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The USV Annals

of Economics and

Public Administration

VOLUME 15, SPECIAL ISSUE, 2015

Editura Universităţii “Ştefan cel Mare” din Suceava

The USV Annals of Economics and Public Administration Volume 15, Special Issue, 2015

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EDITORIAL BOARD:

Editor‐in‐chief: Carmen NĂSTASE Executive editor: Adrian Liviu SCUTARIU Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Florin BOGHEAN, Mariana LUPAN, Ovidiu Florin HURJUI, Simona BUTA SCIENTIFIC COMMITTEE:

Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania Paolo ANDREI, University of Studies in Parma, Italy Stefano AZZALI, University of Studies in Parma, Italiy George P. BABU, University of Southern Mississippi, USA Christian BAUMGARTNER, International Friends of Nature, Austria Grigore BELOSTECINIC, ASEM, Chi şinău, Republic of Moldova Ionel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, Romania Aurel BURCIU, „Ştefan cel Mare” University of Suceava, Romania Gheorghe CÂRSTEA, Academy of Economic Studies, Bucharest , Romania Slobodan CEROVIC, Singidunum University, Belgrade, Serbia Simion CERTAN, State University of Chişinău, Republic of Moldova Carmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, Romania Liliana ELMAZI, Tirana University, Albania Manuela Rodica GOGONEA, Academy of Economic Studies, Bucuresti, Romania Cristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, Romania Elena HLACIUC, „Ştefan cel Mare” University of Suceava, Romania Elena IFTIME, „Ştefan cel Mare” University of Suceava, Romania Marian JALENCU, State University of Chişinău, Republic of Moldova Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland Alunica MORARIU, „Ştefan cel Mare” University of Suceava, Romania Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania Carmen NĂSTASE, „Ştefan cel Mare” University of Suceava, Roman ia Alexandru NEDELEA, „Ştefan cel Mare” University of Suceava, Romania Ion PÂRŢACHI, ASEM, Chişinău, Republic of Moldova Rusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, Romania Abraham PIZAM, University of Central Florida, Orlando, Florida Ion POHOAŢĂ, „Alexandru Ioan Cuza” University of Iaşi, Romania Gabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, Romania

Gheorghe SANDU, „Ştefan cel Mare” University of Suceava, Romania

Petru SANDU, Elizabethtown College, Pennsylvania, USA Doru TILIUŢE, „Ştefan cel Mare” University of Suceava, Romania Viorel ŢURCANU, ASEM, Chişinău, Republic of Moldova Diego VARELA PEDREIRA, University of A Coruna, Spain Răzvan VIORESCU, „Ştefan cel Mare” University of Suceava, Romania Marian ZAHARIA, Petroleum‐Gas University of Ploiești, Romania Cover design & graphic layout: Adrian Liviu SCUTARIU Contact: Faculty of Economics and Public Administration „Ştefan cel Mare” University of Suceava Str. Universităţii nr. 13, Corp H, Birou H105, 720229 SUCEAVA, ROMANIA Phone: (+40) 230 216147 ext. 297 E-mail: [email protected] Journal web site: www.annals.seap.usv.ro Faculty web site: www.seap.usv.ro University web site: www.usv.ro

Întreaga răspundere asupra conţinutului articolelor publicate revine autorilor. The entire responsability for the content of the published articles rests with the authors.

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CONTENTS

SECTION 1

ECONOMY, TRADE, SERVICES ............................................................................................................................. 5

GLOBALIZATIONOFECONOMY–PREMISESANDEFFECTS.............................................................................................................7FlorinaBRANANTHROPOGENICPRESSUREONFORESTSINROMANIA...............................................................................................................12IldikoIOANCarmenValentinaRADULESCUPOTENTIAL PROBLEMS OF GLOBAL SCIENTIFIC RESEARCH, TECHNOLOGICAL DEVELOPMENT ANDINNOVATION.........................................................................................................................................................................................................19GabrielNĂSTASELuanaFlorentinaPASCUBogdanPASCUCHANGESINTHEFOREIGNTRADEOFROMANIANREGIONS–ASHIFT‐SHAREANALYSIS.........................................27Mihaela‐NonaCHILIANMarioaraIORDANLOCALDEVELOPMENTINNORTHESTREGIONTHROUGHACTIVITIESINITCDOMAIN.................................................37DanielaENACHESCUTHE UNDERGROUND ECONOMY FROM THE PERSPECTIVE OF THE TRIAD ECONOMICS, SOCIOLOGY,PSYCHOLOGY.........................................................................................................................................................................................................45CorneliuSorinBAICUCristianValentinHAPENCIUCTHE EXTENT TO WHICH DEVELOPING COUNTRIES ARE INVOLVED IN INTERNATIONAL FINANCIALFLOWSANDTHEMAINEFFECTSONECONOMICDEVELOPMENT..............................................................................................................55CarmenBOGHEANPOTENTIALOFSMARTSPECIALIZATIONOFCLUSTERSINROMANIA.....................................................................................62LilianaSCUTARUCONVERGENCEOFREGIONALDEVELOPMENTINTHEEUROPEANUNION..........................................................................71MarcelaCristinaHURJUIANANALYSISOFUNEMPLOYMENTINTHECOUNTRIESOFEASTERNANDCENTRALEUROPEINTHECONTEXTOFE.U.ADHERING..............................................................................................................................................................................................80AdrianLiviuSCUTARIUDIVIDENDPOLICY,SIGNALINFORMATIONFORTHECAPITALMARKET................................................................................87AngelaNicoletaCOZORICIBREAKEVENDETERMINATIONINENTREPRENEURIALDECISION...........................................................................................95SeverianVlăduțIACOBMIGRATIONEFFECTSONTHEEDUCATIONALENVIRONMENT................................................................................................101LuminițaCORBUIonela‐DanielaGĂITANTHEEUURBANAGENDACHALLENGESFORTHEBUCHAREST‐ILFOVREGION................................................................107LiviuRÂNCIOAGĂ


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THEIMPACTOFROMANIA’SADHESIONTOEUROPEANUNIONOVERTHELOCALBUSINESSWITHINICTFIELD...................................................................................................................................................................................................................................114LaurianGabrielTĂNĂSESCUSECTION 2

MANAGEMENT AND BUSINESS ADMINISTRATION .......................................................................... 126

RESEARCHONRISKMANAGEMENT,ASPARTOFCORPORATEGOVERNANCE,INENTITIES....................................127FlorinBOGHEANINNOVATIVELEADERSHIPSTYLESANDTHEINFLUENCEOFEMOTIONALINTELLIGENCE......................................136CameliaBĂEȘURuxandraBEJINARUSECTION 3

ACCOUNTING – FINANCES ............................................................................................................................ 146

POLICIESANDPRACTICESFORIMPLEMENTATIONOFIFRSANDNASINTHEREPUBLICOFMOLDOVA...........147LicaERHANMarianSOCOLIUCSvetlanaMIHAILAVeronicaGROSUANALYSISOFTHEACCOUNTINGSYSTEMSFROMROMANIAANDMOLDOVA...................................................................163LuciaMOROSAN‐DĂNILĂClaudia‐ElenaGRIGORAȘ‐ICHIMSECTION 4

STATISTICS, ECONOMIC INFORMATICS AND MATHEMATICS…………………………………169EMPIRICAL WEIGHTED MODELLING ON INTER‐COUNTY INEQUALITIES EVOLUTION AND TO TESTECONOMICALCONVERGENCEINROMANIA………………………………………………………………………………………………..170NataliaMOROIANU‐DUMITRESCUDanielaLuminițaCONSTANTINClaudiuHERȚELIUAncaNOVACSECTION 5

LAW AND PUBLIC ADMINISTRATION ....................................................................................................... 181

SEVENKEYINSTITUTIONSOFTHEEUROPEANUNION‐VALIDATEDBYTHELISBONTREATY................................170ElenaIFTIME

INSTRUCŢIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES ............................................ 193

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GLOBALIZATION OF ECONOMY – PREMISES AND EFFECTS

FlorinaBRAN

Professor/Ph.D.,TheBucharestUniversityofEconomicStudies,Bucharest,Romania,[email protected]

Abstract: This paper is providing an overview of global economy, highlighting following aspects: premises of

globalization process in economy, their effects and subsequent reactions which occur, for a proper management of adverse effects. Our approach facilitates understanding of globalization process that begins to be part of our life. We would like to describe globalization, as a phenomenon capable to determine pulse of national economic activities. Globalization is an important issue and the aim of our paper is to describe globalization as a whole, with its lights and its shadows. According to this dual description, in this way, becoming a known process, “survival” ways can be discovered. Globalization is irreversible and we have to “assimilate” it as a model of thinking and to manage it in our own interest, individually or nationally, and before considering it a good or bad intruder in our lives, we must know it. Issue of globalization is that we have limited resources at global level, and an increasing level of consumption, so we need to find a solution.

JEL classification: F62, F64 Key words: globalisation, effects, premises, consumption INTRODUCTION Globalization is an ancient phenomenon, which started when people settled in different parts

of world, searching a better life. Nowadays, relations between continents and countries are much more dynamic because people, business and material and information flows are moving faster and international relationships of all sorts are closer than ever. All that progress is pretty much related to increased use of new technologies in all economic, social and cultural areas. Most of the specialists agree with the fact globalization has a lot of benefits, such as increasing standards of living, reduction of costs, acceleration of capital transactions, but few can predict long-term costs of globalization. A challenge for next generation is the relation between environment and globalization, because natural resources are finite and their amount is increasing and also global competition. PREMISES OF A GLOBALIZED ECONOMY

Globalization components are found in the primitive stages of economic development, but its progress, as specific economic process, involving whole world economy, becomes evident in the mid 80’s of the 20th century, a process which was intensified in the next decade and still manifests itself today.

Among the many definitions of globalization, the following is relevant: “globalization achieves widening and strengthening links between national economies on the global market of goods, services and capital” or, in a more didactic expression, “globalization is the particularly dynamic progression of increased interdependences between national states, as a result of enlargement and deepening links between them and the various spheres of economic life, political, social and cultural, with the implication problems are rather global than national, imposing, in turn, a global rather than 'national' solving” (Bari, 2005).

As for its future purpose(s), economic globalization is expected to increase the volume of goods and services, but with lower consumption of natural resources, resulting thereby in an increasing GDP, as globalization indicator, that includes values of finished goods and services, and counts economy outputs.


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The goal of economic globalization today is to provide competitive advantage, but this has been settled in time (Bran et al., 2014). In first phase, the process defined its own philosophy, principles, objectives, and developed action tools, accumulated experience and strength that facilitated its expansion in the business world, and by its intensity and amplification it justifies the statement that it has turned into a phenomenon and marks the modern economy trend.

Globalization as liberalization refers to a process that includes trade with services, occurred for the first time in the 80’s, in the United Kingdom, then in EU, Japan, followed by Central and Eastern Europe. As stage in globalization development, it generated the increase of global interdependencies.

An important stage of evolution was liberalization of capital markets, as the premise for setting up global financial market and for strengthening financial institutions. Also, this stage represents a reaction of the company in diversification its financial resources by an increase flow of foreign direct investment (FDI), which redesigned geography of investments and stimulated development of national economies.

Next theoretical level was defining concepts, such as common assets of humanity, sustainable development, environmental security; those were adopted by a more general concept of globalization, which become a common factor in elaborating economic development policies and strategies at national level, in concluding agreements, international treaties, etc., relating to environmental protection and which entered in common language and are intended to find their place in individual thinking.

The concept of sustainable development, endorsed by UN in 1987, is very generous, establishing clear links between economic evolution, future, and living standards of people, in accordance to requirements of environmental protection and conservation of environment integrity (Brundtland, 1987). Although this concept did not become a guideline for economic development strategies for governments around the world, it remains a hope that economy might evolve interdependently with environment, so that the ratio of these two economic categories can be in harmony with human interests, as seen in the light of evolution of several successive human generations.

Progress, in all its forms, is an amplification factor of global flows of information (in particular), products and capital. It can be found at the basis of modern production patterns and manifests actively in current consumption patterns. Powered by major financial and human efforts of government agencies or private companies, by school curricula oriented towards stimulation of innovative spirit, students, researchers flow etc., all these occur in synergy within a large framework, having effects at global level.

Globalization of economy entails reducing up to cancelling customs duties, waiving customs policy, restrictions on the movement of goods, services, information technology and capital.

Globalization erodes the role of national state, process emphasized by flows of direct investments, by presence and activity of transnational corporations, by financial flows, by capital mobility.

Globalization of economy can be considered as a result of two concomitant processes: the first represents trans-nationalization up to super-nationalization, while the second is on-going decentralization process of national state powers in the favour of local communities (administrative, social, education, budget, culture, health, etc. attributions), the State still having few tasks to solely undertake, such as diplomacy, national defence, internal order. EFFECTS OF ECONOMY GLOBALIZATION

It is not easy to separate the effects of economic globalization into two categories, namely good effects and bad effects: because, based on what criteria this difference can be made? What is good for transnational corporation is also good for economic entities of national states? Or what do 40-50 countries listed in the category of ‘failed’ countries or globalization losers answer to the


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question? Attempts to overcome this stage were made, by taking over from literature what we call positive and negative effects of globalization.

We recognize we have not been able to completely detach ourselves from the role of arbiter in this ranking, as our country is much closer to developing countries than developed ones, and therefore we cannot see effects of globalization by thinking of Romania as of a prototype of sorts. Specific literature considers as positive effects the following: - more efficient markets, which is in consumer’s advantage because they could fiind what they want all over the world; - increasing competition, because on the global market any company faces more competitors than on the national market. This is an advantage for the client because he could chose what product/service he want; - globalization releases latent energies of latent economy and leads to a more efficient use of world resources (in fact, decreasing as potential), to maximisation of global wealth and achieving economic benefits for all peoples; - expansion of capitalism from developed countries to developing countries, and where necessary – and the appearance and imposing of democracy; - reduction of production costs due to scale savings; - acceleration of transactions that are achieved in a time period close to real time; - introduction or expansion on markets that are independent of the existence of natural resources; - reduction or abolition of customs duties positively influence the movement of goods; - stabilized security because an foreign investment from a reach country bring with it protection of its native country - equity between world countries because in the reaches countries the standard of living is decreasing with coming of immigrants. There is a deepening of the international division of labour. For example, trade of assemblies expanded, which led to an increase in foreign trade that exceeded global output growth and, therefore, increased dependency coefficient of a national economy as compared to the global economy. Access to resources needed for economic development of industrially advanced countries is another powerful driver of globalization (Popescu and Predescu, 2013; Rădulescu et al., 2013). Consecration of transnational corporations is a vector of globalization process, that accumulate more and more power valences, helping them to assert their own interests at national and global levels. The role of geographical distances in cross-border economic relations is minimized through communication technologies, financial flows and mobility of human resources.

Specific literature debates more positive considerations about globalization, but as we can see there are a lot of negative effects, such as:

A. Globalized economy is far from moral principles that could be taken into account in global business management. Illustrations of the statement above me: low prices charged by developed countries for raw materials, natural resources provided by developing countries; large subventions granted for agricultural products by developed countries, which prevents export of similar products from countries that do not give grants; existence of tariff and non-tariff barriers on imports of products from developed countries;

B. Relocation of energy intensive economic activities or with pollution impact on the environment, in countries with cheap labour force or with available resources;

C. Attracting -in the global economic space -leading criminal organizations that run a parallel, illegal economy, having connections to the real, lawful economy;

D. Uses (finite) resources of various countries, because they have to respond to the increasing demand;

E. Increasing the level of pollution (dioxide carbon emissions) – see brazil or china and long term effects on global warming;


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F. Transferring jobs from developed countries to less developed countries, encouraged by the low price of labour force;

G. Transferring also investments from developing countries to less developed countries because in those countries competition is not so powerful to fight with their financial force, so is easier for them to obtain an competitive advantage;

H. Economies become more dependents of each other, and recent economic crisis allow us to notice the fact world economy is dependent of american economy, so that, if it is in crisis, also european union is in crisis. The problem is that those economies are much more interconnected today, and globalization spread not only positive effects but also the negatives ones. At the interface between good and bad, we may mention countries that know and can take

from globalization process only those components that are fit for national policies and strategies. Such countries are part of the called “emerging” ones, where transnational corporations are set up (e.g., China, India, South Korea, etc.) having their own contribution to the process of globalization. But there are also countries that assimilate globalization more difficultly; on the other hand, isolation is not an advantage, leading to difficulties in marketing own products on foreign markets, lack of economic competitiveness, offshore activities, possible unemployment and poverty.

CONCLUSION

The main purpose of this paper is to prove globalization is an economic process that determinates changes in the structure of world economy and so it unavoidably affects global economy. Similar effects can be expected to extent also on the future, caused by the finite amount of resources comparing with increasing level of demand.

Based on such a development of global economy, which generated dynamic of economic space, “globalization” is defined as a global process, which uses international strategies in order to extend businesses at international level. Starting from previous definition, globalization seems to bring good news for the economy, for the time being, and from an economic and financial point of view; not all states, however, must face problems generated by the globalization, that is to the same intensity and in the same time.

The structure of global economy is different, and strategies that could be dedicated to minimize the negative effects of globalization, will generate changes in Romania, as in the others countries, because of the increase in the proportion of the negative effects. This paper is not focused mostly on negative state of affairs, comparing to the others positives, but negatives externalities must be internalized.

Analysis of available data has revealed poor countries faced the most numerous negative effects of globalization, such as: increasing level of pollution, dwindling resources in all countries, low price of labor force. There are a lot of differences in the extent and intensity of globalization among countries, because western countries already implement strategies that could bring benefits out of globalization.

Globalization is increasing the dependence of less developed countries on rich countries which are growing faster, recent economic crisis being most eloquent example. The point is even assimilation of globalization is much difficult, and economic isolation is not a solution.

Our analysis is, most surely, based on the assumption global economy should change its long term strategy (if there is one!), as regards globalization; on the other hand, we have demonstrated already this assumption is basically sound, in other words the fact developed countries are able to accomplish such a feet of practical economics. This could be caused by a decrease in the living standards of their populations, generated by globalization (Bran, 2012).

The problem in western countries is that increase in the number of immigrants will be accompanied by growing numbers of people in desperate – or not so desperate – need of social services, so globalization is also a pretext for extra-taxation of population, comparing with global companies which move their capital all over the world. From this perspective, this paper has shown


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globalization is and will be one of the key factors that, in the future, will change the global economic indicators as its impact will become even more significant.

BIBLIOGRAPHY 1. Bari, I., Globalizarea economiei, Editura Economică, Bucureşti, 2005. 2. Bran, F., Rădulescu, C.V., Ioan, I., Trends and patterns of globalization: a quantitative

approache, 3rd International Conference Sustainable Development in Conditions of Economic Instability, Editura Cibernetica MC, București, 2014, pp. 1-7.

3. Bran.F (coordonator), Globalizarea. Manifestări şi reacţii, Editura Economică, Bucureşti, 2012.

4. Brundtland, G.H., Our Common Future, Oxford University Press, 1987. 5. Popescu, M. L., Predescu, A., Impact of economic crisis on wood markets

(consumption, production and trade), The USV Annals of Economics and Public Administration, 13 (2), 2013, pp. 86-90.

6. Rădulescu, C.V., Popa, D., Iovițu, M., Exhaustion of natural resources – key challenge for global governance, Managerial Challenges of the Contemporary Society, 6, 2013, pp. 71-75.

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ANTHROPOGENIC PRESSURE ON FORESTS IN ROMANIA

PhD.,AssociateprofessorIldikoIOANTheBucharestUniversityofEconomicStudies,Romania

[email protected]

PhD.,AssociateprofessorCarmenValentinaRADULESCUTheBucharestUniversityofEconomicStudies,Romania

[email protected]

Abstract: Forests are one of the richest ecosystems in terms of biomass stock and this potential is augmented by a broad

range of ecosystem services that contribute to human wellbeing by protecting air from pollution, soil from runoff, landscapes from flooding and landslides. This high economic and ecologic potential is well acknowledged, but in specific circumstances short terms gains resulting from the valuation of wood or from conversion of land to other uses are prevailing and create powerful incentives for overexploitation or deforestation. The anthropogenic pressure on forests was and continues to remain high at global level, although there are states where it was successfully controlled. Nevertheless, the forest cover is shrinking increasing the associated threats that result from the cancellation of the forests’ ecosystem services. Of particular importance in the current context is the reduction of forests’ carbon sequestration potential, which is of crucial importance in climate change mitigation. The patterns of unfavourable circumstances are analysed in order to outline the most important challenges of forest management in Romania, but also the impact of novel ecosystem service based economic tools that are aimed to strengthen the incentives for sustainable forest management and to avoid conversion of forests to other land use types.

