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3.2.2.3 Romania's External Sector



A main export destination for Romania before the Revolution was Russia. However, the Russian Federation directly lost its predominant importance in both absolute and relative terms (about 22 % of total exports in 1991) to a share of a mere 1.16 % of total exports in 2006 (own calculations, INS 2008). Important export destinations among other SU-countries did not exist then, with the natural exception of the annexed Republic of Moldova (a large part of the former historical province Moldova).

In the last years trade relations seemed to have intensified again, especially with other former SU-countries, but to a relatively small degree (smaller than to other CEECs or even Turkey in both absolute and relative terms). The most important trading partner among former SU-countries is not surprisingly Moldova (27.6% in 2006 of all exports to this region), followed by the Ukraine (27.4%, i.e. 1.3 % of total exports), which is host to a large Romanian minority in the annexed parts of the Bucovina. Anyhow, the region’s share of total exports diminished during the nineties considerable. The traditional important trading partner Yugoslavia was due to the inner turmoil and UN bans less important during the nineties but regained some importance since 2003 (some 3 % of total exports in 2006).

Romanian Export Patterns

Image 3.8: Exports 1991 – 2006
Main trading partners for Romania's Exports

Source: INS 2008; own graphic, own calculations
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Main Romanian export and import destinations of today are to be found now within the EU.[1] Some 58.65 % of total Romanian exports were delivered to the EU-17 in 2006, further 11.87 % to the CEECs (just as for Romanian imports, see below). The first place among the EU-15 is held by Italy (17.94 % of total exports and 30.59% of exports to the EU-17 in 2006), followed by Germany (15.71 % of total exports and 26.78 % of exports to the EU-17) and France (7.5 % of total exports, 12.79 % of EU-17 exports). Spain[2] holds surprisingly only the sixth place after Great Britain, the Netherlands and Austria. Main trading partner for Romania among the CEECs was and still is Hungary with nearly 5 % of total exports and 41.6 % of exports towards the CEECs, followed on a lower level by Bulgaria and Poland. Another Romanian trading partner of risen importance seems to be Turkey, while the rest of the world even lost (relative) importance. Oversea Western Countries (such as Australia, Canada and the United States) hold a marginal share among Romania’s exports but exceeded – nevertheless – in most years even former Yugoslavia in both relative and absolute terms.

These developments are at first the result of several changes in Romania’s foreign trade policy. In 1992 Romania joined the EFTA. In 1993 the EU Association Agreement was signed and ratified in 1995. In the same year, 1995, Romania signed the Uruguay Round Agreement of the WTO and in 1997 Romania joined the CEFTA (cf. Scrieciu & Winker 2002: 14). While the EU Association Agreement had an immediate and strong positive impact in absolute and relative terms (cf. Figure 3.9), the impact of CEFTA seemed to be laggard and moderate (cf. Vass 2005: 26). Another driving force seems to be an increased competitiveness due to restructuring and a risen share of high quality FDI in Romania (cf. next paragraph).

Image 3.9: Total Exports to Selected Country-Groups 1991 – 2006
Exports of Romania in absolute terms

Source: INS 2008; own graphic, own calculations
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In absolute terms the first rise in exports of Romania could be recorded from 1993 to 1997, what seems to be driven by trade creation and trade diversion due to the European Association Agreement (cf. Figure 3.9), which included an extensive kind of asymmetrical preferential trading agreement (PTA; cf. Rault et. al. 2007). Afterwards Romanian exports stagnated on a somewhat higher level until 1999 but witnessed beginning in 2000 an unexpected strong and steady growth in all markets likewise. Export conditions did not really improve since 1996, overall EU-demand was stagnant and FDI-inflows, which were an important driver of export performance in other CEECs had been rather modest until this time (cf. Francis & Ng 2004). The Romanian exchange rate (cf. Figure 3.12 in chapter 3.2.2.4) had stabilized just in this moment after a period of heavy devaluation, which in turn not had been accompanied by a significant rise in Romanian exports and, hence, does not seem to be the main determinant of this development.

Drivers of the Romanian Exports

Overall, Kaminski & Ng (2004) ascribe the first wave of Romania’s export growth from 1994 to 1997 mainly to trade diversion effects and the abolishment of trade monopolies (the same might be true for Romania’s imports), while the second, less expected wave of growth after 2000 was the result of “an impressive progress in industrial restructuring” (ibid: 1) and a more diversified and competitive (capital- and skill-intensive) export offer (ibid: 10f.).

