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Tuesday, August 24, 2010

France vs Romania and Bulgaria, Take Two

It has been widely observed that Purchasing Power Parity (abbreviated as PPP, the method of estimation used in my previous posting), presents only one side of the complex realities of economic performance. It is always useful to look at both PPP and exchange rate-based measures (FX), if they are available.

World Development Indicators—the World Bank’s online global data bank—does not provide the FX-based estimate for per capita GNI, so I cannot do that with the numbers included in the graph used in my previous posting.

So I turned a more conventional measure, GDP. (This overstates the performance of those economies that have a significant number of multinational corporations operating abroad, and understates those on the receiving end.)

Since the French state is now deporting not only Romanian, but also Bulgarian Romanies—hence President Sarkozy has exhausted the list of EU-member, non-Schengen-citizens—I also included the figures for Bulgaria.

Here is the new graph, showing the per capita GDP figures for France, Romania and Bulgaria, for the entire period for which data are available for all three countries (1980 to 2008). For comparability and in order to be able to approximate relative global position, the figures have been converted into percentages of the world mean in the given year. (For a more detailed justification of this step, please read the relevant pages in my book.)

I have included three vertical bars as time indicators. The first one marks 1989, the collapse of state socialism in east-central Europe. The second indicates 2001, the year in which the visa obligation for Romanian and Bulgarian citizens was lifted by the powers that govern the common immigration management scheme of the European Union (affectionately referred to as Schengen-land). The third signals 2007, the year of the formal accession of Romania and Bulgaria to the EU.

Keep in mind that, even though they are supposedly citizens of EU-member states and don’t need to have visas to enter Schengen territory, holders of Romanian and Bulgarian passports are not entitled to stay longer than three months and are authorized to work in Schengen-land only under extremely exceptional conditions. Estimates concerning the admission of Romania and Bulgaria into the Schengen system vary; the earliest--and least realistic--suggests 2011.

Back to the graph. We can clearly see that the PPP technique yields consistently higher estimates to the richer country than the FX; otherwise, the two graphs representing France’s economic performance are by and large parallel. In other words, irrespective of the method of estimation, France’s economic performance shows a slump (a little over 20% of the world mean in FX and approximately 45% measured in PPP) since 2002.

1. Meanwhile, both Romania and Bulgaria seem to have recovered from their 10-15-year depressions that began before the collapse of the state socialist system in 1989. Like pretty much all other erstwhile-state-socialist states of east-central and southeastern Europe, they are showing a modest growth since the late nineties. We know it from other sources that this growth is almost entirely due to foreign direct investment (here is a graph indicating the dynamics of FDI to Romania during the early part of the 21st century.)

2. In other words, this growth is driven by multinational corporations that are not rooted in Romania or Bulgaria in any way. They are

3. anchored predominantly in the European Union, and

4. this modest investment boom is to a large extent in anticipation of full EU-membership (which came, as I have mentioned above, in 2007).

In essence, hence, most of this investment boom is export-led growth, producing at depressed wage costs for the EU market.

A couple of things happened as part of this process. First, there has been a spectacular increase in temporary labor out-migration from Romania, with neo-Latin western Europe as its main destination. As a result, Romania became a major recipient of workers’ remittances (it is second only to Spain in that regard within the EU). In 2007 and 2008, almost one-fourth of all workers’ remittances recorded in the European Union were sent to Romania (which has less than 5% of the EU’s population). In the same year, according to UNDP estimates, remittances represented approximately 5.6% to 5.7% of Romania's and Bulgaria's GDPs, respectively. Of the remittances to Romania, about nine-tenth came from the EU.

In other words, even without a labor permit regime that would at least allow, if not encourage, some of their labor force participation to take place in the formal sector, Romanian citizens have been very consistently present in the EU labor markets. This is a textbook case of informal labor market integration
. In this regard, Romania is quite exceptional among the erstwhile state socialist states, and my guess would be that language skills—the fact that Romanian is a neo-Latin language, just like Spanish, Italian, French and Portuguese (and these are the states whose labor markets have the highest presence of Romanians)--allows members of Romanian society a certain informal labor market integration in Mediterranean EU that is not available to Romania’s predominantly Slavic- or, for that matter, Finno-Ugric-speaking neighbors.

The economic crisis of the last two years made its mark on the informal labor markets of the EU as well. Within-EU remittances have dropped by an astonishing 24% between 2008 and 2009 according to Eurostat figures.

The Romanies constitute a unique group within the overall migrant population. Because of a number of complex factors, overt racism and discrimination even in the informal market, they appear to be less engaged in the labor force. They are also vastly more visible as an outsider group than non-Romani Romanians and Bulgarians, made even more conspicuous by the formation of makeshift shantytowns, making them easy targets for a President bent on “systematically evacuating the camps.”

By the way, and to conclude this over-long post, we should remember that the 300 euros paid as an incentive to each expelled Romani constitutes 11.7% and 10.5% of the annual per capita GDPs of Bulgaria and Romania, respectively—i.e., just over one month’s average income there. In contrast, it is 1.27% of the GDP/cap of France.

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cover page of the book

cover page of the book
image used for the cover design by Anannya Dasgupta