Firms, Institutions, and Governance
______________________________________________________________ 8.1 INTRODUCTION Romania is the eleventh largest country in Europe in terms of surface and has a population of around 22 million people. About 12% of them live below the poverty line, while two-thirds of the poor live in rural areas. About a third of its labour is employed in the primary sector; one of the highest in Europe! Of the remaining labour force 30% is employed in the secondary sector and some 38% in services. They contribute approx. 10%, 35%, and 55% of the GDP respectively. There are large differences in wages, but on average they are much lower than the EU27 average. Low compensation has fostered a climate of widespread corruption and lack of initiative (Ahrend and Martins 2003, p. 342). Also historically employees of large state-owned enterprises were compensated above the national average with salary increases driven by political rather than performance considerations. This made state-owned enterprises unprofitable and meant that extensive restructuring and redundancies had to be undertaken before they could be privatised. So far manufacturing growth, especially in industries such as clothing and footwear, has been mainly based on the lohn system of production.1 It is also to be noted that such light industries are the largest exporters, followed by machinery and equipment, basic metals, minerals, and chemical products. Although Romania’s overall development and growth record may be impressive (e.g. GDP tripled between 1995 and 2005) the country faces a chronic and rather worryingly growing balance of trade problem, which post 2003 has also involved...
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