The need for capital investment, which amounts to a level well above current economic possibilities, imposes as an objective condition the use of foreign capital in the form attracting direct capital investments. Investments are an important driving forcecapital, foreign direct investment, regions of development

Otil Maria Daniela

Parean Mihai – Olimpiu

English

Research Papers in Economics

490 
 
THE DYNAMICS AND STRUCTURE OF THE FOREIGN DIRECT INVESTMENTS IN 
ROMANIA 
 
P rean Mihai – Olimpiu 
Universitatea de Vest Timişoara Facultatea de Economie şi de Administrare a Afacerilor Str. 
Perstalozzi, No 16 mihai.parean@gmail.com 0722815590 
O il Maria Daniela 
Universitatea de Vest Timişoara Facultatea de Economie şi de Administrare a Afacerilor Str. 
Perstalozzi, No 16 otil.maria@yahoo.com 0746/088.388 
 
The  need  for  capital  investment,  which  amounts  to  a  level  well  above  current  economic  possibilities, 
imposes  as  an  objective  condition  the  use  of  foreign  capital  in  the  form  attracting  direct  capital 
investments. Investments are an important driving force for economic development. Foreign investments in 
Romania have oriented themselves depending on the accessibility and the areas potential, as well as the 
business mentality and tradition in the field. Also, another important factor of the location of foreign direct 
investment is the availability of highly qualified and cheap workforce. In the analyzed period of 2003-2009 
there has been an increase in the volume of foreign direct investments (FDI) in Romania. In terms of 
territory, they were directed mainly towards Bucharest-Ilfov, other development regions benefiting from 
important flows being the Center, South, South-East and West regions. 
 
Keywords: capital, foreign direct investment, regions of development 
 
Classification JEL: R11 
 
1. Introduction 
The need for foreign capital lies in the inability of their national economies to meet the need of 
capital for economic recovery and boosting investments. 
On the other hand, this need of foreign capital is amplified by the tehnological lag much behind 
of the industrial and production facilities in countries in transition. The enterprises technological 
renewal in these countries is placed in the foreground of short-term development strategies by all 
the  Eastern-Central-European  countries,  without  which  competitiveness  of  these  economies 
products become very precarious. 
Foreign direct investment can be defined as a lasting investment relationship between a resident 
entity  and  a  non-entity,  usually  involving  the  exercise  by  the  investor  of  a  significant 
management influence in the enterprise in which it has invested. 
Foreign direct investments are considered: paid-up share capital and reserves that are incumbent 
to a non-resident investor holding at least 10% of the subscribed capital of an resident enterprise, 
the loans between this investor and the enterprise he invested in, as well as the profit reinvested 
by him. 
The foreign direct investment regime and the movement of capital in the Romanian economy 
involves a sufficiently flexible framework, characterized by political incentives,  normative and 
institutional that interfere and interact positively with the general economic policy. 
Currently,  Romania's  policy  on  foreign  direct  investment  is  based  on  three  coordinates,  as 
follows: 
-Equal treatment for Romanian and foreign investors; 
-Free access to markets throughout the economy; 
-Minimal government intervention in economic activities. 
Foreign  investors  always  seek  that  particular  environment  where  domestic  investments  are 
successful. Romania still has natural resources, but it’s most important resource is the qualified 
staff or easy to qualify staff it holds. There  is however a lack of incentives to make people work 491 
 
(eg. Low wages). By adopting suitable policies it is possible to improve the performance, labor 
productivity. 
When Romania is taken into consideration as a possible location of their development, foreign 
investors take into account it’s offered advantages: 
-One of the biggest outlets in Central and Eastern Europe (over 21 million inhabitants  – the 
second after Poland); 
-Attractive positioning: allows easy access to countries of former USSR, the Middle East and 
North Africa, and it is at the crossroads of three European transport corridors; 
-Well-developed networks of mobile telecommunications systems GSM and NMT / LEMS; 
-Cheap  and  well  prepared  workforce,  having  serious  technological  knowledge  in  IT  and 
engineering; 
-Rich natural resources, including extremely fertile agricultural land, oil and natural gas; 
Important tourist potential. 
Foreign investments in Romania have oriented themselves depending on the accessibility and the 
areas potential, as well as the business mentality and tradition in the field. 
 