Key words: forest, sustainable use, FSC certification, payments for ecosystem services, Romania

JEL classification: L73, Q23, Q57

INTRODUCTION Each inhabitant of the Earth enjoys the benefits of 0.6 hectares of forest resulting in a total

area of 4 billion hectares (FAO, 2010). This represents almost one third of the land cover, being significantly less than the area covered by forests naturally. Deforestation went along with the expansion of the human habitat and it was determined by the need of space for settlements, cropland and pastures, and infrastructure, but also for fuel wood and for providing economy with a versatile raw material with a wide range of uses departing from building material and ending up with a multitude of products such as furniture and components in various devices. The process is continuing nowadays at rates that are considered alarmingly high, although they are slowing down gradually (FAO, 2010; Petrescu, 2009). An important economic sector that both benefits and threatens forests is tourism. In recent years the high dynamic of this sector created a great pressure on forest areas especially in mountain regions (Hapenciuc et al., 2009; Nastase, 2007).

In specific circumstances the short term gains from deforestation are powerful enough to outrun the long term benefits. These gains are resulting from wood harvesting, but also from land use change. Their strength is determined by the discrepancy compared with the gains that could be obtained by maintaining the forests. The underlying cause of this discrepancy is to be found in the patterns of the economic system that fails to reward appropriately the contribution of forests to human wellbeing by the protection of air, waters, soils, and biodiversity. Since policy measures applied for forest protection and encouragement of sustainable management failed to withstand the economic pressure in many cases, the economic research focused on this area and designed a range of ecosystem service based tools that are aimed to create short term gains as incentives for the sustainable management of forests (Ioan, 2014; Esi and Nedelea, 2014). Their application has a short, but intense history that provides meaningful insides for both policy making and business cases.


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Romania has a forest cover that totals almost 6.5 million hectares. It comprises mostly managed forests, but also primary temperate forests, accounting for around 0.2 million hectares (Bran et al., 2012). It represents not much above a quarter of the country’s area, which is less than the proportion recorded at European and world level. The changing legal framework of the last two decades created circumstances that increased the incentives for deforestation and illegal logging that affected almost 0.5 million hectares (Roman et al., 2008). Are the current policy measures effective enough in controlling this process is the question that will be addressed. The analysis of economic and forestry data regarding Romania’s forest cover will provide some insights in this respect and these will be interpreted by considering the provisions of European and national programs.

DRIVERS OF FOREST COVER REDUCTION The drivers of forest cover reduction are basically the same with the historical ones,

valuable information for improving the knowledge base for policy support being given by data on their current size, relative proportion, dynamic and trends. A closer look to global trends allows depicting the current status of these drivers and a good starting point for analysis at lower spatial scales. Hence the drivers of forest cover reduction include land use change, production of wood and non-wood products, and natural hazards and will be analysed by using global level data reported by FAO (FAO, 2010).

At global level the main driver of forest cover reduction is the trade-off between forests and agriculture, while the net loss is reduced by afforestation and natural expansion of forests. In the last decade land cover change accounts for the loss of forests on 13 million hectares per year. Almost half of it is offset, resulting in a net loss of 5.2 million hectares. The process of land cover change is occurring especially within the area of tropical forests. In some regions there are signs of decreasing, but it remains high in others. For instance, South America loosed about 4.0 million hectares per year between 2000 and 2010, while in Africa the rate is of 3.4 million hectares per year.

Production of wood and non-wood products could also lead to the reduction of forest cover in case that their regeneration capacity is exceeded. Almost one third of world’s forests are managed for production purposes, meaning 1.2 billion hectares. The same purposes are pursued in the so called multiple use forests. The total wood yield of forests is 3.4 billion cubic meters per year, but this amount does not account for illegally removed wood, especially as fuel. The ratio between the use of wood a raw material and as fuel is almost even. In value, the removed wood accounted for 100 billion USD per year representing the value of raw material as industrial round-wood. The world trend of round-wood prices is downward. Most of the fuel-wood’s value cannot be captured in statistics, since it is collected by individual users. As long as non-wood products are regarded, their value is estimated to be around 18.5 billion USD per year and it is based mainly on food products. This should be considered only a fraction of the total value since many data is still missing, especially for the subsistence use of non-wood forest products.

Natural hazards of many types are inflicting on the health of forests determining also the reduction of the forest cover. These include specific ones like wildfires, insects, pests, and invasive species, more or less related with human activities, but also general ones like severe storms, blizzards, and earthquakes. Annually 35 million hectares are damaged by pests and insects, most of this area being in the boreal and temperate climate. In Canada only an insect destroyed 11 million hectares in two decades. Wildfires cause damages for around 40 million hectares each year especially in Africa and Australia.

ROMANIA’S FOREST COVER: STATE AND CHALLENGES Romania’s forest cover accounts for a little above a quarter (26.8%) of its territory,

representing almost 6.5 million hectares (6399501 hectares). The standing Woodstock is estimated


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to be of 200 cubic meters per hectare, with an annual growth of 5.6 cubic meters. The National Directorate of Forests reports an annual yield of around 9 million cubic meters of wood, harvested on the area in public property, representing almost 75% of the total volume that is approved to be removed.

The forest cover is organized considering a range of criteria such as relief, species composition, function, age, and ownership.

Fig. 1 Proportion of forest cover by relief types in selected counties

Source: INS data processed and represented by authors.

Fig. 2 Area of forest cover by relief types in selected counties

Source: INS data represented processed and represented by authors.

Forests are unevenly distributed with respect to the relief, most of them (66%) being in the mountain area. In fig.1 there are presented selected counties representative for the main relief types according to the proportion of forest cover from their territory. In counties where mountains are prevalent this proportion is higher, accounting for almost half of even more of their territory. The total area of forest of the considered counties also shows how the relief type influences distribution of forest cover (fig.2).

The structure of forest cover by species composition is in relation with their distribution by relief types. Hence the forests dominate by coniferous species and beech (species of the mountain region) are prevalent accounting for more than half of the total forest cover (58%). The entire structure of forest by species is presented in fig.3.


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Source: RNP data represented by authors.

Most of the forest (58%) is falling in the first functional group, meaning it is managed mainly for the harvesting of wood and non-wood products.


Source: RNP data represented by authors.

By age, it could be stated that most of the forests are young forests since forest with age under 60 years accounts for 60% of the total area while forests over 100 years represent only 15% (fig. 4). As long as ownership is regarded, the forest cover is almost evenly divided between public and private proprietors. Thus the National Directorate of Forests (RNP) manages 3.2 million hectares. The rest is owned by private proprietors who obtained their titles in three stages, as follows:

- Application of Law 18/1991: 355715 hectares; - Application of Law 1/2000: 1890899 hectares; - Application of Law 247/2005: 924980 hectares.

The changing legal framework regarding forest ownership had a great impact on forest cover despite the fact that the ownership does not change the patterns of the forest management. Thus, all forests, regardless to their ownership, are part of the national forest area and should be managed in accordance with the provisions of forestry legislation.

Nevertheless, some management tools cannot be applied properly since they are designed for certain timeframes and sizes of forest units. Thus, the management plan of forests is elaborated for a period of at least 10 years and it should cover an area of at least 100 hectares. The forest ownership does not always respect the second condition, fact that hinders the application of the managerial measures needed for ensuring their productivity in accordance with the potential.


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Fig. 5 Map of forest cover loss between 2000 and 2011

Source: Greenpeace

Further, private ownership created important rupture in the protection of forests. Thus private owners are confined to ensure the protection of their forests, although many of them have not enough resources for this. Consequently, illegal logging built up resulting in overharvesting of wood, but also in deforestation. Although little official information is available to prove this, civic and media actions exposed facts that indicate without doubt that such process is occurring and that they cause important damages over large areas. Fig. 5 shows the estimation made by Greenpeace, one of the most important environmental NGO worldwide.

FOSTERING SUSTAINABLE FOREST MANAGEMENT Preserving forests is one of the most important environmental goals and it is to be achieved

by important changes in forest policies and management. Despite significant progress on the technical side, adjustment of the economic relations continues to challenge policy makers to improve the tools that will make forest preservation the best economic option for their owners. The traditional solution is based on command and control measures that imply a complicated legal and institutional framework. The effectiveness of this approach is questionable within the current economic context, since the large financial flows associated with wood production are undermining the rigour of application by favouring corruption. Therefore, alternative solutions are considered more and more important in order to enlarge on the one hand the civic vigilance regarding one of the most valuable natural resources, and to strengthen the incentives for owners to protect and sustainably manage their forests. These solutions include certification of wood products based on the management of the forest of origin, but also ecosystem service based tools that should reward forest owners for the air, water, soil, and biodiversity preservation delivered by their land.

Sustainable forest management is a management model balancing between short and long term gains from forest exploitation. From a technical point of view it is very well documented and it is applied within a certification scheme. Although its employment is not compulsory yet, it is the main tool currently applied for incentivising sustainable forestry. The rational is based on an intervention that steers consumption by educating and informing industrial and final consumers about the process of wood production. The most widespread certification, at least in Europe, is the Forest Stewardship Council (FSC) system (Sikkema et al., 2014).

In Romania, there were initiated legal measures that encourage the forest protection and RNP also intensified its efforts for FSC certification. FSC certification is made for 2.34 million hectares of the publicly owned forests, representing 37% of the total forest area and 73% of the state owned forest area. The structure of FSC certificates for forestry county directorates is as follows:

- 2011: SA-FM/COC-001470 for an area of 611391 hectares; - 2011: SA-FM/COC-002829 for an area of 60756 hectares;


17

- 2013: SA-FM/COC-004023 for an area of 1668103 hectares. In case of private forests the certification process is slower. Further, media reports brought

proves that even of certified areas deforestation could occur. Ecosystem service based tools are less developed but there is a high confidence worldwide

and especially in Europe that they will be more effective in fostering sustainable management of forests. The most common tools is the payment for ecosystem services (PES) scheme that allow owners to gain incomes for services such as watershed protection, carbon sequestration, biodiversity conservation, flood protection etc. The current National Program for Rural Development already comprises measures that are designed as PES, although other applications are less employed (Morosan, 2013). The main issue that prevent a wider application is the difficulties of assigning economic values for each ecosystem service and the initial funding. Where such barriers where overcame PES significantly improved forest protection. For instance, in Japan, each local authority perceives a tax of 5-10 USD/inhabitant and 100-800 USD/business in order to fund the restoration and sustainable management of forests. The incomes are used to reward forest owners that maintain forests for at least 10 years.

CONCLUSIONS Forests are a treasure of our planet gathering most of its biodiversity and valuable natural

resources, meanwhile having a crucial contribution for the health of the global ecosystem. Despite widespread acknowledgment of their importance forests continue to shrink at alarming rate under anthropogenic pressure by means of land cover change, overexploitation and natural hazards amplified at some extent by humans.

In Romania the loss of forest cover could be considered the largest environmental threat since in the last two decades were recorded important losses of forest cover, while the remaining forests are exposed to overexploitation. These are determined by the failure of the current legal and institutional framework to withstand the pressure of powerful economic incentives brought by short term gains earned from wood harvesting and/or land use change.

Sustainable forest management could be fostered by expanding the certification of forest products, but also by designing ecosystem service based tools. The first category is already employed in Romania, but it covers mainly state owned forests that represent only half of the total forest cover. Ecosystem service based tools have a good potential to foster sustainable forest management although their applicability is hindered by technical and financial restrains.

REFERENCES 1. Bran, F., Popa, D., Popa, C. (2012). Spatial planning: global challenges and European approaches, in I. Popa, C. Dobrin, and C.N. Ciocoiu (eds) Proceedings of the 6th International Management Conference: Approaches in organisational management, Management Acad. Soc. Romania (SAMRO), pp.462-467. 2. Esi, M., Nedelea, A.M. (2014). Mission of business organizations and the social-economic entrepreneurship, Ecoforum, 3 (1), pp. 74-77. 3. FAO (2010). Global forest resources assessment 2010. Main report, FAO Forestry Paper 163, Rome: FAO. 4. Hapenciuc, V., Stanciu, P., Condratov, I., Nistoreanu, P. (2009). Relaunching of Romania’s tourism – the controversy of safe tourism during global economic crisis, Revista de turism, (7), pp. 47-56. 5. Ioan, I. (2013). Biodiversity based business: opportunities and restrains, Quality – Access to Success, 14 (S3), pp. 77-83. 6. Morosan, A.A. (2013). The territorial distribution of structural funds in the Northeast region of Romania, Ecoforum, 2 (2), pp.55-61.


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7. Nastase, C. (2007). Dezvoltare durabila si turism durabil, Revista de turism, (3), pp.54-57. 8. Petrescu, D.C. (2009). The interaction of economy and environment: consequences, awareness, remedies. The forest, Journal Studia Universitatis Babes-Bolyai Negotia, LIV (3), pp.179-193. 9. Roman, C., Stanciu, P., Condratov, I. (2008). Human factor in sustainable tourism between ethics and social responsibility, Amfiteatru Economic, 10 (23), pp. 136-141. 10. Sikkema, R., Junginger, M., van Dam, J., Stegeman, G., Durrant, D., Faaji, A. (2014). Legal harvesting, sustainable sourcing and cascade use of wood for bioenergy: their coverage through existing certification frameworks for sustainable forest management, Forests, 5 (9), pp.2163-2211.

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

19

POTENTIAL PROBLEMS OF GLOBAL SCIENTIFIC RESEARCH,

TECHNOLOGICAL DEVELOPMENT AND INNOVATION

Associateprofessor,Ph.D.GabrielI.NĂSTASE

„DimitrieCantemir”ChristianUniversity,Bucharest,[email protected]

ScientificResearcherGradeII,Ph.D.LuanaFlorentinaPASCU

NRDI–ECOIND

Ph.D.StudentBogdanPASCUTheBucharestUniversityofEconomicStudies,Bucharest,Romania

Abstract: In the commercial companies and autonomous administrations there are strong R&D units subordinated

thereto, involved in the research activity, especially by free market competition, and not in the last place we need to highlight this creative technical activity with individual title by natural persons.

Key words: research, development, innovation, patents, technology transfer, turning into value, economy. JEL classification: L24, O33, O34

INTRODUCTION The 20th century was born when mankind shortened Earth time and space under the light of

train wheels, was witnessed to transition from propeller plane, then to reaction plane, transmitting to the 21st century, the cosmic rocket and the way to the stars. In less than 100 years, human movement speed increased from 50 km/h up to more than 16 km/sec. and has all creative possibilities still open.

Human society development practice shows that in our age conditions, the most important wealth of a nation is precisely its own creative capacity, of obtaining certain technologies and products at a high level of scientific innovation, with exceptional performance and reduced expenditure. Therefore, development of knowledge, increased contribution of research and industry to technical - scientific progress gains a top priority.

Freedom of citizens to conduct research and creative activity, especially in the technical field, irrespective of the organization form for this activity represents the progress trend, especially for those members of society who are born with a developed inventive spirit and have technical knowledge in the field they create. Of course, these creative activities can be carried out and made in optimal conditions in institutions of research and development regardless of the type or form of their organization.

Thus, there may be mentioned: National Institute of Research and Development, or units organized as public institutions under the coordination of central specialized bodies of public administration, higher education institutions or sectors of research and development in higher education, for example, departments, research centres, laboratories and R&D units of the Romanian Academy or branch academies, organized as national institutes of research and development.

CONTENTS In the commercial companies and the autonomous administration, there are strong R&D

units subordinated thereto, involved in the research activity, especially by free market competition, and not in the last place we need to highlight this creative technical activity with individual title by natural persons. And if – as mentioned above – the inventive spirit that some society members


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manifested, as well as their knowledge on previous state-of-art, represent a basis for developing new technical, valuable solutions, we should mention also the creativity factor, especially in masses, that is linked to the specialty or job of the person who has made a valuable new technical solution. It is not strictly necessary as a technical solution capable of being invention to appear as a complex work with a complicated structure design, but mainly its technical and economic effects obtained by applying this solution shall be highlighted.

In a free market economy, an invention is a commodity that may be negotiated freely and whose value is directly proportional to the increase of economic advantaged on the free market. An outstanding contribution to the development of patentable technical solutions have, of course, research-development institutes with technical profile from all areas of economic life, which are able to know the state of the global technics. Thus, developing research in all fields of activity and approaching boldly the major problems of contemporary science, researchers need to start permanently from the requirements in our times and especially the ways of economy development.

Scientific research, technology development and innovation activities represent integrated stages of activities that are inextricably linked together for a modern economy and industry. In the conditions of achieving these stages, which normally would be placed in a modern industry field, they contain new original items, fruit of the experts’ constructive spirit who elaborated the project, and then there are all the probabilities that such solutions contain new patentable solutions that are subject to inventions and by patenting them to be protected as values, in the property of those who have achieved them, having of course the right to negotiate them when the market requires as such, due to their economic efficiency.

The creativity of all the elements that lead to new original technical solutions will need to focus on solving problems arising from major orientations of economic and social growth, such as superior capitalization of natural resources, enhancement of new energy sources, upgrading technology in accordance with the latest achievements of science and technology, production mechanization and automation, creating new materials and substances of high economic value, new ways to improve human life, lifting the degree of civilization of human society, ensuring a balance between the world created by man and the environment.

The pace of development of modern science and technology has a particular focus on electronics and nuclear energy fields that will be permanently in the attention of creators of new, both by closer knowledge of state of the art in technics, as well as of protection by patenting the new, original solutions.

By analysing these elements, the need for patent advisors becomes obvious, who by their activity of advisor in the field of industrial property has an essential contribution to the analysis and patenting of inventions.

INDUSTRIAL PROPERTY As mentioned previously, industrial property is part of the Intellectual Property and includes

within its sphere, in the first place the “invention” that will still be the main subject of this paper. Also, at “Paris Convention for the Protection of Industrial Property” it was considered that part of the industrial property objects beside the inventions are also utility models, industrial designs and models, trademarks, factory marks and service marks, commercial denomination, indications of origin and original denominations, as well as repression of unfair competition, and by the treaty of Washington DC on 26th of May 1989, in the field of industrial property was also integrated the Protection of Integrated Circuit Topography.

PATENTABLE INVENTION The invention is considered as the main engine of science and technology development and

is the one containing the most advanced notions of human intelligence, representing the main link to the introduction of technical progress in economic and social life. It is generally observed that in countries with highly developed industry, the number of inventions is particularly high as compared with other countries, such as those under development, where the number of inventions is lower, being directly correlated with the degree of technical development.

THE UTILITY MODEL


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The utility model is a technical solution that covers construction, assembly or manufacturing process of an object that has practical applications in industry or in other areas of economic and social life.

Under this definition, between inventions and utility models there are no differences in terms of content, but in terms of level of creation, the utility model has a lower inventive level, its novelty being at the known level of the technics, but of course higher to the known stage of technics, in the enterprise where it was made. It is considered as a technical achievement under invention’s level, and therefore was called “small invention”.

In our country, the utility model has not been legislated, being replaced by innovation which has largely replaced the utility model. It is regulated and protected in a few countries where innovation is not regulated or innovation is regarded as a new achievement in the organization where it was created. For example, the utility model law is found in countries like Brazil, Italy, Japan, Poland, Germany, Spain etc.

The period of protection for utility models is generally between 3 and 5 years with possibility of extension, rarely.

In some countries, the protection period is slightly higher (e.g. in Japan it is 10 years and in Spain 20 years).

Sometimes, protecting a technical solution by a utility model has some advantages, as fees for registration, examination and maintenance in force are lower than in the case of inventions, protection achieving is more operative and novelty examination is limited to what is known in the country where protection is sought. In some countries like Spain or Italy protection is granted only on declarative principle (i.e. without considering the novelty). In this respect, the patent advisor has a word to say after analysing the technical solution.

It is advisable that whenever somebody seeks protection of a technical solution abroad to choose the most rational way in all respects.

INDUSTRIAL DESIGN Industrial design and model are linked to the ornamental or aesthetic aspect of an article.

They are characterized by an original presentation of a product, such as a new model or a new installation.

Ornamental or aesthetic aspect refers to the appearance of the product, which can be achieved by shape, pattern, colour, etc., or through an arrangement of colours. The appearance of this item shall be reproducible industrially, fully preserving the initial effect of the design.

A more complete definition of the concept of industrial design shows that it is a new design presented in plane (two-dimensional) such as designs on fabrics, carpets, drawings on other objects, ornamental seams on the different types of clothing (e.g. seams on an traditional shirts) and by industrial model we mean a new form of space presentation (three-dimensional) of an object such as for example a new type of car, a new form of an ornamental container or a new form of household appliances.

It should be noted that in the current language the term “design” is frequent, and it renders the notion of design.

Between these two notions there are no differences in fact, both expressing the same concept except only that “design” is taken from English, whereas industrial design is taken from French.

Both concepts express in fact the same thing and are protected by a protective document, granted under national law. Another characteristic element that should be emphasized is the fact that ornamental or aesthetic aspect is achieved through a new agreeable form or a special colourful appearance but it must be reproducible by industrial means. This is the reason why the design is called industrial.

If this element is missing, creation falls into the category of works of art whose protection is ensured by law of intellectual property protection and not by law of industrial property protection.

A relatively small number of states have regulated legislation for the protection of industrial designs.


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Among such countries, we mention: Germany, Belgium, Spain, France, Indonesia, Liechtenstein, Morocco, Monaco, Netherlands, Egypt, Vatican, Switzerland, Tunisia, Vietnam, Poland etc.

