. 

Source: Ministry of European Integration

Disparities in infrastructure endowment

This differentiated path of economic growth has resulted in a self-reinforcing phenomenon also through fiscal policy mechanisms. The total capital investment in areas lagging behind has substantially decreased as shown in table below also due to substantial decline in public expenditure owed to fiscal problems. This is turn has hit investment in public infrastructure hindering the upgrade and maintenance of basic public utilities. As shown in table below, the number of Romanian localities with access to water and public sewerage has not substantially increased over the last few years. On the contrary, a number of small and medium towns in Romania still have difficulties in providing basic public utility services, which is a non-negligible obstacle to any business attraction strategy.

The evolution of localities connected to drinking water networks, by regions

Source: National Institute of Statistics

The North-East and South-East Regions, the most underdeveloped regions in the country, have the lowest number of localities connected to the drinking water network. Even more, in the South-West Oltenia Region this number is in decline because of parts of these networks are not functional anymore being old and deteriorated.

The analysis of the endowment of localities with public sewerage, underlines a more critical situation compared to the access to drinking water. The share of localities with sewerage networks varies between 2.5% and 6%, (with the exception of Bucharest-Ilfov Region) in the total number of localities. In many cases, the networks have not been rehabilitated for a long period of time; they are incomplete or even not functional anymore. The lack of basic infrastructure for providing the localities with drinkable water and used water treatment does not only affect the quality of life and the environment production, but also represents a more and more important element in the location of new investments.

Evolution of localities connected to public sewerage network, by regions

Source: National Institute of Statistics

Disparities in the educational and qualification level

An important factor in the localisation of investments is represented by the existence of superior qualifications. As the productive and creative activities transfer towards Romania intensifies, the demand for these high qualifications will grow. The regions where an important amount of investments is concentrated (West-Romania, North-West, Bucharest-Ilfov and Centre) are already confronted with difficulties in the recruitment of the work force with the adequate qualifications for the labour market in technical, administrative etc. fields.

The scholar population has diminished at all levels of education[1]. The causes are multiple: the fall in the birth rate (and thus of the scholar population), but also the fall in the interest for school for various reasons (the most important would be, according to some studies, the precarious material situation of the parents and the young people desire to help their families working as unqualified workers, work opportunities in the underground economy, occasional incomes etc.).

Even if at high-school level the number of pupils has constantly decreased with the same rate in all regions (approx. 10%), the vocational apprenticeship presents a high diminution tendency - approx. 25% - especially in the regions renowned for the good vocational education of the workers (Centre, North-West and Bucharest-Ilfov). In this case, one of the explanations could be the fact that many of the new enterprises have created their own specialized qualification courses. This is why there is a need for the up dating and for the modernization of the vocational education, so that the new entrepreneurs could find young people with basic literacy, on which can be added further specializations. The attraction of investors could be real and profitable not only through declarative qualifications of the young population, but also through internationally recognized qualification programmes.

As far as it regards the post high-school and foreman education, we can notice an overall growth, in the number of students, sometimes important (North-East - 60%, Bucharest-Ilfov 40%, South-Muntenia 30%), a situation caused by the economic reality of a society in which, as in other countries, the specialized knowledge and the top positions ensure a better retribution than the ones with medium qualifications.

Due to this situation, the NDP pays a special attention to the measures and programmes addressed to the education, in order to modernize it and to ensure the qualifications at international standards.

The evolution of the pre-universitary education

Source: National Institute of Statistics

It is expected that the implementation of the TVET programme, financed by PHARE ESC, which has started in 2001, to determine a raise of the scholar population in the educational type, together with the integration of professional formation in the secondary educational level.

Disparities in attracting foreign direct investments

In Romania, foreign investments are orientated based on the accessibility and the potential of the region, and the mentality of the businessmen and the tradition in the field. Bucuresti-Ilfov Region ranks the first, as the city of Bucharest is the main pole of attraction for foreign investors. In the South-East Region, the harbour of Constanta has the same role in attracting foreign investments, the most part of them being concentrated in the city of Constanta.

The lack of a transport and business start-up infrastructure in the small and medium cities hinders their development as polarization centres, because the investment costs in these areas would be rather high.

In the West and North-West areas, a significant share of enterprises' capital has foreign participation due to the continuous traditional exchanges and to the business behaviour of the regional economic agents continuously adapting to the international business environment.

The privatisation of enterprises with low possibilities of working capital attraction, modernisation, limited or lack of financial reserves, inexperienced management and business plans, led to freezing and failures, debts, market loses, etc.

The situation of the enterprises with foreign capital participation and subscribed stock capital, by economic development regions, between 1991 and 2002

Source: National Office of Trade Register

In Bucharest-Ilfov Region are located most enterprises with foreign capital participation and subscribed stock capital in total enterprises (over 50%). Regarding the number of enterprises with foreign capital participation, West-Romania, North-West and Centre Regions follow in rank; whereas, regarding the subscribed stock capital Bucharest-Ilfov Region is followed by the regions that are less and later industrialized (South-East and South-Muntenia Region). The reason for the above described situation relies in the fact that in the SE and S regions many enterprises were built "green field", because of insufficient economic structures.

After year 2000, the concentration of foreign investments phenomenon in the mentioned regions was strengthened (Bucharest-Ilfov, West-Romania, North-West, Centre Region). Even now, in the North of West Region and in Bucharest, where the local labour force has appropriate qualifications, it becomes insufficient, so that the newly created firms have to either attract persons from other local firms or from other regions, through specialized firms that implies the salary increase, with consequences on competitiviness.

The complicated economic situation and the effects of globalisation, determine many foreign societies to intensify their studies on Romania's labour market and consumption.

The growing importance of Bucharest in development terms

One of the most striking features of Romania's economic growth over the last ten years has been the growing importance of the Bucharest area in development terms. This is in line with a well-known trend affecting all transition economies, but it is even more evident here due to the large size of the country in both population and territory terms. With some 8.8 % of the population, Bucharest accounts for 21% of the Country's GDP and 20% of all Romanian SMEs are registered there and the capital has attracted 51.1% of total foreign investment. The highest salaries, services and prices levels characterize Bucharest. The demand for qualified labour force operates as a vacuum. Therefore, correlated with the opportunities offered by the capital - the city life standard, as well as the prestige, this labour force demand drives to a high migratory balance, especially for the very well qualified persons.

The share of Romanian University Students making their degrees in the capital has increased from 354,448 in the school-year 1996/1997 to 582,221 in the school year 2001/2002 and research and development opportunities are increasingly to be found there. Significantly enough Bucharest development has not had any significant spillover in neighbouring counties. Some of Romania's most underdeveloped counties are still to be found in the immediate surroundings of the capital city. We can notice here a selective development of the outskirts areas, especially the North area, where the land and dwelling prices exceed a few times the prices in the other areas of the city.

Intra-regional disparities

One of the specific features of regional development in Romania is the mosaic-like structure of economic development at the sub-regional level. Practically, in all regions there are fairly developed counties, which co-exist, with rather underdeveloped ones.

It has to be underlined that there are major disparities inside the development regions, where the agricultural counties coexist with the developed ones. The phenomenon extended as the result of economic restructuring impact on mono-industrial areas, whose population was affected by unemployment after the closing down of unprofitable SOEs. Traditionally, these include border areas, namely the areas at the Moldavian and Ukrainian border and those alongside Danube.

The different causes of intra-regional economic and social disparities determine unpredictable future developments. There are many counties were a single type of economic activity is predominant, mainly SOEs, that employs a high share of the employed population, in this non-agriculture activities. This situation could further generate real shocks on the labour market.