This Country Economic Memorandum (CEM)sets a framework for a dialogue on inclusive economic growthand income convergence in Romania. Generous Foreign DirectInvestment (FDI) and other financial inflows lifted consumerdemand, built up key industries, modernized wholesale tradeand unleashed the movement of labor from low-productivityactivities like agriculture towards high-productivityactivities like manufacturing. Public and privateinvestments in education lifted tertiary educationenrollment from 12 to 23 percent. Preliminary calculationssuggest that this growth was shared even after the crisis,as the income of the bottom 40 percent of the populationgrew by 5.5 percent on average during the 2000-2011 periods,a pace slightly above the 4.8 percent growth in the incomeof all households and the 4.1 percent average growth.Achievements notwithstanding, there is little room forcomplacency. The report discusses the immediate constraintsto economic growth in areas where the short-term pay-off ishigh rather than covering all potential sources of growthfor Romania. Although these are only the initial steps toreignite growth, the challenges of addressing each of theseconstraints should not be underestimated. Tackling themeffectively demands a strong strategic vision, meticulousplanning, and policy coordination. A significant amount ofstrategic communication of the benefits of the outlinedreforms for the country will also be required since theroadblock to shaping and implementing these policies islikely to be vested interests, institutional inertia andlack of political consensus. In short, the crisis revealedthe weakness of Romania's past growth model: it wasbased to a large extent on consumption and short-termcapital inflows rather than on sustained productivityincreases in tradable sectors and it concealed significantinefficiencies in the public sector.
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