Conditioning of protection is different. According to legislation, the design must be new and under other laws, original.

Their examination, where protection is granted in base of attributive system, is compared with previous national deposits. If the State in which protection is sought is a party to the Hague Agreement Concerning the International Deposit of Industrial Designs and is an international registration, the examination is performed and compared with previous applications filed on international route.

Designs or industrial models are usually protected against unauthorized copy and imitation, and protection can last 5-15 years, as provided by law of the country.

The document certifying protection of design or industrial model can be a registration certificate or patent.

If the protection document is a patent, it must be distinct from the invention patent, specifying that it is a patent for industrial design.

Introducing protection of designs design or industrial models has a positive role in stimulating creative activity in the field of industrial aesthetics, in order to enhance the utility of the products and in particular of large consumption ones, and to diversify products, improving their quality and ergonomic properties through their outer forms.

In our country, protection of design and industrial models was legislated by Law no. 129/1992, published in Official Journal on January 8th, 1993.

FACTORY, TRADE AND SERVICE MARKS Factory, trade and service marks are distinctive signs used by enterprises to distinguish their

own goods, works and services from those identical or similar belonging to others, and to stimulate and improve product quality, works or services (according to the provisions of Law no. 28/1967 on factory, trade and service marks at the date of the elaboration of the paper).

Factory marks appear printed on goods produced by the factory that is the mark owner. But mark will not only appear on such good, but also on containers or packaging in which goods are sold, on store windows, in newspapers, on television etc.

A brand serves many purposes, namely: a) To contribute to a buyer's decision when he wants to buy an object whose quality is

superior to other similar objects. In general, supported by intensive advertising, factory marks producing higher quality goods are known and then the buyer will be oriented towards goods that have this brand.

b) Recognition of factory producing these goods even when they are sold in other stores or sometimes in other countries. In this regard, it is sufficient to mention a few brands of cars such as Fiat, Mercedes, Citroen, etc.

c) Allows professionals with responsibilities in quality control of goods sold under a mark to identify the trademark owner by searching the registry where trademarks are registered.

d) The function of a trademark is to distinguish goods produced by a factory from those produced by another, but sometimes the mark includes the manufacturer’s name and more many products are known in trade even with the manufacturer's name included in the contents of the mark or near it.

e) Brand itself sometimes is merchandise, i.e. transaction object for which licenses may be granted on favourable terms. Thus, if the products sold in the market under a trade mark are highlighted by special qualities, gaining priority on market, another producer who manufactures similar products can buy that brand for its products.

f) In this way, the brand itself becomes an object of advertisement for products, competing other products made under other trademarks or without trademark.

g) In some cases the label may be an element of organization of the market by its contributing to the correlation of supply and demand.


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In all cases, a mark known in the market will stimulate its owner to achieve continuous improvement of products made under this brand.

In some situations, however, it is possible that one or more qualities of the product made under the protection of the mark to decline. The causes are multiple, so it is possible that the manufacturer to produce goods of poor quality, sometimes lower quality being progressive, but to continue to use the same brand. The market will react immediately by reducing product procurement, and even worse, by that the brand loses its market value, which is difficult to repair in the future.

Another unpleasant situation is that when a third party produces goods of dubious quality using the mark without the knowledge of the trademark owner.

This will require an investigation and finding the person who violated the trademark rights, and especially made products of this brand to be impaired. Of course, in these cases the owner would go to court which will determine the compensation to be given.

As for trademarks, they have similar functions but applicability in commercial field. Sometimes, some companies use the same mark when marketing products is done in the manufacturing plant. In the event that another company sells, it may have another mark. And finally, service marks are used by companies offering services such as hotels, restaurants, airlines, travel agencies etc.

COMMERCIAL DENOMINATION The commercial denomination of occupation or company, in the sense of expressing

industrial property object, expresses the denomination or the indication identifying a company and allowing its easy distinguishing from other companies. The commercial or company denomination is an industrial property right to be individualized in order to avoid confusion. The commercial denomination may be totally or partially recovered in the respective mark.

The laws of different countries contain provisions regarding registration and protection requirements. In general, it is shown that the commercial denomination of an undertaking must not be used by another undertaking, but the owner, nor can be something similar or misleading the public.

The commercial denomination is recorded in the national register and will be used in exactly the same form. Paris Convention confers effective protection to commercial denomination in order to avoid unfair competition. Usually, commercial denomination is registered in the country of origin and protected in the countries participating in the Paris Convention on the day of its passage in the register of commercial or company denominations or the time of its introduction in the economic cycle, regardless of the date of registration.

Similar to trademarks situation, commercial denomination registered subsequently may be cancelled if there is evidence of a previous trade name in any of the countries participating in the Paris Convention. Ceding the commercial denomination to a third party could be done only in the same time with ceding the company.

INDICATIONS OF ORIGIN AND DENOMINATION OF ORIGIN Indications of origin or denomination of origin are geographical names of the country,

region or a specific place that allows highlighting the originality of a product, its quality and characteristics which are due exclusively or essentially to the geographical surroundings, including natural or human factors. They show where a product was produced, processed or marketed, as it has acquired a great reputation in a while.

It is necessary to make a distinction between the indication of origin and denomination of origin (Năstase, 2013). The essential difference between these two types of geographic names, is that while indications of origin simply indicate the real place of origin of goods or services, highlighting certain traditions, denomination of origin, in addition to the origin products, marks certain qualities or characteristics of those products that are due exclusively or predominantly to natural and human factors specific to the geographical environment in question.

Thus, some geographical areas, due to natural factors such as climate, topography, soil composition, etc., allow products to enjoy wide acceptance. Also, human factors influence the


24

quality or characteristics the products in a given area due to the long experience and special skills for a certain kind of work, tradition in the manufacture of certain products etc.

From these points of view, we must make a differentiation between specific properties of products from a given region. Thus, some are exclusive result of natural factors, climatic conditions, others are related to soil composition such as Carara Marmora and other water compositions such as mineral waters (Borsec, Vichy etc).

Other products are connected both ny natural factors and human factors such as Solca beer, Cotnari wine or Braila cheese.

Finally, there are widely recognized products whose quality is linked to the skill and prowess of producers, inherited from generation to generation, such as different types of carpets Buchara, Siraz, Tebriz etc., or new Oltenia carpets.

The use of denomination of origin is generally linked only to individuals and collectives living or existing in the country or region, or if used as raw material, products made in the area or using that method. Because the denomination of origin is linked to a specific geographic region, which gives the products made special qualities, due to natural and / or human in the area that cannot be replicated in another geographical area, the denomination of origin cannot be replicated by organizations in other geographical areas.

REPRESSION OF UNFAIR COMPETITION Unfair competition acts are those violations the rights acquired by a holder of an industrial

property right or any other acts committed contrary to fair practice in commercial production activities or services. Repression of unfair competition is linked to all industrial property objects. It is the object of industrial property mentioning prohibition under civil or criminal sanctions or measures, by natural or legal persons for violation of the rights acquired by the holder of an industrial property right in the territory of a member country of the Paris Convention for Protection of Industrial Property.

Acts of unfair competition are considered some of the actions specified below, without being deemed to cover the full scope of such activity. Thus, creating confusion by any means on products, services or activities of other organizations, particularly products manufactured, design and industrial models, or trademarks of a factory, elements mentioned previously.

We will detail some elements in the following chapters and will analyse in more detail the conditions for the use of inventions. Regarding the denomination of origin, an example of violation of this condition would be for example to market a French perfume, when in reality it was made in another country. Even if for example it bears the name Paris, this is nothing but a small town in another country that bears the name of Paris. The same if the product says "Made in China" and it was produced by a manufacturer in Europe. And closer to us using a label that says "Cotnari wine" or Murfatlar for the content of a bottle containing different kind of wine, this is an act of unfair competition.

Another act of unfair competition is the false statements in the exercise of trade which are liable to discredit another organization’s products or services or activities.

One may advertise its products or services but without stating untrue things about the products of other manufacturers. Thus, there are indications or allegations, the use of which in the exercise of trade are likely to mislead the public as to the nature, mode of manufacture, quality, characteristics or quantity of the products and about the nature, quality or characteristics of the services.

In general, disputes arising due to unfair competition are resolved in the courts dealing with these problems, making decisions binding.

Before concluding the chapter on industrial property, we will have to present an object that is not mentioned in the Paris Convention for the Protection of Industrial Property and is not provided in the new legislation in force in Romania, namely innovation.

INNOVATION


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Innovation is an object of industrial property recently regulated at national level only in some countries, particularly those in Eastern Europe, as in other countries there are local regulations, at the level of economic organization (Mathew and Mukherjee, 2014).

When we talked about utility models, we have shown that, for example, in our country utility model protection has not been legislated but innovations were legislated, that have many ties with utility models.

A new legislation will be able to regulate utility models, and innovations will be regulated at the level of economic organization. To know the content of that concept, we present two definitions, namely:

The definition given in the laws of countries like the former Soviet Union, Bulgaria, Czechoslovakia, etc. that specifies: "Innovation is a technical solution with industrial applicability useful to society, presenting novelty at the level of the organization that applies it".

In our country, Law 62 /1974 on inventions and innovations defined innovation as "It is innovation the technical solution that presents novelty at national level, social progress and social or economic benefits, solves a problem in industry or in any field of science, culture, health and defence of the country or in any other area of social and economic life and has not been applied in the country ".

The contents of this definition render clear the closeness between invention and innovation, the difference between them being only for the level. In the invention, the novelty will be analysed globally, whereas according to this definition, the novelty must be analysed nationally.

CONCLUSIONS Therefore, there are many cases when patent applications refused by the Office of

Inventions for lack of novelty in the world were admitted as new innovations nationally, as they were technical solutions which are showing progress and economic advantages as compared to previous solutions applied in the country and can be applied in useful scopes for society.

Another issue to be highlighted by the fact that any comparison relating to novelty should be done between Romanian technical solutions known, as opposition to a foreign technical solution known is a confirmation and not denial of the novelty character at national level for a proposed innovation. By the treaty concluded in Washington D. C. on 26th of May 1989 on Intellectual Property in Respect of Integrated Circuits, it was decided to protect within Industrial Property also the integrated circuits, by which we understand a product under its final form or in an intermediate form, the elements of which at least one being active element and interconnections, totally or partially, are part of the body or surface of a material piece and which is intended to perform an electronic function, the notion of topography indicating that configuration scheme has a three-dimensional arrangement of the elements out of which, as we shown, at least one is an active element.

In Romania, law on integrated circuits protection no. 16/1995 came into force in 1995. This law provides the necessary documentation for setting up the regulatory deposit, examination mode, topography registration fees and decision and sending it to the applicant together with the topography registration certificate. Since the beginning, this form of protection has few applications to the State Office for Inventions and Trademarks of Romania, and in the future, along with the development of electronic and computing industry the number of such requests is expected to increase.

BIBLIOGRAPHY 1. Bran, F. (coordonator), Globalizarea. Manifestări şi reacţii, Editura Economică,

Bucureşti, 2012.


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2. Mathew, A.J., Mukherjee, A., Intellectual property rights, southern innovation and foreign direct investment, International review of Economics & Finance, 31, 2014, pp. 128-137.

3. Năstase, I. G., Lorenţ, A., Managementul inovării. Inventatori şi consilieri de brevete, Editura AGIR, Bucureşti, 2008.

4. Năstase, I.G., Innovation and industrial property rights, Quality – Access to Success, 14, S3, 2013, pp.101-109.

5. http://legislatie.just.ro/Public/DetaliiDocument/355 (LEGE Nr. 62 din 30 octombrie 1974 privind invenţiile şi inovaţiile)

6. http://legislatie.just.ro/Public/DetaliiDocument/75661 (LEGE Nr. 16 din 6 martie 1995 privind protecţia topografiilor produselor semiconductoare)

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

27

CHANGES IN THE FOREIGN TRADE OF ROMANIAN REGIONS –

A SHIFT-SHARE ANALYSIS [1]

SeniorResearcherMihaela‐NonaCHILIAN

InstituteforEconomicForecasting,Bucharest,[email protected]

SeniorResearcherMarioaraIORDANInstituteforEconomicForecasting,Bucharest,Romania

[email protected]

Abstract: The paper aims to assess the evolution of exports (overall and by sectors) in the regions of Romania.

Considering the fact that the export base of a region acts more as an absolute advantage for the regional development, we use shift-share analysis tools to investigate the extent of the interregional trends and disparities in exports. The results reveal a diverse sectoral milieu and a trend towards higher diversification, better use of regional resources and technological upgrading, also providing useful insights for the general and specifically-targeted policy areas concerning regional development and business environment.

Key words: Romanian regions, shift-share analysis, regional foreign trade analysis, regional competitiveness JEL classification: R11, R12, R15

1. INTRODUCTION

As shown in the economic literature, regional competitiveness also involves an external dimension (Iordan et al., 2013), which may be analyzed starting from the theory of comparative advantage (Chilian, 2011). Practically, one may analyze the „territorial allocation” of comparative and competitive advantages and disadvantages of product groups and subgroups (and, implicitly, of economic sectors/industries). This means, among others, to find answers to issues such as (Chilian, 2013):

Which are the regions/counties with the highest shares in the overall exports of Romania? Which are the products/groups of products/sectors in which these regions/counties are

export specialized (if they are)? What was the impact of the post-2008 crisis period in the regions/counties in what regards

their competitive position in foreign trade? Which might be the structural sectoral adjustments induced by the 2008 crisis in the

regions/counties and their likely impacts if the economic crisis/recession returns? The „export basis” of a region is a key factor of its prosperity, and its decline or a worsening

of trade balance would mean a decline in the region’s competitiveness. Competition among the regions (both intra- and inter-country) may push a region out from a sector where it might have had established a comparative advantage, or a region from a sector where it might have had maintained its previous comparative advantage (Gardiner et al., 2004).

Considering the comparative advantage theory at regional level, we must mention here the important arguments brought by Camagni (2002), according to whom the cities, regions and other locations compete rather on the basis of absolute advantage than on the basis of comparative advantage, and the efficient mechanisms of automated adjustment available at macroeconomic level, such as the price and wage flexibility and the exchange rate, cannot be applied at territorial level. The factor endowment, the attractiveness for investors and labor, the policies enforced at territorial levels, together with the very efficient penalty mechanism of inter-regional capital and labor migration (which once fleeing from a region are very hard to be replaced) may turn a region into a successful one, able to provide a more than decent living standard for its citizens, or into a


28

“relatively bankrupt” one, when the efficiency of all its sectors is lower than that of the other regions, which translates into decline and long-term exclusion (Camagni, 2002).

On another side, the economic structure plays a very important part in the dynamics of sub-national development gaps, because it impacts on the incomes and their regional distribution. Empirical studies revealed that areas with sustainable manufacturing industry and high employment in services enjoyed higher welfare, and the households’ incomes were higher and poverty rates lower, while the mining and agricultural areas, where wages were usually lower and employment was fluctuating, registered higher poverty rates.

Considering both these issues, the paper attempts, by the means of export shift-share analysis, to discover which are the Romanian regions that register dynamics of economic structures conducive to high external competitiveness (and, thus, to a higher integration into the single market) and to sustainable specializations, adequate to the requirements of building a modern, highly flexible economy, with a high technological level.

2. METHODOLOGICAL ISSUES

The shift-share analysis is frequently used in order to get a picture of the key factors of regional economic growth, and it may approach different issues, such as output growth, employment and productivity growth, export and import dynamics, etc (Fernández Vázquez et al., 2005). The level of such indicators and their changes may be key factors of the analysis of economic and social performance at regional and sub-regional levels (D’Elia, 2005, Chilian, 2012). In its "standard" shape, such an analysis aims at “dividing” the dynamics of a certain growth factor from a certain region into three components:

i) A national component, showing how much a variable from each sector and region would have changed if it had experienced the average overall growth rate at the national level (or EU rate, in the case of a broader analysis),

ii) A sectoral component (also called sectoral mix), showing the state of the variables if each of the analyzed sectors would have experienced the same growth rate as at the national level, minus the previous overall component, and

iii) A shift component (also called regional change or competitive effect), which stems from the difference between the effectively observed dynamics and the computed dynamics in relation to the national dynamics, which captures those dynamic elements that are unique for each region. This component may be interpreted as the overall result of a balance between the “attractiveness” and the “rejection” of a region for different sectors of activity (Leo and Philippe, 2005).

By the means of the standard tools of shift-share analysis, the paper attempts to assess the sectoral development gaps and the external competitiveness of the Romanian regions, but not from the perspective of value added or employment in the main economic sectors, but from that of regional foreign trade and, more specifically, of regional exports. Our analysis attempts to answer questions such as (see D’Elia, 2005):

• To what extent the change in the export structure by the main product groups of a region in a certain period was determined by the overall changes in the Romanian economy during the same period, reflected by the overall export dynamics?

• How much the change in the export structure by the main product groups of a region in a certain period was determined by the change in the structure by the main product groups of the overall exports during the same period?

• How much the change in the export structure by the main product groups of a region in a certain period was firstly determined by the changes in the overall economy of a region, during the same period? Due to data availability, the shift-share analysis of the regional export dynamics refers to the

2005-2013 period, and the considered export sectoral structure is that of the main product groups included in the Combined Nomenclature (CN) classification.


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A starting point for the shift-share analysis is the following equation: Total change = NS + IM + RS (1) where: NS is the national effect (national shares of the main product groups as according to the CN), IM is the sectoral effect (sectoral mix effect) and RS is the regional effect. The computation formulas for the three components for each sector are the following (D’Elia, 2005; Chilian, 2012):

1. National share of exports by the main product groups (national effect):

NS = NIst-1*[(ROt/ROt-1 – 1)] (2)

where: s refers to each product group [2] and t and t-1 refer to the beginning and the end of the period, respectively, and NI refers to the exports from a certain region as compared to the national exports. Thus, the national share by product groups is the export volume of a certain region (mil. Lei or Euro), by product groups, at the beginning of the period, multiplied by the overall exports growth rate in the same period. This reveals how much the export from each product group and region would have changed if it had the same dynamics as the national exports.

2. Sectoral mix (sectoral effect)

IM = NIst-1*[((ROs

t/ROst-1) - 1) – ((ROt/ROt-1) – 1)] (3)

The sectoral mix component measures the influence of a mix of product groups with fast/slow growth from a certain region, as compared to the national exports, minus other overall effects at national level. A product group with a share in the total exports of a certain region higher than in the national exports will have a positive sectoral mix if the national level of the exports of the analyzed product group increased faster that the national total exports. On the contrary, if a product group is under-represented in the exports of a certain region (as compared to its national share), it has a negative structural or sectoral mix.

3. Regional shift (regional or competitive effect):

RS = NIst-1*[((NIs

t/NIst-1) – 1) - ((ROs

t/ROst-1) - 1)] (4)

The regional shift reveals the competitive change in a region, namely the unique dynamic factors which determine its export performance.

This indicator shows the export leading and laggard regions and product groups, as compared to the national levels. The regional shift factor can be further divided into a regional comparative advantage component (ACR) and an allocation component (CA). Such decomposition is important at sub-regional level for each existing scale effect if the regions vary largely in size (D’Elia, 2005; Esteban-Marquillas, 2000; Baxendine et al, 2005). ACR = NIt-1*(ROs

t/ROt-1)*[(NIst/NIs

t-1 -1) - (ROst/ROs

t-1) - 1] (5) CA = [NIs

t-1 - NIt-1*(ROst/ROs

t-1)]*[( NIst/NIs

t-1 -1) – (ROst/ROs

t-1) – 1] (6) The comparative advantage component reveals the competitiveness of each product group

from a region as compared to its national competitiveness, and the allocation component is a residual element which combines the relative share of a product group from a region as compared to its national share with the growth rate of the product group in the national and regional exports.

3. CHANGES IN THE REGIONAL EXPORT STRUCTURE The dynamics of the total exports of the Romanian regions over the period 2005-2013

reveals two relatively distinct sub-periods: 2005-2008 (pre-crisis) and 2009-2013 (crisis and post-crisis), with a sharp decline in 2009 and a partial one in 2012 (Figure 1). In the case of most main product groups, one may also see the years 2009 and 2012 as inflection points in the regional export dynamics, but with certain regional and/or sectoral peculiarities [3]. In such a context, we analyzed


30

by the means of shift-share analysis the changes in the export structure for the entire analyzed period (year 2013 as against year 2005), but also for the two distinct sub-periods revealed in the total national and regional exports dynamics, namely 2005-2008 and 2009-2013.

Figure 1. Evolution of total Romanian regional exports

Source: Authors’ computations, based on data from the National Institute of Statistics and TEMPO-on line.