2. The dynamics of foreign direct investment in Romania 
Investments are an important driving force for economic development. Foreign direct investment 
can bring a substantial increase in productivity by bringing not only its own technology, but also 
the best practice. 
The fact that Romania joined the EU in 2007 has left companies more time to prepare. The 
business environment has become extremely competitive, and the Romanian companies have had 
to beat the big names in Europe. The good news is that Romanian big companies were more 
readily implanted in the Union, and the workforce had free movement. 
Accession  to  the  European  Union  has  brought  an  improvement  of  the  Romanian  business 
environment,  improvements  which  began  to  be  felt  already  in  terms  of  a  stable  legislative 
framework  and  the  existence  of  more  transparent  business  practices.  The  barriers  of  free 
movement  of  services  and  goods  have  already  been  eliminated  or  are  in  the  process  of 
elimination. 
In terms of improving the business environment, Romania has already started to become an 
attractive target for foreign investment. Attracting more foreign investment will provide quick 
and direct access to efficient management, to modern technologies, and new market segments. 
On the background of improving the investment climate, companies must induce massive shifts 
in production and export, with effects on competitiveness growth. Romanian industry must move 
from  mass production, based mainly on quantitative criteria, cost and reliability, to a highly 
customizable production based on quality. 
Lately there has been an increase in the volume of foreign direct investment (FDI) in Romania 
(Table no. 1), representing an increase of over 115% in 2005 compared to figures of 2003 and 
320% in 2007 compared to the same period. Foreign capital was more concentrated in the regions 
of Bucharest-Ilfov, West, South East Center, which had a positive effect on labor markets in 
these regions, creating permanent qualified work force and business development services (for eg 
firms specialized in employment). 
In 2003, 53.9% and in 2007 over 60% of total direct investments in Romania have been directed 
to the Bucharest-Ilfov region. The main recipient sectors are real estate transactions - business 
and housing - and financial intermediation (Bucharest) and food (Ilfov). However to be taken into 
account that some direct investment recorded in Bucharest correspond to physical investments 
located in other regions of Romania. For example, there was no connection found between the 
rate of growth of SMEs and FDI trends. 
   492 
 
Table No 1 
The structure of foreign direct investments until 2007 in Romania 
Development 
Region 
FDI balance at 31 
December 2003 
FDI balance at 31 
December 2005 
FDI balance at 31 
December 2007 
  Value 
(mil. Euro) 
Total %  Value 
(mil. Euro) 
Total %  Value 
(mil. Euro) 
Total % 
North-East  300,8  3,0  292  1,3  672  1,6 
South-East  1.107,7  10,9  1838  8,4  2.448  5,7 
South 
Muntenia 
846,1  8,3  1388  6,3  2.942  6,9 
South-West 
Oltenia 
360,5  3,5  745  3,4  1.379  3,2 
West  751,9  7,4  1.491  6,8  2.365  5,5 
North-West  676,9  6,7  1.257  5,8  1.907  4,5 
Center  644,6  6,3  1.610  7,4  3.541  8,3 
Bucharest-
Ilfov 
5.471,1  53,9  13.264  60,6  27.516  64,3 
Romania  10.159,6  100,0  21.885  100,00  42.770  100,00 
Source: NIS and NBR - Research statistics on foreign direct investment in Romania in 
2003 and 2007; 
 
Bucharest-Ilfov  region  attracted  more  than  60%  of  total  realized  FDI  in  Romania,  since  the 
capital city is the main pole of attraction of foreign investment, a fact confirmed by the large 
number of companies with foreign capital located here. Also, Constanta Port in turn acts as a pole 
of attraction for investors, most foreign investment in South East Region, focusing in the city of 
Constanta. 
The relatively high degree of economic development of the region of Bucharest - Ilfov reflected 
on the significant share (64.3%) foreign direct investment in 2007 (Figure no. 1). South East 
Region which receive special attractiveness which is the port of Constanta and the Danube ports, 
Galati and Braila. 
We observe the orientation of FDI mainly to Bucharest-Ilfov (64.3%), other development regions 
receiving significant FDI being the Center (8.3%), South (6.9%) South East (5.7% ) and West 
(5.5%). In terms of value after the capital subscribed, the Bucharest Ilfov region is followed by 
less and later industrialized regions (South-Muntenia and South-East). The explanation lies in the 
fact that in these regions many investment projects were made "from scratch" because of the lack 
or insufficiency of infrastructure specific to the economic environment. 493 
 
 
 
Figure No. 1. Division into regions of development of the foreign direct investments at 
31 December 2007 
 
The  western and north-western area of the country enjoys a relatively high share of foreign 
participation in firms capital, against the continuing backdrop of traditional trade and a zonal 
behavior  in  continuous  adaptation  to  the  international  business  environment.  Availability  of 
highly  qualified  workforce  is  an  important  factor  in  investment  location.  As  the  transfer  of 
productive  and  creative  activities  to  Romania  is  increasing  demand  for  highly  qualified 
workforce will increase. Regions that have managed to attract a significant volume of investment, 
as Western Region, are already facing difficulties in finding highly qualified workforce on the 
work market, especially in the technical and administrative fields. 
 
