WHY THE INCREASE OF THE PUBLIC INVESTMENTS DOES IS NOT AN ANTICRISIS SOLUTION IN ROMANIA?

The higher public investment during times of economic recession is sustained by most economists, starting with Keynes. However, this solution does is not working in economies characterized by a poor efficiency and by corruption in the management of public funds, such as in the case of Romania. Although in the period 2006-2009, Romania has spent the largest share of GDP for public investment (from EU-27 countries), however the multiplier was less than one, as we have estimated in this study. Using the impulse-response function specific to VAR models, we have observed that the impact of public investment on GDP is limited, which validates the lower efficiency of investments in the Romanian economy. We estimate that the level of the investment multiplier estimated for Romania is smaller than multipliers estimated by OECD (2009) for other countries from the Eastern and Central Europe (0.6-0.7 size on short term). Elasticity of GDP according to public investment is 0.013, ie increase investment spending by 1% causes a more growth by 0.013% over one year. Regarding the second equation, there was an immediate impact on investment spending of industrial capital goods production, the level of elasticity being 0.051. It results that public investment lead to higher increase of industrial production on short term, but to lower economic growth rate on long term. We believe that the main reasons for a lower efficiency of these public investments in Romania are following: the dependence of the projects’ objectives on the election cycle, as it generates a “new” prioritizing of the investments; the absence of transparency in the case of the public spending, this fact leading to budget allocations higher than spending made for the achievement of some projects; the absence of a multi-annual budget schedule which blocks the achievement of greater projects or the completion of the projects which have already been started; the money which has not been spent for investments according to the budget granting settled at the beginning of each year; most of the amounts have been wasted by using them during the last quarter of each year during the period 2005-2008.