Table 1 presents the total change in the regional exports in Romania in the analyzed periods, expressed as percentage of the 2005 export levels, and 2009 export levels, respectively. As one may see, there is no product group for which all the regions have experienced negative changes as compared to the 2005 export levels, but there are some product groups for which several regions recorded such changes, different or not by sub-periods: III (Nord-Est, Sud-Est, Sud-Vest Oltenia), V (Nord-Est, Sud-Vest Oltenia, Nord-Vest, Bucureşti-Ilfov), VIII (Nord-Est, Sud Muntenia, Nord-Vest), X (Nord-Est, Sud-Est, Sud-Vest Oltenia, Bucureşti-Ilfov), XI (Nord-Est, Sud-Est, Sud Muntenia, Vest, Nord-Vest, Bucureşti-Ilfov), XII (Nord-Est, Sud Muntenia, Nord-Vest, Centru, Bucureşti-Ilfov), XIII (Nord-Est, Sud-Vest Oltenia, Bucureşti-Ilfov), XX (Nord-Est, Sud-Vest Oltenia, Bucureşti-Ilfov). Table 1. Total change in the Romanian regional exports, in % of 2005 export levels, and 2009 export levels, respectively, by main CN product groups Nord-Est Sud-Est Sud Muntenia Sud-Vest Oltenia

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

I 1128.8 54.0 421.3 420.0 -13.5 336.7 374.9 101.5 79.8 735.8 208.7 635.0

II 55.4 540.9 -50.5 2053.5 540.9 295.2 1196.8 540.9 62.1 1300.6 540.9 489.7

III -56.4 -77.3 -34.9 808.5 -85.6 952.2 78.5 91.7 30.4 28300.0 1303400.0 -86.3

IV 154.2 96.6 169.3 531.4 104.3 62.9 1821.4 575.4 132.5 5984.0 3832.6 -0.2

V -99.1 -89.3 220.7 122.9 106.9 75.9 31.0 36.5 46.5 -92.8 -35.8 -27.6

VI 41.5 53.5 35.1 12.2 -68.0 759.8 -20.3 -51.8 100.4 -32.0 71.8 -8.5

VII 294.0 87.8 161.1 177.0 190.3 32.2 264.5 36.9 196.5 151.3 139.7 51.5

VIII -6.8 -34.8 173.5 192.6 -23.8 564.8 -13.3 -67.2 -12.3 1592.5 1205.8 61.4

IX 195.3 -20.8 191.5 71.8 14.4 46.9 53.6 -19.1 107.9 -6.3 27.6 28.3

X 52.1 -33.5 191.9 146.8 -23.3 221.2 244.0 61.8 89.8 -5.8 141.6 22.6

XI 6.1 -11.6 37.2 2.3 -18.8 59.7 -16.5 -14.9 32.6 41.5 41.1 14.2

XII -37.2 -26.6 21.8 53.9 57.8 -0.6 -63.6 -60.4 63.5 39.2 15.9 52.0


31

XIII -32.4 -11.6 29.6 200.7 69.8 10.8 184.5 189.4 35.6 -50.7 -42.2 79.1

XV -4.3 -0.8 104.5 -37.2 19.6 6.2 87.3 43.8 99.3 8.0 25.6 52.4

XVI 307.2 46.6 201.9 204.7 168.4 12.9 164.0 116.7 44.2 284.4 163.1 151.0

XVII 360.5 116.1 75.9 164.8 81.7 11.9 741.5 240.7 75.8 896.1 430.5 146.4

XVIII 74.2 -11.1 133.3 222.4 407.1 11.9 2011.2 709.0 268.3 107.7 -41.1 252.8

XX -21.1 -14.1 2.7 -23.1 -35.2 51.1 546.8 145.4 137.8 -7.6 -26.1 43.0

XXII 663.3 186.1 20.0 7183.7 127.8 3344.1 -73.8 -79.6 83.8 873.3 -71.0 473.1

Vest Nord-Vest Centru Bucureşti-Ilfov

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

2005-2013

2005-2008

2009-2013

I 112.0 12.9 131.5 270.3 42.9 193.4 309.5 38.9 185.0 178.6 -36.7 197.9

II 416.1 540.9 152.8 213.7 540.9 226.7 416.8 540.9 216.1 1056.4 540.9 155.0

III 535.5 224.9 390.1 2616.5 783.0 381.5 129900.0 600.0 2352.8 339.3 181.2 48.1

IV 647.7 768.4 140.4 424.5 76.8 114.1 504.4 80.7 309.3 1055.5 454.7 68.2

V 661.7 479.5 82.8 -8.3 47.3 390.3 4874.2 2719.6 35.2 -21.8 23.5 21.1

VI 639.0 120.8 436.3 4.8 -27.7 159.0 172.6 102.0 73.0 255.4 106.6 135.1

VII 210.6 53.1 99.6 1296.4 421.2 130.5 296.8 101.5 101.3 158.3 62.7 111.1

VIII 55.9 27.9 32.0 -8.9 -6.1 11.1 74.6 22.5 88.8 29.0 -7.5 155.2

IX 29.5 -1.0 58.0 149.1 10.8 100.3 223.9 31.8 139.9 8.1 3.8 29.8

X 361.5 159.5 109.0 99.6 40.0 47.1 272.4 34.6 115.3 117.9 -13.4 151.9

XI -21.6 -25.3 26.3 -3.7 -6.7 27.9 15.9 26.1 5.2 -54.4 -53.9 38.8

XII 19.7 21.2 26.7 14.5 -6.4 31.4 6.6 -18.1 47.9 -20.9 -26.3 41.3

XIII 44.3 16.9 21.8 38.0 -21.2 84.3 21.0 -29.7 105.3 -20.0 -48.7 87.5

XV 314.0 129.9 189.4 178.4 74.2 134.8 182.2 149.4 111.8 145.9 104.6 53.6

XVI 136.4 52.0 103.6 224.4 143.8 8.3 519.7 221.9 114.3 231.3 101.3 47.6

XVII 233.2 51.5 122.0 410.0 142.1 95.6 303.0 85.5 133.7 268.3 37.4 1.6

XVIII 448.6 199.9 53.9 209.9 49.4 109.5 213.8 147.3 40.7 295.7 19.4 81.4

XX 152.8 61.8 77.3 137.0 41.2 75.7 28.4 37.4 17.6 -46.1 -46.9 11.5

XXII 127.7 54.4 43.4 77.5 -88.2 306.3 595.8 247.8 310.4 221.5 -46.9 412.9 Source: Authors’ computations, based on data from the National Institute of Statistics and TEMPO-on line.

However, there are product groups for which all the regions recorded positive changes (II – except for the Nord-Est region over the 2009-2013 period, IV – except for the Sud-Vest Oltenia region over the 2009-2013 period, VII, XVI and XVII). The last two groups mentioned include products with a (theoretically) medium and high technological level, which determines us to say that the change in the sectoral structure of the regional exports was partially towards increasing the competitiveness of the products exported on the foreign markets and towards deeper integration into the international value chains of medium and high technology. Also, the II and IV groups include products that (theoretically) turn to the best account the domestic agricultural raw materials that were poorly represented in the structure of national exports before Romania’s accession to the EU because their low competitiveness, so that one may say that the change in the sectoral structure of exports was also towards increasing the quality and competitiveness of agricultural and agriculture-based products. Because at regional level more detailed data on exports are not available, we cannot deepen our analysis to examine how big and sustainable are (or not) the structural changes and the competitive advantages.

Further, considering the components of shift-share decomposition, over the 2005-2013 period the national effect was positive in all the regions, though of different magnitudes, signaling that the national export dynamics had a positive impact (pull effect) [4]. When we detail the analysis by the two mentioned sub-periods, the national effect revealed significant differences, suggesting different dynamics of the regional exports by product groups correlated with the national


32

dynamics, induced by the sectoral changes occurred in the Romanian economy. Thus, the positive national effect was higher in the 2009-2013 period as compared to the 2005-2008 period in all the regions in the case of product groups I, II, IV, VII, IX, XVI and XVII, which were approximately the same product groups that registered a positive structural change in all the regions.

In order to compare the share and shift effects for the exports by product groups in the analyzed regions over the 2005-2013 period, we employed an adaptation of the table classification proposed by D'Elia (2005), which combines the sectoral mix and the regional effects in the shape of diagrams. The analysis may be performed either for each product group for all the regions, or for each region for all the product groups and periods.

The results show that in the entire analyzed period in the case of the exports of product groups V, VIII, XI, XII, XIII, XV and XX the sectoral mix was negative in all the regions, but for different product groups this was compensated in all the regions by particular factor combinations that contributed to a better export performance (positive RS), as follows: Nord-Est (group XI), Sud-Est (groups V, VIII, XI, XII and XIII), Sud Muntenia (groups V, XIII, XV and XX), Bucuresti-Ilfov (group XV), Sud-Vest Oltenia (groups VIII, XI and XII), Vest (groups V, VIII, XII, XIII, XV and XX), Nord Vest (groups XI, XII, XIII, XV and XX) and Centru (groups V, VIII, XI, XII and XV). Similarly revealed is the reverse situation, of a positive sectoral mix and a negative regional change effect, which points towards certain regional and sectoral competitive factors that were not/are not fully exploited: Nord-Est (groups II, III, IV, VI, X, XVII and XVIII), Sud-Est (groups IV, VI, VII, IX, XVI, XVII and XVIII), Sud Muntenia (groups III, VI, IX, XVI and XXII), Bucuresti-Ilfov (groups I, VII, IX, X, XVII and XVIII), Sud-Vest Oltenia (groups VI, VII, IX, X and XVIII), Vest (groups I, II, IV, VII, IX, XVII, XVII and XXII), Nord-Vest (groups I, II, IV, VI, X, XVIII and XXII) and Centru (groups II, IV, XVII and XVIII).

From among the two analyzed sub-periods, we are mostly interested in the crisis and post-crisis period, 2009-2013, in order to find out the likely structural changes it has induced. In such a case, to the product groups previously-mentioned as registering a negative sectoral adds up group XVI, one of the product groups with high shares in the national and regional exports. Also in this period, the impact of a negative sectoral mix was compensated in the case of certain product groups in all the regions by positive regional change effects: Nord-Est (groups V, VIII, XI, XV and XVI), Sud-Est (groups V, VIII and XI), Sud Muntenia (groups XI, XII, XV and XXII), Bucuresti-Ilfov (groups VIII, XI, XII and XIII), Sud-Vest Oltenia (groups XII, XIII and XVI), Vest (groups V, XV, XVI and XXI), Nord-Vest (groups V, XIII, XV and XXII) and Centru (groups VIII, XII, XIII, XV and XVI). Under the circumstances of a sectoral positive mix, the sub-period is characterized by positive and/or negative evolutions of the regional change component for the exports of different product groups in all the regions (Table 2). The most obvious sectoral mobility of exports in a positive direction (both positive sectoral mix and regional change effect, or RS turned positive in the 2009-2013 period) is noticed in the Nord-Vest, Centru, Nord-Est, Bucuresti-Ilfov and Vest regions. Table 2. Evolution of the regional change component (RS) for the exports of the CN product groups in the case of a positive sectoral mix in the 2009-2013 period, as against the entire analyzed period, 2005-2013

Product groups with negative RS in the period 2005-2013 and negative in the period 2009-2013

Product groups with negative RS in the period 2005-2013 and positive in the period 2009-2013

Product groups with positive RS in the period 2005-2013 and negative in the period 2009-2013

Product groups with positive RS in the period 2005-2013 and positive in the period 2009-2013

Nord-Est II, III, VI, IV, X, XVII, XVIII, XXII I, VII, IX, X Sud-Est IV, VII, IX, XVII,

XVIII VI I, II, III, X, XXII

Sud Muntenia III, VI, IX, XXII I, II, X IV, VII, XVII, XVIII

Bucuresti-Ilfov IX, XVII I, VII, X, XVIII II, III, IV VI, XXII


33

Sud-Vest Oltenia

VI, VII, IX, X XVIII III, IV I, II, XVII, XXII

Vest I, II, IX, XXII IV, VII, XVII XVIII III, VI, X Nord-Vest X, XXII I, II, IV, VI, XVIII IX III, VII, XVII Centru XVIII II, IV, XVII I, VI, XXII III, VII, IX, X

Source: Authors’ computations, based on data from the National Institute of Statistics and TEMPO-on line.

Finally, the decomposition of the regional competitive effect reveals the lower share of the regional comparative advantage as compared to the allocation effect in all the regions and for all the product groups (except for group V – Table 3). The highest impact of the comparative advantage may be noticed in the Bucuresti-Ilfov and Vest regions and the lowest in the Sud-Vest Oltenia and Nord-Est regions, in accordance with the shares of these latter regions in the national exports by product groups. Table 3. Decomposition of the regional change component for the exports of the main product groups, 2013 as against 2005

Nord-Est

Sud-Est

Sud Muntenia

Sud-Vest Oltenia

ACR CA ACR CA ACR CA ACR CA

I 2.1 23.8 6.8 40.9 1.9 13.9 0.5 7.6

II -7.2 -80.1 44.5 268.2 3.5 25.3 1.2 17.6

III -4.7 -52.1 7.5 45.2 -6.6 -47.0 0.0 0.3

IV -9.5 -105.4 -5.8 -35.0 13.3 95.6 0.6 8.7

V -216.2 -155.2 58.2 556.0 15.8 71.2 -21.9 13.0

VI -2.5 -28.2 -5.7 -34.2 -44.5 -319.3 -10.1 -153.2

VII 0.8 8.4 -3.5 -21.2 2.6 18.9 -8.2 -124.0

VIII -0.6 -6.9 0.2 1.4 -0.7 -5.0 0.9 13.8

IX 7.3 81.3 -3.8 -22.9 -3.7 -26.4 -2.2 -32.9

X -1.8 -20.5 0.0 0.1 1.1 7.6 -0.3 -4.0

XI 8.7 96.2 8.8 52.9 -3.0 -21.8 4.6 69.7

XII -3.4 -38.1 1.1 6.9 -0.9 -6.3 0.3 4.6

XIII -0.7 -7.4 0.7 4.0 4.3 31.1 -0.1 -1.7

XV -8.2 -90.4 -153.3 -924.6 16.7 119.8 -11.6 -177.0

XVI 10.1 112.3 -0.8 -4.6 -44.4 -318.5 5.1 77.8

XVII -0.5 -5.5 -125.1 -754.5 177.5 1272.2 25.8 391.4

XVIII -2.3 -25.6 0.0 -0.2 5.5 39.2 0.0 -0.7

XX -8.7 -96.0 -4.4 -26.6 27.1 194.4 -1.1 -16.6

XXII 0.4 4.8 2.7 16.2 -12.3 -88.4 2.8 42.3

Vest Nord-Vest Centru

Bucuresti-Ilfov

ACR CA ACR CA ACR CA ACR CA

I -12.7 -68.1 -0.2 -1.5 1.3 10.2 -5.7 -21.0

II -25.3 -135.9 -24.6 -194.5 -2.2 -18.2 27.2 100.6

III 0.2 1.2 5.8 45.8 0.1 1.2 0.6 2.4

IV -0.9 -5.1 -8.4 -66.0 -3.0 -24.4 30.9 114.4

V 9.2 -2.0 0.0 -2.7 98.4 -81.1 0.0 -342.6

VI 35.3 189.9 -8.8 -69.2 7.8 64.0 80.5 298.0

VII -4.6 -24.8 29.7 234.7 4.7 38.1 -32.3 -119.5

VIII 0.0 0.2 -1.9 -15.3 1.9 15.9 -0.9 -3.1

IX -14.2 -76.4 1.8 14.3 29.2 238.7 -40.4 -149.7


34

X 2.2 12.0 -1.6 -12.8 2.9 23.3 -1.7 -6.4

XI -10.1 -54.3 4.4 35.0 16.2 132.5 -72.3 -267.5

XII 7.9 42.4 4.2 33.0 0.2 1.9 -11.5 -42.5

XIII 0.4 2.3 0.1 1.1 -0.9 -7.3 -5.5 -20.5

XV 49.0 263.5 33.5 264.5 25.3 207.4 82.0 303.4

XVI -153.1 -823.1 5.7 45.2 106.4 870.9 23.6 87.3

XVII -97.0 -521.8 0.8 6.5 -24.7 -202.0 -30.4 -112.7

XVIII 8.6 46.0 -3.3 -26.0 -3.1 -25.4 -2.7 -9.9

XX 21.5 115.5 18.1 142.9 -12.4 -101.3 -53.7 -198.9

XXII -0.8 -4.3 -1.7 -13.1 2.9 23.6 5.3 19.5 Source: Authors’ computations, based on data from the National Institute of Statistics and TEMPO-on line.

4. CONCLUSIONS

By the means of standard shift-share analysis, the paper attempted to assess the sectoral development gaps and the external competitiveness of the Romanian regions from the perspective of regional foreign trade, namely of exports.

The dynamics of Romanian regional exports over the period 2005-2013 revealed two relatively distinct sub-periods: 2005-2008 (pre-crisis) and 2009-2013 (crisis and post-crisis), with a significant decline in 2009 and partial in 2012, overall and for the main product groups (as according to the CN classification), with certain regional and/or sectoral peculiarities. The change in the sectoral structure of regional exports was partially towards increasing the competitiveness of some product groups with medium and high technological level on the foreign markets and towards a deeper integration into the international value chains of medium and high technology, but also partially towards increasing the quality and competitiveness of agriculture-based products, poorly represented in the national exports before Romania’s accession to the EU because of their low competitiveness.

Considering the shift-share decomposition, over the period 2005-2013 the national effect was positive in all the regions, signaling a positive impact of the national exports as growth factor at regional level. By sub-periods, the national effect was different, suggesting different dynamics of regional exports correlated with the national sectoral dynamics induced by crisis. The national positive effect was higher in the post-crisis period for approximately the same product groups that registered positive strucural changes in all the regions.

As regards the sectoral mix and competitive change effects, over the entire analyzed period were found product groups with negative sectoral mix in all the regions; however, compensated in some cases by specific factor combinations that determined a better export performance. Similarly obvious in all the regions was the reverse situation, of product groups with positive sectoral mixes and negative regional change effects, signaling untapped regional and/or sectoral potentials for export growth. During the crisis and post-crisis period, a negative sectoral mix was also registered by group XVI, one of the product groups with high shares in the regional and national exports, and high importance for the regional (and sub-regional) economies. In the presence of a positive sectoral mix, the sub-period is also characterized by positive sectoral export mobility (also positive regional change or regional change turned positive in the 2009-2013 sub-period) for different product groups, the highest in the Nord-Vest, Centru, Nord-Est, Bucuresti-Ilfov and Vest regions. Finally, it was revealed that the regional comparative advantage has a lower share in the regional change as compared to the allocation component, its highest impact being registered in the Bucuresti-Ilfov and Vest regions, and its lowest impact in the Sud-Vest Oltenia and Nord-Est regions, in accordance with the share of the latter regions in the structure of national exports.

Such an analysis may bring new insights into the economic growth processes occurring in the regional/sub-regional economies of Romania, and may provide useful ideas for both general and specific policies, such as the territorial cohesion policy (with emphasis on both urban and rural


35

growth), the competitiveness policy (with emphasis on cluster development and sustainability, for instance), the education and R&D policy, etc.

[1] The paper presents some partial research results of the research theme Coeziunea economico-socială a

României în perspectiva Strategiei Europa 2020, Partea a-II-a, coordinator Iordan Marioara, Institute for Economic Forecasting, Bucharest, Romania, 2014, mimeo.

[2] The analyzed main product groups classified as according to CN are the following: I – Live animals and animal products, II – Vegetable products, III – Vegetable and animal fats and oils, IV – Food, beverages, tobacco, V – Mineral products, VI – Chemical products and connected, VII – Plastic, rubber, and articles thereof, VIII – Raw hides and skins, leather, fur skins and articles thereof, IX – Wood products, cork and wickerwork, X – Pulp, waste paper or cardboard, paper and cardboard and articles thereof, XI – Textiles and articles thereof, XII – Footwear, headgear, umbrellas and articles thereof, XIII – Articles of cement, stone, ceramic, glass, and other similar materials, XV – Basic metals and articles thereof, XVI – Machinery and equipment, sound and image recorders and reproducers, XVII – Transport means, XVIII – Optical, photographic, cinematographic, measuring, precision, checking and medical instruments, XX – Miscellaneous manufactured articles, XXII – Other products, not elsewhere classified.

[3] The results are not presented in the paper, due to space restrictions, but are available upon request. [4] The results for the national effect and the share and shift effects are available upon request.

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2. R. Camagni (2002), On the concept of territorial competitiveness: sound or misleading?, Paper presented at the ERSA Conference, Dortmund, August.

3. Mihaela-Nona Chilian (2013), Coeziunea economico-socială la nivel regional – Elemente de fundamentare a unei strategii naţionale, Editura Expert, Bucureşti, România.

4. M.N. Chilian (2012), Evolution of Regional and Sub-Regional Disparities in Romania – A Sectoral Shift-Share Analysis, Romanian Journal of Economic Forecasting, Vol. XV, No. 1, pp. 187-204.

5. M.N. Chilian (2011), Competitivitatea economiei româneşti şi integrarea în Uniunea Europeană, Editura Universitară, Bucureşti, 2011.

6. Marioara Iordan (coordonator) (2013), Coeziunea economico-socială în România din perspectiva Strategiei Europa 2020 – Institutul de Prognoză Economică, Bucuresti, manuscris.

