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3.5 FDI Location

Useful data for tracking foreign direct investment and location decisions in Romania is provided by the Oficiul Național al Registrului Comerțului (ONRC 2008 a: 23), which provides an overview of the number of registered companies with foreign participation between 1991 and 2007 on county level. The table includes also the amount of subscribed capital in the national currency, US-$ and Euro.

Image 3.31: Location Decisions for Foreign Direct Investments in Romania I

Foreign Direct Investment in Romania - Location Decision

Source: ONRC 2008 a, INS 2008, own calculations, own graphic

A comparison with former reports – the earliest report is available for the year 2001 – suggests that it were continuously the same counties which attracted the lion’s share of foreign participation firms. There is – of course – a strong relationship between FDI in monetary terms and economic performance (GDP per capita) in Romania but it diminishes once the driving forces Bucharest and Ilfov are removed (cf. Figure 3.31 and Figure 3.32). The main outliers are the three counties Călărași, Argeș and Galați. Argeș e.g. is dominated by Automobile Dacia SA, Renault and some other suppliers of the automobile industry such as Draxlmaier (cf. NewsIn 2008: 90) or Galați by a huge steel combination and power central.

Image 3.32: Location Decisions for Foreign Direct Investments in Romania II

Foreign Direct Investment in Romania - The Location Decison

Source: ONRC 2008 a, INS 2008, own calculations, own graphic
Image 3.33: Business in Romania – Location and Investment Decision I

Investment Dcision and Location Decision for Business in Romania

Source: ONRC 2008 a, INS 2008, own calculations, own graphic

On the contrary, the number of firms with foreign participation per capita in Romania is very unevenly distributed among the counties and a much better predictor for economic well being and attractiveness. Additionally, it provides a relation which remains perfectly stable after the extreme cases like Bucharest and Ilfov are removed (R² = .64), thus the data fit remains even better as of the monetary indicator including Bucharest and Ilfov.

Image 3.34: Doing Business in Romania: Drivers of Investment and Location Decisions

Investment in Romania - What fosters Business in Romania?

Source: ONRC 2008 b; INS 2008, own calculations, own graphic

Thus, local economic performance and attractiveness to FDI in Romania are better expressed by the number of firms with foreign capital on the local level (NUTS-III), not by the money included. This is quite reasonable as some lagging counties attracted large amounts of foreign capital due to the privatization of the heavy industry (such as the steel and energy sector or the automotive industry). Then again, these activities do not guarantee prosperity for the county as a whole nor seem these counties to be too attractive for other kinds of investors, yet. The pattern persists and even stabilizes with regard to linearity if the total number of firms, both entirely domestic and with foreign participation is taken into account. The total number of firms is captured here again with data from ONRC (2008 b: 7) as registered companies between 1990 and 2007 and adjusted for county population size. A closer look on the counties Călărași, Argeș and Galați reveals now that economic activity is rather low and clearly below the mean what is also reflected in lower per capita GDP. Hence, the monetary large-scale investments there seem to be quite isolated.

Accordingly, regional disparities in terms of attractiveness to FDI in Romania on the local level will be measured henceforth as the number of firms with foreign participation (per capita), not in monetary terms. Likewise, overall attractivity to economic activity in general will be measured as from now on as the total number of firms registered per capita (cf. Figure 3.34). This is justified as the number of firms seems to be a better indicator for attractivity and economic performance in Romania than monetary flows, because the latter are distorted by isolated large-scale investments in heavy industries and energy sectors. This is also in line with findings from Kaminski & Ng (2004) and World Bank (2004) which underpinned the importance of SMEs for the Romanian economy and export performance.

Image 3.35: Business Activities in Romania – Location Decision Patterns

Investment Decision Patterns for Enterprise in Romania

Source: ONRC 2008 a, Eurostat 2008, INS 2008, own calculations, own graphic

An interesting observation to be made in this regard is the confirmation of several business press articles which describe foreign economic activity as concentrated in few economic centers, despite labor markets being swept clean and significantly higher salaries for qualified labor and sometimes even for unqualified labor.

One could of course argue that this relationship actually works the other way round. That is to say that per capita GDP is higher because of the higher (foreign) economic activity. But first, this notion would not explain why the respective counties were initially chosen (or avoided) by foreign investors as they were, second, already better developed before and third, the trend still persists as Figure 3.36 indicates. The registration pattern from 1991 to 2007 correlates almost perfectly with the new registration during 2007 (cf. Figure 3.37).

Image 3.36: Business Activity in Romania – Location Decisions

Location Decision and Investment Decision for Enterprises in Romania

Source: ONRC 2008 c, own calculations, own graphic
Image 3.37: Foreign Companies and Investments in Romania – Location Decisions

Foreign Direct Investment - Location Decisions in the Romanian Business Environment

Source: Commission Services (Ameco); figure taken from EC 2006 b: 5

The result of this concentration of economic activity is not only higher GDP per capita for the lucky counties but often also full employment and a sharp concurrence on labor resources. At the same time other counties still feature excess labor force and ought to have a higher MPK judged over their lower GDP per capita levels. Total economic activity and foreign economic activity are highly but not perfectly correlated. In particular, the relation does not seem to be a strict linear one (cf. Figure 3.38) even though also a linear model fits well (R² = .826).

Image 3.38: Economic Activity in Romania – Location and Investment Decision Patterns

Economic Activity in the Romanian Business Environment

Source: ONRC 2008 a, ONRC 2008 b, INS 2008, own calculations, own graphic
Academic Research paper and Study of the Economy of Romania and Romanian Business

As it seems, foreign economic activities react somewhat more sensitive on the business environment conditions on the local level than purely domestic activities. It remains to be investigated what actually drives FDI and domestic location decisions in Romania.


[1] This might be true in particular for the flourishing services sector in Bucharest and some Transylvanian counties. Call-centers, software and consulting companies just like marketing agencies (with international service) are relatively cheap to build up but may yield a higher income as many capital-intensive industrial activities.