REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART V:
because the level of per capita FDI stock and the share of high value-added manufacturing
exports are still relatively low compared to most of the recently acceded Member States.
The forecasts reveal that the financial crisis will slow down FDI in Europe’s developing
countries and will impact most on those countries that rely on foreign capital. There is
a particular cost associated with the slowdown for countries in Eastern Europe as they
depend on markets in the Eurozone for the flow of capital.
It should be taken also into consideration that Romania’s economic boom has come at
the moment of generating imbalances. High external borrowing has led to a rapid buildup
of external debt; widespread foreign currency lending has increased households’ and
companies’ balance sheet exposure; and high private sector dissaving was exacerbated by
rising fiscal deficits.
The financial crisis and its spillovers to the real economy through currency, trade, financial
and confidence channels has made the task of rectifying these imbalances ever more
urgent. To rebuild investor confidence, the government will need to ensure a credible fiscal
consolidation strategy which will be helped by the implementation of a medium-term
fiscal framework and by restructuring fiscal expenditure towards productive investment
(including through accelerated EU funds absorption).
References
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Blomström, M., E. Graham and Moran, T. (2004), The Impact of Foreign Direct
Investment on Development: New Measurements, New Outcomes, New Policy
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Blonigen, B.A. (2005), A Review of the Empirical Literature on FDI Determinants, NBER
Working Paper No. 11299, May
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Foreign Direct Investment
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