Economics (AS & A Level) · Oct / Nov 2022 · Paper 41 · Question 1

Romania’s economy booms Romania, like other former planned economies in eastern Europe has increased the amount of private enterprise and foreign direct investment (FDI) in its economy. Romania’s economy has boomed in recent years and compares favourably with economies in the European Union (EU) as indicated in Fig. 1.1. Germany EU Spain Poland Romania Italy 0.8 1.5 1.2 1.7 1.7 1.7 1.9 2.1 3.4 2.4 3.1 3.0 4.4 5.7 5.7 1.9 France UK 0 1 2 3 4 5 6 Q2, 2016 Q2, 2017 Fig. 1.1: GDP growth rates in selected European economies 2016, 2017 This economic boom has been characterised by the expansion of services and manufacturing sectors. In particular the high-tech industries have been very successful and are expected to double their contribution to GDP to 12% by 2025. The low wage rate in Romania was a benefit for foreign companies. For example, global car companies have, since 2008, invested US$1.4 billion in Romania’s car factories that has increased employment. After Romania joined the EU in 2007, many Romanian workers took advantage of the free movement of labour the EU allows. In 2008, 600 000 out of a population of 21.2m left Romania. In spite of its economic boom, Romania has failed to attract sufficient workers back and there is now a shortage of labour. The total population is lower than in 2008 at 19.4m. Unemployment was only 5.9% in 2017 compared with an average rate of 8.6% for the EU as a whole. Since 2015, the government has taken measures to boost the economy. It reduced sales tax from 24% to 19%, which increased consumer demand. It also doubled the national minimum wage providing a boost for both private sector and public sector employment. But there are also serious economic challenges. The gap between government income and spending has widened causing a rising budget deficit. The transport infrastructure remains poor. In a World Economic Forum report in 2016, Romania was ranked 128th out of 138 countries for the quality of its road network and 79th for its railway system. Sources: 1. Romania is poor man of the EU no more as economy booms, The Observer, 15 October 2017 2. Table 2.6 Private Sector Activity: ‘Transition Economics Two Decades On’, Gerard Turley and Peter J. Luke, Routledge 2011

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