7. Sandy Dall’erba, Yiannis Kamarianakis, Julie Le Gallo, Maria Plotnikova (2003), Regional Productivity Differentials in Poland, Hungary and the Czech Republic, REAL 03-T-26, August.

8. Gardiner, R. Martin, P. Tyler (2004), Competitiveness, Productivity and Economic Growth across the European Regions, University of Cambridge, UK, May.

9. José Luis Iparraguirre D’Elia (2005), Labour Productivity, Gross Value Added and Employment by Industry in Northern Ireland. A Structural and Shift-Share Analysis, Economic Research Institute of Northern Ireland ERINI Monograph 6, December.

10. Yiannis Kamarianakis, Julie Le Gallo (2003), The evolution of regional productivity disparities in the European Union, 1975-2000, Groupement de Recherches Economiques et Sociales (GRES), Cahiers du GRES 2003-15, Décembre.

11. Pierre-Yves Leo and Jean Philippe (2005), Business Services, the New Engine of French Regional Growth, The Service Industries Journal, Vol. 25, No.2, March, pp.141–161.

12. Esteban-Marquillas, J.M. (2000) “Regional convergence in Europe and the industry mix: a shift-share”, Regional and Urban Economics, 30: 253-364.

13. Matías Mayor Fernández, Ana Jesús López Menéndez (2005), Spatial shift-share analysis: new developments and some findings for the Spanish case, 45th Congress of the European Regional Science Association.


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14. Matías Mayor Fernández, Ana Jesús López Menéndez (2002), The Evolution of the Employment in the European Union. A Stochastic Shift and Share Approach, ERSA Congress, Dortmund.

15. Ann C. Selting, Scott Loveridge (1992), A Summary of the Literature on Shift-Share Analysis, Staff Paper P92-13, Department of Agricultural and Applied Economics, University of Minnesota, St. Paul, Minnesota, USA, June.

16. David Wadley, Phillip Smith (2003), Straightening up shift-share analysis, The Annals of Regional Science 37:259–261.

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

37

LOCAL DEVELOPMENT IN NORTHEST REGION THROUGH

ACTIVITIES IN ITC DOMAIN

AssociateProfessorPhDDanielaENACHESCUPetroleum‐GasUniversityofPloiesti,Romania

[email protected]

Abstract: Economic areas with high technology are key drivers in sustainable regional development, including

unemployment and consequently decreasing population migration in the region. Northeast Region is the largest development region of Romania in terms of number of inhabitants and the owned area. On 01/01/2014, according to balance employment, labor resources of the region were numbered 2,428,700, which represent 49.6% of employed population. The registered unemployment rate at 31 August 2014 was 6.5%, with 82 thousand unemployed registered. In terms of participation in the main economic activities, civilian employment in agriculture, forestry and fishing is predominant (40.1%) while in service, civilian employment is 37.1%, while industry and construction is 22.8%. The paper aims to analyze the situation that the potential employment and development opportunities for the Northeast region through activities in the field of ITC domain. Unfortunately, this area was the worst in most indicators, the use of computers and the internet to the turnover of companies and investments in the IT & C and unfortunately in terms of employment population that is under 50%.

Key words: local development, sustainable development, ITC

JEL classification: A1, L86, R1

1.INTRODUCTION

According to data provided by the portal EURES (The European Job Mobility)[12], Northeast Region is the largest development region of Romania in terms of number of inhabitants and the owned area. It consists of the following counties: Bacau, Botosani, Iasi, Neamt, Suceava, Iasi.

According to the latest census, the Northeast region has a total population of 3,302,200 people thus is the most populated region of the country.

On 01/01/2014, according to balance employment, labor resources of the region were numbered 2,428,700, which represent 49.6% of employed population. The registered unemployment rate at 31 August 2014 was 6.5%, with 82 thousand unemployed registered. In terms of participation in the main economic activities, civilian employment in agriculture, forestry and fishing is predominant (40.1%) while in service, civilian employment is 37.1%, while industry and construction is 22.8%.

As indicated in the methodological Employment Balance (BFM 2011) employed population - includes all persons who have an income generating occupation, which habitually exercises in one of the activities of the national economy being embedded in an economic activity or social, under a contract of employment or independently (on their own) in order to get income as salary, payment in kind etc. In view of this and of the population aged 15-64 years of working age, in the first part of the paper is analyzed trends in employment rates which, according to the Romanian Statistical Yearbook (ASR 2012) "represents the ratio between employed population and total population years expressed as percentage aged 15-64 "both in Romania and the development regions according to NUTS 3.


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2. DEVELOPMENTS IN THE EMPLOYMENT RATE OF LABOR RESOURCES IN THE 2007-2013 PERIOD

The economic crisis that started in 2009 had negative effects on employment rates and labor, both in the UE28 countries (Zaharia & Bălăcescu, 2013) and at national and regional level (Bălăcescu & Zaharia, 2013). Analyzing the period 2007-2013 there is relatively different developments of this indicator in the eight development regions of Romania (Figure no 1). A common characteristic is the fact that this economic indicator showed a significant setback during the economic crisis began in 2009. The 2010 average employment rate in Romania was 3.8 percentage points lower than in 2007.

50

55

60

65

70

75

80

85

2007 2008 2009 2010 2011 2012 2013

(%)

TOTAL

North-West

Center

North-East

South-East

South Muntenia

Bucuresti-Ilfov

South-West Oltenia

West

Figure no.1. Evolution of total employment rate of labor resources by region Source: own processing after http://statistici.insse.ro/shop/

In the developing regions in 2013, employment rates have decreased between 5.7 percentage

points and 1.9 percentage points in West region and in Ilfov development region. In the North-East region has been a decrease in the employment rate, at total of 3.9 percentage points, a relatively better than in the South-West Oltenia region (a decrease of 4.2 percentage points), South Muntenia and Center, both with reductions in employment rates by 4.0 percentage points.

Since 2011, five of the eight development regions recorded the recovery trends, employment rates recorded increases ranging from 0.1 percentage points in North-West region and 1.0 percentage points in the Bucharest Ilfov. The decline in employment rates continued its work in developing regions South-East (-0.3 percentage points), South-West Oltenia (-0.5 percentage points) and North-East (-0.9 percentage points).Although 2012 was favorable one for employment rates of population growth in all eight development regions of Romania, 2013 brings reductions in employment rates both in Romania (-0.2 percentage points) and at the level of development regions South- East (-0.1 percentage points), South Muntenia (-0.4 percentage points), West (-0.9 percentage points) and North-East (-1.2 percentage points).

Analyzing the evolution of employment rates in the period 2007-2013 shows that, except for the Bucharest-Ilfov development region in all other regions the economic crisis has not passed, the


39

worst results recorded in South-West Oltenia regions (-4.1 percentage points) and North-East (-4.4 percentage points).

In terms gender development in the employment rate of the labor force during the period analyzed, differences are found both on the percentages recorded values and the impact of the economic crisis on them (Table no. 1). Thus, in 2007 the employment rate of male population was higher than the corresponding females both in Romania and in all eight regions. The biggest difference, 6.3 percentage points was recorded in the West, and the smallest difference of 1.4 percentage points was recorded in North-East region. Table no 1. Evolution of the employment rate of employment of the male population (M) and

female (F) in the 2007-2013 period (%) 2007 2010 2011 2012 2013 M F M F M F M F M F

TOTAL 65.3 61.3 61.2 57.9 60.7 58.4 62.4 59.6 62.6 59.1North-West 70.6 66.4 65.9 63.8 66.2 63.8 68.3 65.1 69.5 64.1

Center 66.5 61.2 62.9 56.9 62.9 57.7 65.8 59.2 66.6 58.8North-East 54.7 53.3 51.0 50.2 49.0 50.4 50.4 51.2 49.4 49.7South-East 60.0 54.2 55.3 51.1 54.7 51.3 55.7 53.3 56.2 52.6

South Muntenia 60.5 57.9 57.0 53.5 56.2 54.5 58.2 55.4 58.0 54.9Bucuresti-Ilfov 83.0 77.8 79.8 77.3 81.5 77.4 82.9 77.8 83.7 80.6

South-West Oltenia 64.0 60.2 59.6 56.2 57.8 57.1 59.3 58.7 58.9 57.2West 72.4 66.1 67.3 59.8 67.4 60.4 69.3 62.3 70.5 61.8

Source: http://statistici.insse.ro/shop/

Period 2007-2009 and economic crisis brings significant changes thereof. Thus, while in 2007 the national activity rate for the male population was 4 percentage points higher than that of the female population, in 2010 the ratio changes, the activity rate of the female population outrun by 0.7 percentage points on the male population. Significant differences on the impact of the economic crisis on employment rates of male and female population is recorded in the Bucharest Ilfov where the activity rate of the female population surpasses that of the male population by 2.7 percentage points, and North-West region where the activity rate of the population female surpasses that of the male population by 2.1 percentage points. Opposite from the population in the same year, the rates of activity of the male population is continuing overtake those of the female population in the regions Center (0.7 percentage points), South-Muntenia (0.9 percentage points) and the West (1.2 percentage points) .

Comparing the values registered by activity rates by sex recorded in 2013 with those recorded in 2007, the conclusions are relatively similar to those observed in the total population. It should be noted that if the male population, besides the Bucharest Ilfov, Center region recorded a value of 0.1 percentage points above the 2007 level.On the other hand, it is shown that the impact of the economic crisis on employment rates of female population was much stronger than the corresponding male population. Thus, while the activity rates of male population, except for the Bucharest-Ilfov and Center, in 2013 recorded values lower than in 2007 by between 1.9 percentage points and 5.3 percentage points West region to region North_East rates activity of the female population recorded in 2013 compared to 2007, except for Bucharest-Ilfov region, are between 1.6 percentage points in South-East region and 4.3 percentage points in the West.

In the North-East region development activity rates of the population had a downward trend with 0.729 percentage points annually overlapping oscillating component with positive values of amplitudes compared to the trend between 0.3 and 0.4 percentage points in 2008 and 2012, and negative values ranging from -1.2 in 2009-2011 and -1.4 percentage points recorded in 2009 and 2011 (figure no 2).


40

40

45

50

55

60

2007 2008 2009 2010 2011 2012 2013

(%)

Bacau Botosani IasiNeamt Suceava VasluiNorth-East Linear (North-East)

Figure no 2. Evolution of the population activity rates in the counties of North-East development region in the 2007-2013 period.

Source: own processing after http://statistici.insse.ro/shop/

The counties with the lowest values of employment rate of the population were Bacau county in which the analyzed period, the employment rate decreased from 48.5% in 2007 to 44.3% in 2013, with a minimum of 41.1% in 2010, and Vaslui county where the employment rate decreased from 52.0% in 2007 to 47.8% in 2013.

In other counties, the employment rate of the population values were found throughout the period, more than the regional average. However, the economic phenomena that occurred in the period under review resulted in change of hierarchy of these counties. Thus, while in 2007 the highest value of the activity rate of 56.8% of the population was registered in Suceava County (2.8 percentage points above the average for the region), in 2013 the highest value of 53.6% was recorded Botosani County (figure no 2).

3. SKILLS AND INCOMPETENCE OF THE POPULATION IN THE USE OF COMPUTERS

Of course, computer user skills training depend on the level of individual material resources,

education, social environment that individual comes, belonging to religions etc. Of these, the first part of the paper was analyzed developments in employment rates both in the development regions of Romania and the North-East region counties. Further, the paper, after a brief analysis highlights the Individuals 'level of computer skills and Individuals' level of internet skills at national level, presents developments percentage of people that have never used computer development regions in the developing regions of Romania.

Individuals' level of computer skills at national level in the period 2006 - 2014 are shown in Table no 2. In the period 2006-2011 there were significant increases in the percentage share of individuals with high skills in computer use, doubling the values of this indicator. At the same time, increased by 40% weighting individuals with average computer use, while the percentage of those with low level computer use increased by only 15.3%.


41

Table no 2. Individuals' level of computer skills at national level (%) Level of computer skills 2006 2007 2009 2011 2012 2014

Law 13 14 17 15 14 18 Medium 10 10 10 14 13 13

High 5 5 9 10 8 7 Source: http://www.insse.ro/cms/files/Web_IDD_BD_ro/index.htm

Since 2012, however, it highlights a regression on individual skills in computer use. Significant regression of the percentage of individuals with high level computer user is not due to decreasing levels of those who in 2011 had the skills but significantly higher increase in the number of individuals with low skills in this area. It is assumed that this is due, on the one hand, some significant changes in the attitude of young people and the quality of their training in terms of declining interest in education and therefore the use of computers, and on the other hand decrease the quality of education in some schools primary and secondary. Also, analyzing developments weights Individuals' level of internet skills (Table no 3) find similar attitudes.

Table no 3. Individuals' level of internet skills at national level (%)

Level of internet skills 2006 2007 2010 2011 2013 Law 14 16 25 20 29

Medium 7 10 16 17 23 High 2 2 1 7 5

Source: http://www.insse.ro/cms/files/Web_IDD_BD_ro/index.htm

In terms the share of individuals who have high skills in using the Internet, in 2011 there was a real boom. This jump was not caused by increased interest in using computers but was encouraged by the emergence and widespread use of smart phones, considerable decrease their costs and the explosive growth of social networking. These developments have influenced and influence the development of electronic commerce in Romania (Enachescu & Zaharia, 2013).

A Eurostat statistics presented in terms of the percentage of the population that has never used a computer, the developing regions of Romania, shows that nationally their share decreased from 58% in 2008 to 42% in 2012. Although a significant reduction, Romania is still far from countries where the values of this indicator showed significant reductions, such as Belgium (from 23% in 2008 to 12% in 2013), Czech Republic (from 28% in 2008 to 16% in 2013), Hungary (from 31% in 2008 to 23% in 2013), Croatia (from 48% in 2008 to 26% in 2013), France (20% in 2008 to 12% in 2013) and even our neighbor, Bulgaria where the proportion of people who never used computer decreased from 53% in 2008 to 40% in 2013.

On development regions of Romania, the share of population evolution who never used the computer in 2008-2013 is shown in Figure no 4. Of these, as expected, the lowest values of this indicator in Bucharest region Ilfov and are determined by the specificity of this region. In the other seven regions weighted population never used computer evolved relatively grouped with values ranging from 62% in 2007 (North-East regions and South-Muntenia) and 53% (in the West). In 2013 the population weighted never used computer evolved from 51% (South-Muntenia region) and 38% (in the West). It should be stressed that if in 2008 the value difference between the highest and the lowest was 9 percentage points in 2013 it reached 13 percentage points which shows an amplification of differentiation between developing regions respect the share of population has never used computer.


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25

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013

(%)

ROMANIA

North-West

Center

North-East

South-East

South Muntenia

Bucuresti-Ilfov

South-WestOlteniaWest

Figure no 3. Evolution of the population ratios of the development region of Romania who

have never used the internet Source: http://appsso.eurostat.ec.europa.eu/nui/show.do, Individuals who have never used a computer [isoc_r_cux_i] accessed on 09.03.2015

In Romania, in the period under review, the share of population that never used computer decreased on average by 3.343 percentage points annually. Of course, this decrease was due to the reduction of the proportion of people who never used the computer in the Bucharest Ilfov region where the average annual reduction was 3.943 percentage points.

In terms Northest region, the share of the population that never used computer decreased from 62% in 2008 to 42% in 2013, the average annual decrease of 3.628 percentage points higher than that recorded at national level, meaning a positive influence (favorable) of the regional indicator values recorded on the national

4. ASPECTS OF THE EVOLUTION OF THE ITC INDUSTRY ICT industry is an important industry both in the creation of national income and in

employment of labor resources with high level of training. The period 2008-2010 was marked by real turbulence. To what extent this had an impact on the turnover of the ICT industry in eight regions of developed and to what extent these developments are in line with the evolution of the employment rate of the population in these regions development?

Except for the Bucharest-Ilfov which concentrates most of the businesses in this industry, the turnover recorded here representing over 73% of the total turnover of the ICT industry in Romania, in the seven regions were recorded both increases and decreases (table no 4).

Table no 4. Turnover of the ITC (million RON) Development region 2008 2009 2010 ROMANIA (total) 34959 32306 32493

North-West 1798 1674 1731Center 1323 1411 1520

North-East 1210 1181 1236South-East 840 869 819

Bucuresti-Ilfov 25548 23330 23865South Muntenia 1672 1588 1330


43

South-West Oltenia 593 623 598West 1975 1630 1394

Source: data series TEMPO, INSSE and http://www.nord-vest.ro/Document_Files/Planul-de-dezvoltare-regionala-2014-2020/00001310/bvd0x_Societatea%20informationala%20-%20noiembrie%202012.pdf

Thus, in developing regions South-West Oltenia and South-East in 2009 slight increases in turnover in the ITC compared to 2008, by 5.0% and 3.4% respectively. In regions of North-East and North-West developments were in the opposite direction from the ITC turnover recorded in 2009 was lower than that recorded in 2008, by 2.4% and 6.9% respectively.

Developments of greater magnitude were recorded in South-Muntenia development regions and West region, in the 2008 – 2010 period, the turnover of the ITC fell dramatically by 20.5% and 29.5% respectively. Finally, during that period, there is a region, the Center region, where the turnover of the ITC, increased by 14.9%.

Comparing these developments, however, with the employment rate shows that the evolution of turnover of the ITC, at least in the period under review, did not affect the employment rates of the working age population in developing regions.

5.CONCLUSIONS Continuing the analysis of the regions of Romania (Enachescu D.,2013.2014) in terms of

development opportunities in active ITC and its implications for employment and labor mobility, the paper tries to present the situation of the North East region in terms of impact of information society that Romania should accede. We presented these data and statistical analysis to highlight the region's potential in the field of ICT development activities that would increase the population employment levels, lower unemployment and thus the migration of the population in the region and support the sustainable development of the region (Teodorescu A,2012).

Unfortunately, this area was the worst in most indicators, the use of computers and the internet to the turnover of companies and investments in the IT & C and unfortunately in terms of employment population that is under 50%.

On the other hand, no significant investments were made in this sector, preferring other economic fields. Personally, I think it would be extremely important development of this area of economic activity in the ITC activities in conditions of adequate information infrastructure, enabling a large number of people engaging in activities consuming less resources and energy. Due to the low cost and well qualified workforce, the region is one of the best investment areas in Europe.

REFERENCES 1. ASR (2012). Anuarul Statistic al Romaniei, Institutul National de Statistica, p.85. 2. Bălăcescu A., Zaharia M. (2013). The Impact of the Economic Crisis to Employment and

Unemployment Rate in Romanian Macro region, Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 6/2013, pp.136-143, http://www.utgjiu.ro/revista/ec/pdf/2013-06/22_Balacescu,Zaharia.pdf.

3. BFM (2011). Balanţa Forţei de Muncă, Institutul National de Statistica, p.7 4. Enăchescu D. (2013), Analysis of the employment opportunities for the workforce in the South-

West Oltenia region in complementary activities such as e-work, Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 3/2013, ISSN 1844-7007,p.49-54, BDI, http://www.utgjiu.ro/revista/ec/pdf/2013-03/4.pdf

5. Enachescu D. (2014), Developing ITC domain premise of sustainable development in Romania, Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series,Special


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Issue/2014- Information society and sustainable development, ISSN 2344 – 3685/ISSN-L 1844 - 7007; pag 230-235 http://www.utgjiu.ro/revista/ec/ pdf/2014_Special/41_Enachescu%201.pdf

6. Enăchescu D., Zaharia M. (2013). Electronic commerce in Romania features and dynamics, IEEE-MIPRO 36th International Convention, May 20-24, 2013, Opatija, Croatia, pag.1531-1539

7. EUROSTAT Data Base, http://appsso.eurostat.ec.europa.eu Individuals who have never used a computer [isoc_r_cux_i] accessed on 09.03.2015.