3. The structure of foreign direct investments on the main areas of activity and country of 
origin 
Investments were located mainly in manufacturing (32.9%) (its most attractive being metallurgy, 
food, beverages and tobacco, oil processing, chemicals, rubber and plastics, automobile industry 
and cement, glass, ceramics). Also, banking and insurance has attracted investment representing 
23.3% of the balance, retail and wholesale (14%), construction and real estate transactions (7.8%) 
and telecommunications (6.5%), other fields have percentages below 5% of total foreign direct 
investment. (Figure No 2) tangible and intangible assets with a balance at the end of 2007 of 
21.39 billion euros, representing 50% of total direct foreign investments, inducing a significant 
degree of stability of direct foreign investment. 
64.30% 8.30%
6.90%
5.70%
5.50%
4.50% 3.20% 1.60%
Bucharest Center South-Muntenia South-East West North-West South-West Oltenia North-East494 
 
 
Figure No 2. The structure of FDI balance at 31 December 2007 on the main areas of activity 
 
Orientation  of  foreign  direct  investment  towards  industry  is  due  to  advantages  offered  by 
Romania in this field such as lower land prices than in other countries in the region, developed 
infrastructure, skilled and cheap labor, the production capacity and tradition in this field. In the 
industry the foreign investments in the auto components industry had a great impetus. So several 
companies have completed or have expressed an intention to carry out investment projects in this 
area. 
 
Figure No 3 Breakdown by country of origin of foreign direct investment 
 
Top 5 countries ranked by the share of FDI held in balance in 2007 are Austria (21.4% of FDI 
balance at the end of 2007), the Netherlands 16.3%, Germany 11.7, France 8.8% and Greece 
(7.5%). 
 Years 2008 and 2009 led to increased flows of foreign direct investment attracted by Romania. 
In 2008, the flow of foreign direct investment attracted by Romania recorded a value of 9024 
32.90%
23.30%
14%
7.80%
6.50%
4.80%
4.50% 3% 3.20%
Manufacturing Financial intermediation and insurance Retail and wholesale
Construction and real estate transactions Post and telecommunications Extractive industry
Business services Electrical, thermal, gas and water Other activities
21.40%
16.30%
11.70% 8.80%
7.50%
6.10%
5.10%
4.70%
18.40%
Austria Holland Germany France Greece Italy Switzerland Cyprus Other countries495 
 
million Euro, increasing by 24.4% compared with the previous year. (7250 million Euro). Also 
according to the Romanian Agency of Foreign Investments (ARIS) in the first 2 months of this 
year foreign direct investment attracted by Romania recorded a  value of 1374 million Euro, 
increasing by 38% compared with the similar period a year earlier. (995 million Euro). 
 
4. Conclusions 
Romania remains an attractive and profitable destination for foreign direct investment, foreign 
partners decisions being influenced by the calculations of economic efficiency, including the low 
cost of higher qualified labor compared to other states. 
Location and extent of foreign investments in the development regions, as well as the loss of the 
competitive capacity from the enterprises in both domestic and external markets, due to moral 
and physical wear of the technologies (particularly in regions located in the eastern part of the 
country) and limited access to SMEs financing, is one of the major causes that led and lead to 
disparities between them. 
Foreign investments in Romania have oriented themselves depending on the accessibility and the 
areas potential, as well as the business mentality and tradition in the field. 
The western and north-western areas have enjoyed a relatively high share of foreign participation 
in firms capitals, against the continuing backdrop of traditional trade and a zonal behavior in 
continuous adaptation to the international business environment. The foreign capital was more 
concentrated in the regions of Bucharest-Ilfov, West, South-East, Center, which had a positive 
effect on labor markets in these regions, at creating permanent qualified work force and at the 
development of business services. 
 
Bibliography: 
1. Negri oiu, Mişu – “Development and foreign direct investment”, Expert publishing house, 
Bucharest, 1996; 
2.  ***,  Year  2008  –  Excellent  year  in  attracting  FDI  in  the  Romanian  economy, 
www.arisinvest.ro 
3. ***, Statistical research on foreign direct investments in Romania during 2003-2007; NIS and 
NBR, www.arisinvest.ro 
4.  ***,  Foreign  direct  investments  in  Romania,  2004-2007,  National  Bank  of  Romania, 
www.bnro.ro 
5. ***, Foreign direct investments in the first two months of the year 2009 – upward trend, major 
macroeconomic impact, www.arisinvest.ro 
6. ***, 2004 Activity Report, Romanian Agency for Foreign Investments, www.arisinvest.ro 

Activity Report, Romanian Agency for Foreign Investments,

Excellent year in attracting FDI in the Romanian economy, www.arisinvest.ro

Foreign direct investments in Romania, 2004-2007, National Bank of Romania,

Foreign direct investments in the first two months of the year

Mişu – “Development and foreign direct investment”, Expert publishing house,

Statistical research on foreign direct investments in Romania during 2003-2007; NIS and NBR,

THE DYNAMICS AND STRUCTURE OF THE FOREIGN DIRECT INVESTMENTS IN ROMANIA

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THE DYNAMICS AND STRUCTURE OF THE FOREIGN DIRECT INVESTMENTS IN ROMANIA

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