This development seemed puzzling as export performance in other CEECs was mainly driven by huge FDI-inflows and Romania performed worst until 1997 concerning FDI. Backed by findings of Damijan et. al. (2003) and Javorcik et. al. (2004) the risen export performance is found to be due to a large number of (small) foreign – mainly Italian and German – firms, an unexpected business friendly environment and significant knowledge-spillovers to domestic firms, which could observed only in few other CEECs; such as Czechia, Poland or Hungary (cf. Kaminski & Ng 2004: 14ff.).

This way, Romania managed to improve its export performance by expanding and diversifying the export share of capital- and knowledge intensive goods with relatively few FDI and to become a part of European production chains. As this development took place against the fallen import demand of the EU countries they expect this development to remain relatively stable even during times of recession (cf. ibid: 26). The World Bank assessment (2004 a: 25ff.) yielded a similar result.

Nonetheless, there still exists a gap to be closed “between endowment in high-skilled labor force and abundance of resources favoring agricultural production and the factor intensity of EU-oriented export basket” (ibid: 27) while low wages and a low tax burden (cf. BA-CA 2004: 6) remain main comparative advantages. In addition, the concentration in labor-intensive industries persisted despite some convergence of trade patterns toward the EU (cf. De Benedictis & Tajoli 2003).[3]

Romanian Import Patterns and Structure of Imports

Image 3.10: Trade Deficit and the Current Account 1991 – 2006
High imports of Romania lead to high trade deficits and a current account deficit in Romania

Source: INS 2008, IMF (BOP, WEO), own graphic
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Romanian import patterns do not differ much from export patterns concerning the weight of the trading partners (cf. Appendix 2 and Appendix 3). The single exception is Russia as an important supplier of petroleum and gas (cf. Bobocea 2005), thus featuring an increased weight among total Romanian imports. What differs is the total amount of imports. Romania has been a net importer since the very beginning of the nineties, with trade deficits of up to some –8 % of GDP during the nineties and further acceleration due to rising imports during the recovery period.

Romania’s Import Structure

Especially in the last years trade deficits, and hence, current account deficits, exceeded levels of –10 %. Romania’s trade deficit due to the risen import level has been and still is a main driver of the large Romanian current account deficits, which could partly be covered through FDI-inflows and large remittances from workers abroad. Another main driver of the Romanian current account deficit during the nineties was Government lending and in recent years a new wave of private credits, which – of course – are not covered by domestic savings.

Image 3.11: Import – Structure of Romania’s Imports in 2005
The Structure of Romanian Imports

Source: INS 2007, own graphic, own calculations and partly own classifications
Academic Research paper and Study of the Economy of Romania and Romanian Business

With the exception of “manufactured goods” (10 %) no category from Figure 3.11 yielded a surplus in 2005 as Romanian imports were higher than exports. This single surplus was only due to the subcategories of furniture, apparel and in particular clothing and footwear. Further, often modest surpluses were generated in the subcategories (according to SITC Rev.3) living animals, skins, oil seeds, vegetable oils, wood, ores, iron and steel (but not manufactures thereof), electrical energy, inorganic chemicals, fertilizers, non-ferrous metals and “other transport equipment”. The last category contains railway vehicles, air- and spacecraft, ships, boats and the like. In the Romanian case the surpluses in this category are probably generated by the railway sector and the shipyards at the Black Sea (cf. chapter 3.3.2). Improvements are to be expected for the machinery sector due to the success of the recent Dacia models (Renault) and the latest activities of Ford, which started in 2008, while the textile and apparel sector had to face a declining importance in recent years.

Footnotes

[1] Figure 3.8 and Figure 3.9 distinguished Malta and Cyprus from the CEECs what resulted in a somewhat untypical division of “EU-17” countries and the CEECs (without Romania).

[2] Spain is frequently estimated to be host to about one million of Romanian emigrants (cf. chapter 3.4).

[3] Two thirds of the exports in 2006 were “minerals, chemicals, basic metals, wood, clothes and footwear” (Georgescu 2007: 91).