8. NSI (2015), National Institute for Statistics, http://www.insse.ro/cms/ files/Web_IDD_BD_ro/index.htm, http://statistici.insse.ro/shop/

9. Teodorescu A. (2012), Community environmental programs in the context of sustainable development, Anale volumul XVIII Seria Ştiinţe Economice Timişoara, Universitatea Tibiscus, Editura Mirton, Timişoara, 2012, ISSN 1582-2680 , p. 455-459, https://ideas.repec.org/a/tdt/annals/vxviiiy2012p455-459.html

10. Zaharia M., Bălăcescu A.(2013). Convergences and Divergences of Employment Rate in UE28 a Statistical Analysis of 2000-2012 Period, Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 6/2013, pp.192-198, http://www.utgjiu.ro/revista/ec/pdf/2013-06/32_Zaharia,Balacescu.pdf

11. https://ec.europa.eu/eures/ 12. https://ec.europa.eu/eures/main.jsp?lang=ro&acro=lmi&catId=9459&countryId=RO&regionId=

RO2&langChanged=true# 13. http://www.insse.ro/cms/files/Web_IDD_BD_ro/index.htm 14. http://appsso.eurostat.ec.europa.eu/nui/show.do 15. http://www.nord-vest.ro/Document_Files/Planul-de-dezvoltare-regionala-2014-

2020/00001310/bvd0x_Societatea%20informationala%20-%20noiembrie%202012.pdf

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

45

THE UNDERGROUND ECONOMY FROM THE PERSPECTIVE OF

THE TRIAD ECONOMICS, SOCIOLOGY, PSYCHOLOGY

PhDStudentCorneliuSorinBAICU

“StefancelMare”UniversityofSuceava,[email protected]

ProfessorPhDCristianValentinHAPENCIUC“StefancelMare”UniversityofSuceava,Romania

[email protected]

Abstract: Underground economy, in view of researchers, economists and jurists, is a theoretical complex construct, a

phenomenon with profound social and economic reverberations. This study argues multidisciplinary integrative the sociological, psychological and socio-psychological approach of underground economy. The premises of this study are given by methodological individualism and rational choice theory through building in neoclassical version of Homo economicus able to interact in a multidisciplinary and multifaceted manner with the area of social sciences. For the nonce, we submit to analysis an integrative model of Homo Oeconimicus with Homo Sociologicus, aggregated with elements of social psychology. Synergistic effects of this integrative approach consist of the ability to give an answer as relevant on symptoms and forms of deviant behavior and thus to explain the development of underground economy. The finality of this paper, starting from the stated premises, resides in the explanation and analysis of deviant behavior in the framework of the morphology and causality of underground economy. Deviant behavior in the context of our analysis reveals the coherence perspective on the following issues: anatomy and etiology of underground economy (informal and underground activities, illegal labor, tax fraud, etc.); attitude towards rules, society and the state (tax mentality, tax morality, moral conscience); tax compliance or non-compliance (willingness to pay tax liabilities). This paper is intended to constitute a pleading for an interdependent approach, multi-causal and interdisciplinary of underground economy.

Key words: Economics psychological; Economic sociology; Tax behavior; Tax morality; Underground economy.

JEL classification: A12; Z13.

1. INTRODUCTION

Perspectives on the underground economy are often focused on one aspect of its development. From the perspective of our study, we found that most of the time, economists bases their analyses starting from neoclassical theories thus creating the conditions of quasi-unilateral approach. In generally researchers from social sciences field tend to focus on their scientific fields to the detriment of integrative and holistic approach. The underground economy can not be explained, as is natural in fact, only by economic theory but need an integrating vision. The research methodology of this study falls into the category of conceptual research considering polyvalent nature of the underground economy. Aggregation of conceptual research topic is based on the analysis of economics, sociology, psychology vectors and is made taking into account the internal logic of the research process. The methodology used combines in a dialectical manner aspect of deductive nature with ones inductive nature. In the first part of the study we aimed to the definition and contextualization an interactive model of Homo Oeconimicus with Homo Sociologicus able to reveal the specific human behaviors of underground economy. The second part of the study aimed to decipher deviant behaviors relevant in terms of fiscal and economic analysis using the tools of social sciences, sociology, psychology and socio-psychological economy.


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2. INTERACTIVE MODEL HOMO OECONOMICUS-HOMO SOCIOLOGICUS - CONDITION OF ANALYSIS OF THE DEVIANT BEHAVIOURS SPECIFIC TO THE UNDERGROUND ECONOMY The analysis of the underground economy from the macroeconomic perspective had sometimes proven to be simplistic and unsatisfactory argued. The introduction of social sciences in the attempts of resolving the underground economic equation had as purpose the explanation of several economic, social and institutional phenomena that accompany the field of hidden economy by studying and explaining the individual behaviour. Some researchers consider as imperative the macroeconomic analysis of the phenomenon by microanalyses and microeconomic and micro-sociologic theories. Another course of exploration consists in the interdependent approach at the border between economy and psychology by “the psychological economy” and “the behavior economy”. Some authors have showed that starting even reverse (emphasizing the biunique relations between the social sciences) - from the economy to the socio-psycology-that the application of the diverse economic models in the social sciences is useful to the analysis of the individuals’ reactions. In order to shape a coherent analysis of the underground economy, Schneider and Enste have integrated different elements of different social sciences in the neoclassical “income-leisure model” (Schneider and Enste, 2013). The division and allocation of distinct relevant factors that influence the development of the underground economy taking into account the fields of social, economic, sociologic, socio-psychological and fiscal- psychological sciences is a good methodologic excuse of a thorough analysis. A strict confinement of these two domains is almost impossible this is why it is therefore necessary the analysis of the relevant factors of all disciplines taken into account in the field of analysis. We appreciate that the foundation of the interdisciplinary approaches begins from the relations and connections between the macro and micro levels. This way the correlations, understanding by this the transformations and the changes at a macro level are the result of individual actions. As far as the micro and macro approaches are concerned, professor Pohoaţă underlines that these are not in a perpetual and irreducible position and when it is the case the two methods can be used simultaneously (Pohoaţă, 2011). At a macro level there can be made correlations between causes, rising taxation and the consequences, the growth of the underground economy activity.The microeconomic analysis has been a subject of controversy, heated arguments and vehement contradictions. More than that, in some cases the deviations in the human behaviour (criminality, tax evasion, illegal work, smuggling) don’t coincide with the concrete economic situations. By choice, most of the hypothesis open to criticism refer to the strict application of a “postulate of rationality” and the rule of maximization; employing likely targets; transitivity, consistency and stability in preferences. The underground economy is based, in a principled way, on keeping the norms and as such, according to Schneider and Enste, Ordnungstheory, it has to be based on the methodologic individualism because the consequences and effects can be explained only on an individual plan (Schneider and Enste, 2013). With respect to individualism, viewed in the context of the equation individualism versus holism, the same professor Pohoata, having as reference Mises iterates that “the human action needs to be understood as a result of individual actions; that from the individual actions starts the understanding and explanation of things; that individuals, only them, are the ones that operate and not the state or the nation” (Pohoaţă, 2011, p.212). The concept of Ordnungstheory, as part of the economic institutions, in order to be well outlined should be analysed in an integrated manner and connected with the common methodological approaches having as background “rational choice theory” (RCT). RCT is a pretty heterogeneous theory that includes varied concepts over Homo Oeconomicus that are based on utilitarian theories. RCT offers the possibility of accomplishing different subject interdependencies to the detriment of highlighting the incongruences of the theoretical and methodical components of such areas as economy, sociology and socio-psychology. According to Cioca, the principle of rational choice theory is quite simple:


47

“taking into consideration the resources, costs and benefits relationship, the actor will choose the combination of those who will lead to best results”(Cioca, web.adatbank.transindex.ro/….).The concept that differentiates the rational choice theory from other theories in sociology and has an economic relevance is the one of optimization. By acting rationally, the actor is engaged in an optimization operation, whether is about the utility maximization, the minimization of cost, or both. The concept of optimization gives power to the rational choice theory because actions are compared (e.g. Involvement in underground, illicit activities) depending on the expected result (the risk of sanction or the risk of non-sanctioning) by the actor and it postulates that the actor will choose the action with the best result. This means that the benefits and costs have to be specified for all action alternatives and then it postulates choosing the optimal action, which is the action that maximizes the difference between costs and benefits. On the historical perspective, in the past there were two concepts regarding the human being. On the one side we had the Homo Oeconomicus neoclassical vision and on the other side we had the Homo Sociologicus perspective.These visions were treated different most of the times. Solid arguments in order to support the integrative approaches are offered by the researcher Larisa Batrâncea in the attempt to construct homo oeconomicus ludens. Therefore, starting from the concept launched by Johan Huizinga, Batrâncea offers the personal alternative of a “ludens” integrative synthesis; “one that should have the instinctual side of homo behavioralis, the moral features of a homo ethicus, the egalitarian learning of homo equalis, the membership character of homo parochicus, the turn for cooperation of homo reciprocas, the conformation inclination towards a normative system of homo sociologicus (Batrâncea, 2009, p 192). Homo Oeconomicus is (super) informed, acts on a perfect market without rules and barriers and tries to maximize the utility without risks according the neoclassical theory. The relative prices are important to show the degree of rarity. His behaviour is characterized by complex analyses regarding the costs, the utility of different options, the best choice of alternatives that have as ending the biggest utility or in other words” rational choice”. Homo Sociologicus is characterized by the restrictions imposed or self imposed by the rules, reliability, institutions and model behaviour. In an individual, sociological context the behaviour is influenced by the society’s expectations and the punitive, sanctioning forms anticipated as reaction coming from society. The economic, fiscal, social behaviour is influenced by the internalization of norms in a comprehensive process of socialization. Apparently irreconcilable, the Homo Oeconomicus (HO) and Homo Sociologicus (HS) positions can be integrated in RCT if we regard the norms and values in combination with the evaluation and individual expectations even in the neoclassical context of the maximum utility theory. As a matter of fact, the neoclassical model can be modified by using concepts from different related subject areas and that have as starting point RCT. The model RREEMM is a combination between HO, HS and elements of socio-psychology (Esser quoted by Schneider and Enste 2013, pp. 60-74). In the tabel no.1 are mentioned the main elements of the integrative human concept RREEMM.


48

Tabel no.1 The integrative human concept RREEMM

Source: (Schneider, R. Enste, H.E., 2013, p. 70)

3. SOCIOLOGICAL, PSYCHOLOGICAL AND SOCIO-PSYCHOLOGICAL INTERFERENCES IN THE AREA OF UNDERGROUND ECONOMY The concept of Homo Sociologicus can offer a fundamental approach on the human behaviour in a polluted environment by the underground activities and in which breaking the rules (social, personal, individual, societal, fiscal, penal) and the alteration of values define the real relations between citizen and state. Psychologically talking, the behaviour designates what is objective and observable in the global reaction of the individual, irrespective of what he declares, of his thoughts and psychological attitudes. Sociologically talking, the behaviour is the subject’s activity in a given social situation (Tănase, https://www...../PSIHOLOGIE-ECONOMIC%C4%82). Generally, the behaviour is a set of exterior reactions wherethrough the individual responds to stimuli. The individual is seen from the perspective of the restriction of the social norms (the attitude towards fiscal and penal norms) and from his expectations (low tax burden, better standard of living) as well as from the sanctions’ perspective (administrative and penal sanctions) that he internalizes. The instruments by which sociologists try to explain human behaviour and that have an economic and legal-fiscal relevance refers primarily at demographic data and personal situations. In the attempt to highlight the sociological aspects, sociologist researchers tend to neglect the personal characteristics that are examined by psychologists. In the following diagram (figure no. 1) are presented synthetically the underground economic determinants. The sociological, institutional and psychological factors offer the framework for a complex multidisciplinary analysis.

Components Homo Sociologicus

(Neoclassical) Homo Oeconomicus

(Social-) psychology

RREEMM (human concept)

Rsourceful X X Restricted X X Evaluating X X Expecting X X Maximising X X Man X X


49

Figure no. 1 Sociological, institutional and psychological determinants of underground

economy Source: adapted by the authors after (Schneider, F., Enste, HE, 2013 pp.90, 107)

The underground economy is closely related with illicit work or moonlighting and tax fraud. Both of them being the core strengths, they need a closer look by using the instruments of economic sociology. Thereby, the analysis of the sociological variables or of the socio-psychological determinants is illustrated by the following ideas. Like some various investigations have proved that the socio-demographic variables have a direct influence over the individual decision making. Illicit workers can be characterized by specific descriptive criteria such as age, occupation, number of children that can be used at classification and defining various typologies. Depending on these typologies we can identify the engagement’s motivations in activities of the underground economy. In a synthetic analysis the sociological and institutional factors refer to: demographic data (age, sex, occupation, income), personal situation (family, standard of living, debts) and the institutional frame (norms, political system, economic system). External standards, seen as socio-institutional determinants and the internalization of norms have been decrypted in economic key by sociologists in the following manner. External norms, seen as informal institutions (traditions, customs, and values) can be perceived as restrictions. Analysed in a tax-criminal context these norms can be viewed as costs, part of the decision making process. Unlike the external norms, the internalization of norms (tax-moral consciousness) is seen from the point of view of the personal characteristics or preferences. In a discussion that has as a main element the ternary social norm-norm personal-individual norm and has as guiding mark the influences on the underground economy, we can emphasize some

Sociological, institutional and psychological determinants of underground economy

Sociological and institutional determinants economy

Demographic data Age Sex

Marital status Education

Occupation Income

Personal situation

Family /Size of household

Debit situation Social

network Living

situation ( personal real estate, degree of urbanity)

Institutional framework

Societal values and

norms Human and real capital

Political system

Economic system

Psychological determinants

Economic psychology

Feeling of burden Tax-morality Tax-mentality Distribution of

burden Contact to the administration

Perceived efficiency of state activity

(general application of the tax yield, group specific application)

Social Psychology Personal

motivation Basic orientation Risk preference

Control and reactance

(perceptibility of burden, duration

expected of burden,

possibilities, influence of possibilities)


50

major problems. Between perceived personal norms (defined by values, individual tax ethics, the belief that everyone should respect a moral imperative) and social norms (defined as the perceived frequency or the acceptance of fraud in a reference group) there is a considerable overlap (Wenzel, 2005). Conceptualization of the socio-psychological field targeted the individual internalized standards (correct behavior), social awareness and acceptance of approved social standards concerning the model of correct behavior and cultural and societal standards which are aimed at imposing rules and laws. Individual rules can be strengthened when taxpayers are anticipating the feelings of guilt and shame resulting from breaking of rules (Grasmick and Bursik, 1990). From the point of vue of Vogel and Torgler between strong individual rules and concepts of "honest taxpayers" and "intrinsic taxpayers' there are some links (Vogel, 1994; Torgler, 2003). Honest taxpayers are constantly cooperating, not seeking ways to reduce tax liabilities, behave honestly based on absolute ethical norms. Intrinsic taxpayers are receptive at the behavior of institutions, government and tax inspectors; their cooperation is dependent on tax conditions rather than the behavior of other taxpayers. According to some authors, there is still a category of taxpayers, namely "social taxpayers" (Kirkhler, 2013). The behavior of “social taxpayers” is given by social norms and their emotions. Assuming that the taxpayers are finding out that many of the others are evading from the payment of tax obligations or are developing informal activities, they will escape or will operate informally. In the event that their reference group disapproves the fraud, they shall comply. We can conclude that social contributors are motivated by social norms. According to Ajzen, social norms are developed according to the perceived expectations of the individual whether one or more members of the reference group like a certain behavior, and the extent to which the individual is motivated to conform to members’ beliefs (Ajzen, 1991). In other words, social norm can be seen as a way of behavior, similarly rated by other members of the group, and supported by social agreement or disagreement. Regarding the relationship between the social, personal and tax compliance rules, very important in illicit work and tax evasion, we distinguish the following cases. Personal rules of taxpayers determine their level of compliance, the impact of social norms on the level of compliance is less probative (Kirkhler, 2013). At the individual level, the rules define internalized standards of behavior; at the social level, the rules express the behavior of a social group based on common standards and collectively or at national level, the rules become cultural standards, which are often reflected in the current legislation. Cultural standards translate the concept of cultural norms which are including within their analysis the tax morality and civic duty. Cultural norms and societal institutions are important in the process of complying. Compliance actually means cooperation, a permanent review of the relationship citizens, government, institutions, in order to reduce social distance and establishment of trust between citizen and political administration (Bergman, 2002). Considerations of economic socio-psychology. In the situation of studying the human behavior, the economists observed a focus on analysis of restrictions and institutional framework. Psychologists are usually focused on preferences and motivations. Only combining the socio-economic and psychological visions can be obtained an integrative holistic approach, capable to provide the true "picture" of human behavior. Surely, the “utilitarian theory” and other economic theories can be viewed in another way, more attractive and deeper, if they integrate and psychological components of human behavior. In analyzing the economic psychology of human behavior, can be noted the "reactance theory". “The reactance theory refers to the emotional state of discomfort caused by prohibition or threat of prohibition of some actions, situation in which people are trying to regain their freedom of action. The main assumption of this theory is that people feel the need for freedom" (Chelcea, 2010, p.64). The theory belongs to psychosociolog W. Brehm (1966). According to this theory reactance occurs when people appreciate that the restriction of their freedom of action (e.g. the taxation, restriction of the right to work) is illegal and unjust and that it is lower when the intensity of limitation is lower. Restoring of freedom of action (partially or total) is directly performed (n.a.by engaging in informal economy), by ignoring the attempts to restrict or indirectly by strong valorization of the prohibited activities (Chelcea, 2010). In particular, the reactance theory deals


51

with the influence of personal characteristics on deviant behavior. We remind the fact that the underground economy is based on the rule or regulation violated by the individual as a result of a deviant behavior. For example, in illicit workers behavior is important the motivational structure (reasons, implications, intrinsic motivation) and primary guidelines (preference for risk, tax morality). It depends on personal characteristics, perception of concrete situations and the evaluation and selection of an alternative. Social issues have an indirect influence as they should be interpreted individually from individual to individual. Figure no. 2 presents explanations of deviant behavior. The workers illicit behavior can be easily influenced by individual perception on limiting personal freedoms and individual burden. Individual burden - meaning the length and weight of the tax burden and temptations evasion possibilities - can be explained by the theory of reactance.

Figure no. 2 The factors of deviant behavior Source: adapted by the authors after (Schneider, F., Enste, HE, 2013 p.89, 98)

Within analysis of underground economy from socio-psychological point of view it seems appropriate to introduce “control theory”. "Personnel control is the perception of an individual related to capacity, resources or opportunities to achieve positive results and avoid negative effects (n.a. tax burden, restrictions on labor market, involvement in fraud)" (Thompson and Schlehofer, http://cancercontrol.....). Monitoring can be defined as a subjective perception of the possibility of influencing of certain events and actions by an action. Behavioral control, as part of cognitive control, is the subjective perception of an event or condition that can be influenced by changing behavior – e.g. reducing the burden / tax burden through tax evasion (exit option) or participation in decision-making process (voice option) (Thompson 1981). In its various forms poses on control, loss of control on persons or situations, the control theory has been successfully applied in economic behavior. As regards the examination of illicit work or tax evasion, the reactance theory proved more effective. (Schneider and Enste, 2013).

Since the common factors of the two theories revolve around the elements tax burden, tax evasion, taxation, we appreciate that approach through psychology tax is a serious tool of analysis.

In general acceptance, fiscal morality is defined as the attitude of the group or the entire population of taxpayers to meet or neglect issues of payment of tax obligations. According to Lewis, attitudes towards tax liabilities (with inherent implications of the underground economy) are especially dependent on income (Lewis, 1979). From its studies it appears that income is the most relevant variable in differentiating attitudes towards tax obligations. People with higher incomes showed a greater reluctance to tax and to progressive rates in particular. Moreover, unlike people with lower income, they considered licit tax evasion to be justified and people which are comitting fraud should be treated with indulgence.

Economic and socio-psychological explanation of deviant behaviour

Situative characteristics

Subjective definition of the situation Weighing moral inhibitions and utility Perception of burden Restriction of freedom

Personal charactersitics Motivation Basic orientation

Sociological explanation of deviant behaviour based on Homo Sociologicus Internalised norms (personal characteristics) External norms (situative characteristics)

Social expectations

Sanctions of society

Demographic data and personal situation (general personal characteristics)

Deviant behaviour (options involving

underground economy)

Illicit work Reduction of regular working hours Do-it-yourself Tax evasion Tax noncompliance


52

In an evaluative analysis (figure no. 3) in terms of descriptive trichotomy (1) ordinary taxpayer, (2) honest taxpayer and (3) tax fraud revealed that: frausters were portrayed as more intelligent and work hard; ordinary taxpayers were perceived as lazy and less intelligent people; honest taxpayers were seen as workers, but not as intelligent as tax fraudsters (Berti and Kirchler, 2001).

Figure no. 3: Description and evaluation of taxpayers (scale appreciations: -3 (lazy, numskull) and +3 (laborer, intelligent); scale evaluations: -1 negative, +1 positive)

Source: (Kirkhler, 2013, p.68) The concept of tax morality is not related only to attitude (meaning tax psychology). Some authors relate to tax morality as "internalized obligation to pay tax liabilities" or as "intrinsic motivation" of an individual to pay tax obligations and others connect with the concept of "civic duty" in the sense that people are not motivated only to maximize their own welfare, but also by the feelings of responsibility and solidarity to the state andnation. Kirkhler considers that there is a distinction between tax morality and tax mentality, based on an interpretation of studies of Schmolders. According to both authors, tax morality aims nation, while moral evaluations are focused on fiscal mentality of citizens (individually they integrate knowledge, attitudes towards public administration, taxation and subjective experiences related to government - taxpayer interaction). Fiscal mentality and morality are functionning as variables that influence the taxpayer’s response (tax avoidance, tax evasion, tax flight / migration tax). Between the high level of morality and tax compliance level there is a positive relationship, between the level of tax morality and the underground economy there is a negative relationship. Using underground economy assessments made by Schneider and Klinglmair, Alm and Torgler analyzed (figure no. 4) the linear relationship between morality and the underground economy and confirmed the negative relationship between them (Alm and Torgler, 2006).

