FDI in Romania: from low-wage competition to higher value-added sectors

Over the past four years, Romania has benefited from record FDI inflows, thanks to macroeconomic stabilisation, strong GDP growth, large-scale privatisations and the prospect of EU membership. However, privatisation-related FDI flows are slowing down since 2007, which have been an important source of capital inflows over the past decade. Furthermore, successive wage negotiations have driven up unit labour cost, affecting Romania's international competitiveness, especially in light industry, in favour of low-cost Asian countries. Faced with slowing FDI inflows and at the same time with large catching-up needs, it is time for Romania to step up efforts to attract investment in higher value added sectors, which are less dependent on low wages, by further improving the business climate, upgrading infrastructure and developing labour skills. Increasing external imbalances make the need for policy measures which ensure continued FDI inflows particularly acute.