Evaluation

Description: lazy versus laborer

Description:numskull versus intelligent

Evaluation: positiveversus negative

Description


53

Figure no. 4. Fiscal morality and the level of underground economy Source: (Alm and Torgler, 2006, p. 243)

4. CONCLUSIONS

The purpose and approach to explaining the underground economy using the deviant behavior analysis tool consists of the success aggregating of different concepts and scientific directions in an abstract integrative model that will support causal analysis of the economy. The interdisciplinary (economic, sociological, psychological) depicts the interrelationships and stresses that monocauzale and unilateral approaches are not sufficient to study and explain this phenomenon. Psychology, socio-psychology and sociology can explain facts and things that are not understood by classical and pure economics. This study is intended to be the tool of analysis in economic policy measures that influence the underground economy. Particularly with reference to: a) the tax system, the level of taxation, identification and classification of the taxpayers, the degree of tax compliance; b) rules on working time, moonlighting, the informal sector; c) public administration: the relationship taxpayer / citizen – state/government / authorities; d) system election: relationship of mutual trust between elector - parlement / government / political parties.

BIBLIOGRAPHY 1. Ajzen Icek (1991), The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), pp. 179-211. 2. Alm James, Torgler Benno (2006), Culture differences and tax morale in the United States and in Europe. Journal of Economic Psychology, 27(2), pp. 224-246.

The degree of Tax Morale

Siz

e of

Sh

adow

Eco

nom

y (

% o

f th

e G

DP)

Italy

Belgi

Portugal

Nor

Finland

Netherlands

Iceland

France

SwitzerlandSUA

Austr

Great Britain

Den

Ger

Swed Spai

0%

0

30

10

20

50% 100%


54

3. Batrâncea Larissa-Margareta, (2009), Teoria jocurilor.Comportament economic. Experimente, Editura Risoprint, Cluj-Napoca, p 192. 4. Bergman Marcelo S. (2002), Who pays for social policy? A study on taxes and trust. Journal of Social Policy, 31(2) pp. 289-305. 5. Berti Chiara; Kirkhler Erich, (2001). Contributi e contribuenti: Una ricera sulle rap-presentazioni del sistema fiscal. Giornale Italiano di Psicologia, 28(3), pp. 595-607. 6. Chelcea Septimiu, (2010), Psihosociologie. Teorii, cercetări, aplicații. Iasi. Editura Polirom, p.64. 7. Cioca Mihaela, “Teoria alegerii raţionale în viziunea lui Gary S. Becker, Jon Elster și James S. Coleman” disponibil pe : web.adatbank.transindex.ro/pdfdok/web2-3_05_Cioca.doc, accesat 23.01.2015 orele 12: 10 a.m. 8. Grasmick, Harold G.; Bursik jr. Robert.J. (1990), Conscience, significant others, and rational choice: Extending the deterrence model. Law and Society Review, 24(3), pp. 837-861. 9. Kirkhler Erich (2013), Psihologia Economică a Comportamentului Fiscal, Editura Risoprint, Cluj-Napoca, pp 79-111; 10. Lewis Alan (1979). An empirical assessment of tax mentality. Public Finance, 34(2), 247-257. 11. Pohoaţă Ion, (2011), Epistemologie şi metodologie în ştiinţa economică, Editura Economică, București, p. 109. 12. Schneider Friederich, Enste Domink H. (2013), The Shadow Economy. An International Survey, Cambridge: Cambridge University Press., pp.65-107. 13. Tănase Iulian-Viorel ,Psihologie Economica, Universitatea “Titu Maiorescu”, curs, https://www.scribd.com/doc/24997612/PSIHOLOGIE-ECONOMIC%C4%82, p.11, accesed: 30.01.2015, ora 10:30 a.m. 14. Thompson Suzanne C.(1981). A complex answer to a simple question: Will it hurt less if I can control it? Psychological Bulletin, 90, pp. 89-101 15. Thompson Suzanne C. and Schlehofer Michèle M., Perceived Control, http://cancercontrol.cancer.gov/brp/constructs/perceived_control/perceived_control.pdf; accesed 02.02.2015, 11:55 p.m. 16. Torgler Benno (2003), Tax morale, rule-governed behaviour and trust. Constitutional Political Economy, 14(2), pp. 119-140. 17. Vogel Joachim (1974), Taxation and public opinion in Sweden: An interpretation of recent survey data. National Tax Journal, 27(1),pp. 499-513. 18. Wenzel Matiaske (2005), Motivation or rationalization? Causal relations between ethics, norms and tax compliance. Journal of Economic Psichology, 26(4), pp. 491-508.

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

55

THE EXTENT TO WHICH DEVELOPING COUNTRIES ARE

INVOLVED IN INTERNATIONAL FINANCIALFLOWS AND THE

MAIN EFFECTS ON ECONOMIC DEVELOPMENT

AssociateProfessorPhDCarmenBOGHEAN

University"StefancelMare"ofSuceava,[email protected]

Abstract: Foreign direct investments are an important factor for economic growth and development. Throughout time,

the source and destination of foreign direct investments have undergone significant changes and thus, starting with the 2000’s there has been an increasingly more global involvement of developing countries in the global flow of foreign direct investments. These countries are currently accountable for more than a quarter of the global outward FDI flows and for almost half of the total global inward FDI flows.

In light of the changes that have occurred worldwide after the global financial crisis, the economic policy measures tend to vary from encouraging FDI’s to limiting them. If some countries see FDIs as an important factor for economic growth and global expansion, others only perceive the strong competition from foreign companies, which can lead to a loss of control over domestic capital. At the same time, as the North-South disparity faded, there is evidence that developing countries have become more involved in international financial flows during the past few years.

In order to highlight this issue, we have analysed the existing data for a period that has seen a strong financial integration of emerging markets and a decreased volatility of financial flows in advanced industrialised countries (1970-2013). We will particularly approach the relationship between economic growth and international capital flows, with specific reference to foreign direct investment flows (FDI).

Key words: international capital flows, foreign direct investment flows, financial crisis, economic growth JEL classification: G12, G01, G15 1. THEORETICAL BACKGROUND ON THE RELATIONSHIP BETWEEN

FOREIGN DIRECT INVESTMENTS AND ECONOMIC GROWTH There are certain research studies that have either revealed the presence of a negative causality

relationship or haven’t succeeded in identifying a positive relationship between inward foreign direct investments and economic growth. [9]

Despite the positive relationship between FDIs and economic growth, empirical studies also show the negative associations between the two. Theoretically, FDIs can cause both positive and negative contagion effects on the recipient country. This standpoint is supported by dependency theorists who say that the dependency upon foreign direct investments tends to create a negative impact on economic growth and the distribution of income. The presupposition behind the dependency theory lies in the fact that an economy that is controlled by foreigners will not develop normally but rather evolve in a disorganised manner. This occurs due to the multiplication effect, which shows that the elasticity of the demand between the two sectors is not unitary, thus causing stagnant growth rates in developing countries. [2] Dependency theories also state that giant foreign players can create a negative effect on the growth and development of local companies in the recipient country in the long term, as the former hold a large proportion of capital, better technology, increased access on certain markets, advanced marketing networks and much better managerial abilities.[6] [3] This situation could be even worse for the new companies on the market that have limited resources, as they might find themselves unable to compete with multinational corporations (CMN). Moreover, this unequal competition could even lead to the disappearance of these small local companies. Similarly, FDIs tend to create a monopoly industrial structure that could lead to the “underuse of the productive work force”.[4] According to dependency theories, FDIs can also have a negative impact on employment, the distribution of revenue, sovereignty and on the autonomy of a country.[7] FDIs can also have a negative influence on the position of a


56

country’s balance of payments if the raw materials needed for production are largely imported.[7] Moreover, a country’s financial stability could be affected due to the diminishing currency reserves when its profits and capital are repatriated. Thus, dependency theories argue that FDIs do not generate economic development but rather impair the development process. [1]

This confusing theoretical and empirical proof related to FDIs and economic growth lead us to believe that FDIs are country specific and they can be positive, negative or insignificant, depending the economic, technological and organisational circumstances of a country benefitting from foreign direct investments.

2. ANALYSIS OF THE RELATIONSHIP BETWEEN FOREIGN DIRECT

INVESTMENTS AND THE GROSS DOMESTIC PRODUCT PER CAPITA IN DEVELOPING COUNTRIES

The purpose of the present research is to analyse the relationship between foreign direct investments and the economic growth of the group of developing countries during a period of time when most countries in the world have faced a high level of financial integration. In order to reach the said objective, we shall resort to the econometric analysis of the available data provided by the UNCTAD data base, for the period 1970-2013, concerning the evolution of the two indicators: foreign direct investment flows and the gross domestic product per capita for the group of developing countries. In order to measure the correlation and the dependency between the two variables under consideration, we will use the SPSS 22 statistical programme.

On a global level, the GDP per capita in transition economies is twice as high as the one in developed countries. Things are, however, different, if we consider the total GDP, as transition economies (less numerous in terms of population) have a total GDP that is lower than the one of developed countries. Therefore, we believe that the GDP per capita is a more relevant indicator than the total GDP, for comparisons concerning the economic development of one particular country.

The analysis of the relationship between inward foreign direct investments and the GDP per capita can be conducted by means of the graphical method, the regression method or the correlation method. These methods enable us to identify the relationship, its purpose and type, as well as determine the intensity of the relationship between the two variables under consideration.

The graphical representation in a dual axis system of the GDP and of the inward FDI flows is depicted in Figure no. 1.

Figure no. 1. The evolution of the GDP per capita and the inward FDI flows in developing countries, during 1970-2013

Source: author’s own, according to the data provided by the UNCTAD, Database


57

The analysis of the above figure reveals that the two indicators have followed a similar trend in developing countries during 1970-2013, particularly starting with the year 2000. Thus, the increased amount of inward FDI flows will lead to an increased GDP per capita.

If we start from the hypothesis that inward FDI flows influence economic growth, then we will consider the inward FDI flows as an independent variable and the GDP per capita as a dependent variable, depicting FDIs on the Ox axis and the GDP on the Oy axis, while the period under analysis (1970-2013) is the one covered by the data available on the UNCTAD website.

The graphical representation in the same axis system of the relationship between the two variables, for the period 1970-2013, is depicted in Figure no. 2.

Figure no. 2. The relationship between FDIs and the GDP per capita in developing

countries Source: author’s own, processed in the SPSS statistical programme

The graph in Figure no. 3 outlines the presence of a direct relationship between inward FDI

flows and the GDP per capita in developing countries during the period 1970-2013. We can argue that the relationship is linear, of the linear model type:

The coefficients of the model have been estimated based on the least square method, in the

SPSS 22 programme, while the results are summarised in Table no. 1. Table no. 1 Coefficients of the linear model

Unstandardized coefficients Standardized coefficients

t Sig.

B Standard error Beta Inward foreign direct investment flows

0,005 0,000 0,980 31,608 0,000

Constant 547,565 45,923 11,923 0,000


58

Based on the values presented in the above table, we can write the estimated equation of the

GDP per capita model in developing countries during the period 1970-2013, thus:

In order to measure the intensity of the relationship between the variables under analysis, we

have used the Pearson correlation report (R)

2

2

)(

)(1

yy

yyR

i

xi

The values obtained for the Pearson correlation report, the determination coefficient and the estimated standard error are summarised in Table no. 2.

Table no.2 Estimates for the correlation report, the determination coefficient and the

standard error in the case of a linear model Correlation report

Determination coefficient

Adjusted determination coefficient

Estimated standard error

0,980 0,960 0,959 240,826 Note: The independent variable consists of the FDI flows in developing countries, GDP per cpaita – dependent variable.

The value of the Pearson correlation report shows that there is a strong relationship between

the inward flows of FDIs and the GDP per capita variables in developing countries during 1970-2013. The correlation report equals 0,980 for the linear model. The calculated determination coefficient amounts to 0,960 and shows the proportion of the dependent variable explained by the linear model. Thus, in the case under analysis, the determination coefficient in the table shows that the variation of the GDP per capita variable is determined by the FDI variable by up to 96%, while the remaining 4% is due to random factors.

The selection of this regression model was based on the determination coefficient that shows the extent to which the dependent variable is explained by the regression model.

In order to check whether the correlation report we have obtained is significant, we will resort to the Fisher test:

2

21 1

n k R

Fk R

Where: n is the number of observed values;

k is the number of groups organised in relation to the independent variable; 2R the determination coefficient.

Table no. 3 presents the estimates of the two variation components, the corresponding

degrees of freedom, the estimates for the explained and residual variables, and the calculated value of the Fisher report and its significance.

Table no.3. ANOVA

Sum of deviations df Mean Square F Sig. Regression 57943659,401 1 57943659,401 999,077 0,000 Residual 2435881,804 42 57997,186 Total 60379541,205 43

Note: The independent variable consists of the FDI flows in developing countries, GDP per capita – dependent variable.


59

If the value of the Fisher test exceeds the one shown in the table, and the corresponding Sig. value is lower than 0,05, we can state that the linear relationship between the two variables under analysis is rather significant.

In order to check whether we have a bivalent relationship between FDIs and GDP per capita in the case of developing countries, we have measured the correlation between the two variables by using the Spearman coefficient, calculated by means of the SPSS 22 programme.

Table no.4. The Spearman correlation coefficient

Inward FDI flows GDP per capita Inward FDI flows in developing countries

Correlation coefficient 1,000 0,983** Sig. (2-tailed) . 0,000 N 44 44

GDP per capita in developing countries

Correlation coefficient 0,983** 1,000 Sig. (2-tailed) 0,000 . N 44 44

**. the correlation is significant at the 0,01 level (2-tailed). The results presented in Table no.4 show that there is a very strong correlation between the

two variables. The value arrived at for the Spearman coefficient amounts to 0,983, which is a significant value statistically speaking. Thus, we argue that the inward flows of foreign direct investments influence economic growth, but, similarly, a higher GDP per capita level attracts larger inward FDI flows in developing countries as well. For the category of developing countries, we have considered the data for a shorter period of time (2000 – 2013) in order to identify the correlation between the two variables, FDI and GDP per capita respectively.

The graphical representation in a dual axis system of the available data for inward FDI flows and GDP per capita in developing countries only for the period 2000-2013, is depicted in Figure no.3.

Figure no. 3 Evolution of the GDP per capita and inward FDI flows in developing countries,

during 2000-2013 Source: author’s own, according to the data provided by the UNCTAD, Database

The graph in Figure no. 3 highlights the fact that the inward FDI flows have had a very

similar evolution to that of the GDP per capita in developing countries during the period under analysis.


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The calculations conducted only for the period 2000-2013, by means of the correlation method, reveal the fact that the dependency between the inward FDI flows and the GDP per capita in developing countries remains very strong, as the Spearman coefficient calculated for the period 2000-2013 amounts to 0,969 (Table no.5).

Table no.5 The Spearman correlation coefficient for the period 2000-2013

Inward FDI flows GDP per capita Inward FDI flows in developing countries

Correlation coefficient 1,000 0,969** Sig. (2-tailed) . 0,000 N 14 14

GDP per capita in developing countries

Correlation coefficient 0,969** 1,000 Sig. (2-tailed) 0,000 . N 14 14

** the correlation is significant at the 0,01 level (2-tailed). The obtained results show that there is a very strong correlation between the two variables.

The inward FDI flows influence economic growth, but, similarly, a higher GDP per capita level will attract larger inward FDI flows.

3. CONCLUSIONS

The analysis of the level of economic development on each main group of countries has

revealed the presence of a rather significant gap between developed and developing countries, even though the latter have recorded important steps forward in terms of economic development during the period under analysis.

Even though the rate of growth of FDI flows to developed countries has been higher, as compared to developing countries in 2013, this did not prove to be enough in order to re-establish their position as main recipients of FDI inward flows. Thus, note an increased presence of transition economies and developing countries among the recipients of global inward FDI flows. Thus, in 2013, developing countries received more than half the amount of inward FDI flows on a global level (54%), as compared to developed countries (39%).

The inward FDI flows and the GDP per capita in developing countries during 1970-2013, have followed a similar trend. The analysis has revealed the presence of a direct relationship between inward FDI flows and the GDP per capita during the period 1970-2013 that can be described as a linear model. The value of the Pearson correlation report (0,980) has confirmed the presence of a very strong connection between the two variables under consideration. The value of the Spearman coefficient (0,983) has shown that the inward FDI flows influence economic growth, but, similarly, a higher GDP per capita level will attract more inward foreign direct investment flows.

The existing relationship between the amount of financial flows and economic growth in developing countries, both before and after the global crisis, has revealed the presence of a mixed and complex image. After conducting the analysis, we believe that the relationship between economic growth and foreign direct investment flows depends on the types of financial flows, on the economic structure of the recipient country, on the presence of a stable and solid financial market, as well as on the existing global models of economic growth.

Thus, in light of the research findings, we believe that there is a direct, solid and sustainable relationship between foreign direct investments and the level of economic growth per capita in developing countries.


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ACKNOWLEDGEMENTS

This paper has been financially supported within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. This project is co-financed by European Social Fund through Sectorial Operational Programme for Human Resources Development 2007-2013. Investing in people!”

REFERENCES [1] Adhikary, B., FDI, Trade Openness, Capital Formation, and Economic Growth, A Linkage Analysis, International Journal of Business and Management Vol. 6, No. 1; January 2011. [2] Adams, S. (2009). Foreign direct investment, domestic investment, and economic growth in Sub-Saharan Africa. Journal of Policy Modeling, 31, 939-949. [3] Agosin, M.R., et Mayer, R. (2000). Foreign investment in developing countries: does it crowd in domestic investment? UNCTAD Discussion Paper 146, Geneva, Switzerland. [4] Bornschier, V., & Chase – Dunn, C. (1985) Transnational Corporations and Underdevelopment. Praeger: New York. [5] Kumar, N., et Pradhan, J. P. (2002). Foreign direct investment, externalities and economic growth in developing countries: some empirical explorations and implications for WTO negotiations on investment. RIS Discussion, Papers 27/2002, New Delhi. [6] Marksun, J.R., & Venables, A.J. (1997). Foreign direct investment as a catalyst for industrial development, NBER Working Paper 624, Cambridge. [7] Musila, J.W., & Sigue, P.S. (2006). Accelerating foreign direct investment flow to Africa: from policy statements to successful strategies. Managerial Finance, 32(7): 577-593. [8] Razin, A., Sadka, E., & Yuen, C. (1999). Excessive FDI under asymmetric information. NBER Working Paper 7400, Cambridge. [9] Serhan, C., Sami Fethi and Nermin Begovic, The Impact of Net Inflows of Foreign Direct Investment on Economic Growth, Unemployment and Openness: A Panel Data Analysis of nine Central and East European Countries, 2013, www.jgbm.org/page/12 Serhan Ciftcioglu.pdf, accesed at 30.05.2015 [10] UNCTAD Databases, www.unctad.org

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

62

POTENTIAL OF SMART SPECIALIZATION OF CLUSTERS IN

ROMANIA

LecturerPhD.LilianaSCUTARU


Abstract: Clusters are now seen as the most effective way out of the crisis and of economic recovery and also a way to

increase competitiveness. The EU clustering policy has proved effective in many countries where the process began a long time ago and is now closed. Romania is in the process of clustering, so that our country records in territorial plan a dynamic which is now changing due to the creation of new clusters. The work captures both initiatives to identify potential clusters in Romania and their fields of activity, carried out over a period of several years and the current status of existing clusters in Romania. The areas identified are different, from traditional industries of Romania, to new areas of smart specialization which the EU aims to promote mainly in the 2014-2020 in order to support the amplification of research and innovation, support of competitiveness in the world.

Key words: cluster, fields of clusters, potential fields of clusters, smart specialization, Romania

JEL classification: O30, O52, Y91

I. INTRODUCTION

As far as terminology is concerned, the concept of cluster began to be used more often by experts in various fields from the 50s through various attempts to define the concept and characteristics they present. There were settled factors to determine the appearance of clusters and the effects of training in the region in which they are located. For example, specialists in urban believe that cities play a key role in setting up a cluster, while economists and specialists in regional development attach more importance to the infrastructure in a given region, natural and human potential, workforce skills, industries prevailed.

Alfred Marshall seems to be considered the "father of clusters" being known his work of studying the London region companies. Its findings have concluded that companies in this area are specialized suppliers and make permanently exchange of information in their respective fields, being characterized by a high degree of labor employment in the area (Marshall, 1920). These features are currently the main indicators for identifying clusters.

In the sense of M. Porter, clusters are "geographic concentrations of interconnected companies and institutions, in a particular area" based on the interaction of common factors resulted in competitive advantages for companies in composition. They are based on the extensive network of suppliers of specialized inputs, such as parts, components and finished products, or of infrastructure or specialized services, being part of the related industries (Porter, 1998).

The support of the creation and development of clusters has effects on multiple levels. On the one hand, clusters achieve synergistic effects for SMEs (small and medium enterprises) within them, thus contributing to their success and also to the economic prosperity of the region in which they are located (Fujita et al., 2001, Glaeser, 2011). Cluster analysis leads to ways to support regional development because the cluster is seen to be the pillar of regional economic development and not isolated firms (Cortright, 2006). On the other hand, clusters are important for the national economy as they contribute to a significant increase of competitiveness of countries (Ketels, Memedovic, 2008).

In the European Commission's view the cluster is a group of economic entities (mostly SMEs), companies and associated institutions (universities, research institutes) with concerns in the same field, located in the same geographic area and which develop between them same policy


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providers, workforce qualification, services, specialization and concentration in a particular economic sector. They create links between them through supply and distribution chains and supply mainly the same product (European Commission, 2012).

SMEs in a cluster configuration support each other and cooperate in terms of research, development and innovation, in support of increased competitiveness. The cluster is the ideal medium providing support for specializations in the areas of comparative advantages of the country and also the implementation of smart specialization strategies (European Commission, 2010).

Within clusters, firms and associated institutions (e.g. universities, professional organizations and local government) can work more efficiently and can innovate faster due to technology sharing, common infrastructure or common fund of knowledge and skills (Delgado et al ., 2014).

In the Romanian legislation the concept of cluster appears specified for the first time in 2006, being " groups between performers, users and / or beneficiaries for the implementation of best practices at European level in order to increase the economic competitiveness of economic operators" (GD 918 / 2006). II. A PERSPECTIVE UPON CLUSTERS IN ROMANIA

In Romania research on cluster theory and their application is modest and firm-level concept is, in many cases, still unknown and therefore not addressed in the formulation of management policies.

One of the first studies on the cluster concentrations of Romania belongs to a Italian researcher (Ferrari, 1999) which sought to identify the "industrial districts", after Italian terminology, using a few basic criteria, including industrial areas and concentration of firms them in a certain geographical area. He identifies during his study three sectors, namely, wood industry (Covasna County), ceramics (Alba) and textiles (Galati) capable of developing cluster structures.

In a parallel research of Ferrari (Ionescu, 1999) the author uses as criteria for identifying industrial agglomerations (calling them at the time of the study - emerging clusters) the geographical demarcation of cluster and the performance and management strategies both at emerging clusters level and at SMEs level in their composition. The research results bring out the potential existence of two clusters, one in the ceramics industry in Alba County and the second in Bucharest specializing in ITC.

Other attempts of identification of potential clusters in Romania based on industrial agglomerations were made during the years 1998-2010, in particular by certain European programs or supported by certain international economic institutions.

In 2010 a Romanian-German team (Guth, Coşniţă, 2010) conducted an identification of clusters and potential clusters on the eight geographic regions of Romania and on the areas of competitiveness, based on local advantages and areas where they can activate . They built their cluster model based on five criteria: regional concentration, labor, cooperation, research and development and service providers.

The research has led to the identification of 55 clusters or potential clusters (industrial groups) in the eight regions of Romania. The fields of activity identified for these clusters, on regions of development can be traced in Figure 1:


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Figure no. 1. Fields of clusters and potential clusters in Romania, 2010

Source: Adaptation after Guth, Coşniţă, Clusters and potential clusters in Romania – A maping exercise, 2010

Efforts of the study revealed that human capital endowment is favorable, in many regions labor showing a high level of skill, which is an advantage for the country. In terms of research and development there are enough universities and research centers that can support innovation capacity within the clusters. However, in terms of the criteria of cooperation and availability of specialized service providers the situation is very poor, of the 55 clusters identified only 22 meeting these criteria. This indicates a significant lack of trust between economic actors in Romania. The direct consequences in terms of the economy are poor calling and utilization of specific innovation in specialized units.

Inov Cluster II is a project initiative conducted between 2011-2012 in Romania, with the main objective performance assessment of manufacturing sectors in Romania and the formulation of policies and strategies for the harmonization of the country's industrial policy with EU policies and strategies, comparative analysis on the role of cluster structures in the EU and Romania, addressing specific tools to support innovative partnerships within clusters, finding solutions to improve the competitiveness of industries in Romania. On this occasion www.clustero.eu platform was created by Cluster Association in Romania, founded in 2011 in order, among other things, to develop a national strategy regarding the establishment and development of clusters in Romania, how to accredit them, their facilitation of access to external funds, establishing international partnerships, etc.

Running all of these projects implemented in our country led to the mobilization of business and decision-makers in national and regional policy and the establishment in Romania of a few tens of clusters, others certainly being set up in the future.

The fields of activity of these clusters are different from traditional wood processing, food, shipbuilding, metal, textile or tourism to electronics and ICT, automotive, construction and renewable energies. Many confirm the studies of researchers in identifying those areas, but there are new areas, surprise areas, we might call, such as health, biotechnology and mechatronics. This proves, once again, the huge potential of Romania, unknown and untapped enough.

At the beginning of 2015 a territorial division in the areas of Romania clusters is shown in Figure no. 2:


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Figure no. 2. Areas of clusters in Romania, January 2015

Source: After data provided by RDAs (Regional Development Agencies) and Cluster Associations in Romania, www.clustero.eu

By making a comparison between the potential areas for creating clustering identified

during research between 1998-2010 and currently existing clusters in Romania, we can draw the following main conclusions: - In the Bucharest-Ilfov region is already exploited the existing potential in electronics and

textiles, creating clusters in these areas; remain at potential level areas such as construction materials (which has great potential in terms of employment in the field of new materials), media-advertising, renewable energy and food industries. Gratifying, but not surprisingly, is the emergence of domains ITC and mechatronics on the cluster map of the capital, confirming once again the huge reservoir of skilled labor and capabilities of SMEs in the region.

- South Muntenia offers, as expected, the automotive clusters based on tradition of Dacia plants in the area. There is still in potential phase the establishment of clusters in areas such as electrical industry, tourism and food industry.

- South West Oltenia region confirms the potential identified in the ITC and machine construction, namely, rolling stock, in turn, provides initial unidentified clusters in areas such as food, tourism or automotive, the latter certainly due to polarization of SME in the area around Ford company in Craiova.

- West Region certifies studies for all three areas identified by the year 2010, existing from the beginning of the year 2015 clusters in ITC, automotive and food industries. In addition, currency exceeded forecasts because in this region activate clusters in the field of renewable energy.

- Initially identified as an area for the creation of potential clusters only in the geothermal energy sector in North West, it is also at the beginning of 2015 in a potential phase. Instead, the region now offers concrete clusters in sectors such as ICT, electronics and wood processing. ITC is supported by the high education system of Cluj, offering yearly skilled labor in the field, making Cluj "the Silicon Valley of Europe" (Paris Match Magazine, October 2014).

- Shipbuilding and logistics related to shipping transports, typical ranges of Southeast Region offer clusters predicted by experts in 2010, alongside the textile sector. It remains to be harnessed the immense tourism potential of the area.


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- The central region presents clusters in the areas of wood processing, electronics, metal processing and renewable energy, confirming the expectations of research, less capitalized being the traditional ceramics sector in Alba County. In addition, the huge potential of the area in which means natural resources and workforce qualification gave rise to clusters in areas such as food, textiles and creative industries, the latter by the existence of SMEs in the packaging, printing, design sector .

- Finally, the North East, along with traditional textiles and tourism sectors expected, offers many surprises, from areas such as ICT, biotechnology and health to civil and media advertising in any of the areas identified in previous studies. What could be the explanation? Maybe another vision of young people following studies in the strong university of Iasi and their orientation towards areas with great prospects for future, improvement of regional policies regarding cooperation of SMEs, sustained activity of RDA North East regarding cluster policy and permanent connection with the business of the region as a way of raising the economic area, knowing that the region is almost in all in rankings at the bottom or all of these reasons combined.

In Romania there are currently (Jan. 2015) identified 23 fields of activity for clusters and

potential clusters from the primary sector of agriculture, to manufacturing industries, energy or tertiary sector. Their representation compared to the year 2010 and the beginning of the year 2015 can be traced in dynamics in Figures no. 3 and no. 4:

Figure no. 3. Potential fields of clusters in Romania expected in 2010

Source: after Guth, Coşniţă, Clusters and potential clusters in Romania – A maping exercise, 2010


67

Figure no. 4. Fields of clusters in Romania, January 2015

Source: After data provided by RDAs and Cluster Associations in Romania, www.clustero.eu

By comparing the maps in Figures no. 3 and no. 4 we can see that in most of the regions were established clusters in several areas than predicted from studies conducted in 2010, which shows a very positive development of the economic situation of Romania at least at the level of initiative. Realizing the economic analysis in the areas where these clusters are found, we can issue some conclusions:

- Automotive industry focused in three regions of the South of the country, respectively, South, South-East and West, where there is a tradition in this area. It remains to be seen whether North-East Region will confirm predictions;

- Leading ICT technologies are on the map of 2010 only in two regions, West and South-West. Current developments in this field show clusters in five regions of the country, so that there were added North-East, North-West and South-West, as representatives of the great universities of the country. This development exceeds all expectations, making Romania an international competitor;

- The food, predicted for six of the regions, namely North-East, Central, West, South-West, South and Bucharest-Ilfov, is found in 2015 only in three of them, North-East, Central and West. It is known that Romania's potential in this area is very high, given the geographical location, with large areas of farmland, so it is necessary for our country to capitalize on this advantage, since the food is a strategic area, in our opinion, and, moreover, is among the areas of future in the EU agenda;

- Renewable energy crosses the country from west to east, covering West, Central and South-East, although initially forecast identified potential clustering in this area in the Centre and Bucharest-Ilfov regions;

- Textile sector is confirmed in all three regions predicted, North-East, South-East and Bucharest-Ilfov, to which in 2015 added the Central region;

- Tourism for which there were four regions initially nominated, North-East, South-East, South and South-West, is found in 2015 only in two of them, North-East and South-West. It remains a great potential to use in this sector of the Romanian economy;

- There are new areas that were not originally identified in the study in 2010 and found in 2015: biotechnology, health and civil engineering in North-East, mechatronics in Bucharest-Ilfov, creative industries: packaging, printing, design in the Center region;


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- Geothermal energy potential remains untapped by one or more clusters in North-West, even in the West, because Romania has large geothermal deposits in this area.

Concluding this brief analysis with a general note, we can say that Romania has the potential in many areas of the economy, much of it highlighted by the establishment of a number of clusters to date. There are other areas remaining to be confirmed and it is expected that in the next period new clusters to appear on the map of the country. We consider this process as still in its infancy and it will take several years before it will stabilize and the map of clusters of Romania will be of a form about completed.

In developed European countries the cluster formation process is completed for some time, there is a good part of them targeting the areas that produce high added value and are intensive in innovation, such as the ITC. In contrast, in the emerging economies of the EU there is still more emphasis on traditional areas of manufacturing, food and tourism (Lindqvist et al., 2003; Ketels et al., 2006).

The areas which European Union is promoting as the future within clusters by smart specialisation are ICT, life sciences/healthcare, energy, tourism, environment, food industry and innovative materials because these areas are, par excellence, carrying high added value, based on a broad outreach regarding compartments of research, development and innovation, mandatory to support EU in the global competition for competitiveness. During the 2014-2020 financial frameworks EU will mobilize large funds in these directions.

The fact that Romania has already today clusters in areas such as mechatronics, biotechnology, ICT, life sciences/healthcare, renewable energy or we can conclude that tourism is on the right track, that there is great potential in these areas that need to be valued, supported by appropriate policies and measures at the national and regional authorities and policy makers. This aspect also means that Romania could face competition for international competitiveness in cutting-edge technologies. III. CONCLUSIONS

In Romania there have been made in recent years more research in order to identify potential clusters specialized in various fields, varying on the geographic frame, existing natural resources in the area and, not least, the qualification of human resources supported by the existence of large academic centers. The results of this research led to the identification of 55 clusters or potential clusters (industrial groups) in all regions of Romania.

Studies have revealed that human capital endowment is favorable, labor in many regions showing a high level of skill, which is an advantage for the country. In terms of research and development there are sufficient universities and research centers that can support innovation capacity within the clusters.

The fields of activity of these clusters are different from traditional wood processing, food, shipbuilding, metal, textile or tourism to electronics and ICT, automotive, construction and renewable energies. Many confirm the studies of researchers in identifying those areas, but there are new areas, surprise areas, we might call, such as health, biotechnology and mechatronics. This proves, once again, the huge potential of Romania, unknown and untapped enough.

The areas which the European Union is promoting as the future within clusters by smart specialisation are ICT, life sciences/healthcare, energy, tourism, environment, food industry and innovative materials because these areas are, par excellence, carrying high added value, based on a broad outreach regarding compartments of research, development and innovation, mandatory to support EU in the global competition for competitiveness. During the 2014-2020 financial frameworks EU will mobilize large funds in these directions.

The fact that Romania has today clusters in areas such as mechatronics, biotechnology, ICT, life sciences / healthcare, renewable energy or tourism we can conclude that it is on the right track, that there is great potential in these areas that needs to be capitalized, supported by appropriate policies at national level and at regional level by authorities and policy makers. This aspect also


69

means that Romania could face competition for international competitiveness in cutting-edge technologies. ACKNOWLEDGMENTS “This paper has been financially support within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development 2007-2013. Investing in people!” BIBLIOGRAPHY 1. Cortright, J., (2006), Making Sense of Clusters: Regional Competitiveness and Economic

Development, Report, March 2006, available at http://www.brookings.edu/research/reports/2006/03/cities-cortright, accesed January 2015.

2. Delgado, M., Porter, M. E., Stern, S., (2014), Defining clusters of related industries, NBER Working Paper No 20375, August, Cambridge, MA.

3. Ferrari, M. R., (1999), Small Enterprise Clusters for Local Development in Transition Context: the Case of Romania, Bocconi University, Milan, March, http://www.marcoferrari.net/materiali/SME_clusters_for_local_development_of_Romania.pdf, accesed December 2014.

4. Fujita, M., Krugman, P., Venables, A. J., (2001), The Spatial Economy, MIT Press, Cambridge, MA.

5. Glaeser, E. L., (2011), The Triumph of the City. New York: Penguin Press. 6. Guth, M., Coşniţă, D., (2010), Clusters and Potential Clusters in Romania - A Mapping

Exercise, February, http://www.minind.ro/presa_2010/iulie/MappingReport_230710.pdf , accesed December 2014.

7. Ionescu, V., (1999), Supply-Side Strategy for Productivity, Competitiveness and Convergence between the CEECs and (in) the EU – Romania Case Study, Bucharest.

8. Ketels, C., Lindqvist, G., Sölvell, Ö., (2006), Cluster Initiatives in Developing and Transition Economies, Stockholm: Center for Strategy and Competitiveness. Kitson, M., Martin.

9. Ketels, C., Memedovic, O., (2008), From clusters to cluster-based economic development, Int. J. Technological Learning, Innovation and Development, Vol. 1, No. 3, 375-392.

10. Lindqvist, G., Ketels, C., Sölvell, Ö., (2003), The Cluster Initiative Greenbook. Stockholm: Ivory Tower.

11. Marshall, A., (1920), Principals of Economics, 8th Edition, London, Macmillan. 12. Porter, M.E. (1998), Clusters and the new economics of competition, Harvard Business

Review, Vol. 76/6, pp. 77 – 90. 13. *** Comisia Europeană, (2010), Contribuția politicii regionale la creșterea inteligentă în

Europa 2020, Comunicare a Comisiei către Parlamentul European, Consiliu, Comitetul Regiunilor, Comitetul Economic şi Social European şi Comitetul Regiunilor, Bruxelles, 6.10.2010, COM(2010) 553 final.

14. *** Comisia Europeană, (2014), Strategii naţionale/regionale de inovare pentru specializarea inteligentă (RIS3), Politica de coeziune 2014-2020, http://ec.europa.eu/regional_policy/sources/docgener/informat/2014/smart_specialisation_ro.pdf, accesed December 2014.

15. ***European Commission, (2012), Innovation Clusters in Europe: A statistical analysis and overview of current policy support, http://www.central2013.eu/fileadmin/user_upload/Downloads/Tools_Resources/Cluster.pdf, accesed November 2014.


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16. ***Ghid pentru implementarea in România a conceptului de cluster inovativ, (2009), București, Irecson, http://www.inma-ita.ro/clustere/Ghid.pdf , accesed October 2014.

17. ***H.G. 918/2006 pentru aprobarea Programului de stimulare a cercetarii, dezvoltarii si inovarii – IMPACT, http://www.jurisprudenta.com/lege/hotarare-918-2006-ssmmz, accesat în noiembrie 2014.

18. ***Review Paris Match, (2014), Cluj, La Silicon Valley de l'Europe, http://www.parismatch.com/Actu/Economie/Cluj-la-Silicon-Valley-de-l-Europe-Roumanie-637664, accesed December 2014.

www.clustero.eu

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

71

CONVERGENCE OF REGIONAL DEVELOPMENT IN THE

EUROPEAN UNION

LecturerPhDMarcelaCristinaHURJUI

University"StefancelMare",Suceava,RomaniaFacultyofEconomicsandPublicAdministration

[email protected]:

During the last century Europe, politicians have become increasingly aware that the establishment of lasting domestic and international economic relations based on trust and demonstrating solidarity with individuals and / or less developed nations, have become indispensable in order to achieve general welfare It is important to analyse the conditions for achieving economic growth and regional development, which have been discussed in terms of the experiences of Member States over time and their critical issues affecting the EU and making it vulnerable. The issue of the financial instruments used by the EU to improve regional development and alignment of Member States policies is also approached.

The economic development of a region is usually expressed in terms of gross domestic product (GDP). This ratio is also frequently used as a basis for regions’ comparison. Another indicator is the one related to employment. Regional convergence in GDP per capita expressed in PPS can be analysed in different ways. Key words: region, regional development, cohesion policy, disparities, community funds, convergence.

JEL classification: F36, F63 1. INTRODUCTION

The economic development of a region is usually expressed in terms of gross domestic product (GDP). This ratio is also frequently used as a basis for regions’ comparison. It is used for comparing between EU Member States and is essential in determining a wide range of policies, such as the extent to which a Member State should contribute to the EU budget.

To analyze how much the regions differ from one another in a country or across the EU-27, we need a different kind of indicator. Dispersion of employment and unemployment rate gives us an idea of how much regional rates differ from one another. As the dispersion of these rates decreases , labor market cohesion increases.

2.1. GROSS DOMESTIC PRODUCT AND DISPERSION In the EU, real GDP growth has varied considerably both over time and between countries.

The following figure highlights the annual average growth rates of the EU-27 and euro area and the EU between 2000 and 2012.

The highest increase was recorded in Lithuania (4,6% a year), and Estonia (4,5% a year) followed by Latvia (4,4%), Slovakia (4,2%), Bulgaria and Poland (both 3,8 %). In contrast, the lowest real GDP growth rates during 2000-2012 were recorded in Italy and Portugal (0,4% a year), as well as Denmark (0,8%). (figure no.1)


72

Figure no.1. Average GDP growth rates during 2000-2012

Source: author’s own, based on Eurostat data In the NUTS 2 level regions of the EU, the GDP per capita ranged between 6 500 PPS (27%

of the EU-27 average) in Severozapaden in Bulgaria and 80 300 PPS (328% of the EU-27 average) in the Inner London capital region in the United Kingdom; between the two ends of the distribution, there has been a factor of 12,4 to 1. Luxemburg (266% as compared to the EU-27 average and 65200 GDP/capita), the Belgian Bruxelles-Capitale/Brussels Hoofdstedelijk Gewest region (223%) and the German Hamburg region (202%) rank next in the classification of regions with the highest GDP/capita.

Regional convergence in GDP per capita expressed in PPS can be analyzed in different ways. The easiest method is to measure the ratio between the smallest and the largest values. With this method, the gap between the EU-27 regions was reduced to a factor of 17.1 in 2000, to 12.2 in 2010, mainly due to the rapid development of Romania and Bulgaria. However, this method uses only the extreme values, the majority of the regions not being considered. Overall, growth convergence in a few EU-15 countries and between member states, has compensated the growing divergence in other member states. Therefore, we identify the existence of an increased convergence for all EU-27 countries.

Figure no.2. Dispersion of GDP/capita 2000, 2010 Source: author’s own, based on Eurostat data

The above Figure depicts an objective image of the dispersion of the GDP/capita during the two years set as a basis of comparison. The trends of the dispersion were similar during both periods, except for Greece that has recorded a significant increase in 2010, as opposed to 2000, due to the unprecedented economic crisis.(figure no.2) Based on the available statistical data, we analysed the GDP for EU member states, by using the box-plot diagram and the principal component analysis (PCA). The PCA highlighted two groups of countries:


73

1. The group of countries with a high GDP throughout the years taken into account (2001-2012), namely Sweden, Denmark, the Netherlands, Ireland and Finland; 2. The group of countries with a lower GDP during the same period, namely Latvia, Lithuania, Romania or Hungary, etc.

an_2012

80.00060.00040.00020.0000

15

Figure no.3. box plot diagram

Source: author’s own, based on Eurostat data

According to the box-plot diagram, Luxembourg is the country that stands out as an outlier in terms of the GDP, which is why we have continued the analysis of the main components without taking it into account. As concerns the testing of the independence hypothesis between the variables, as can be seen in the following image, where is lower than 0,05, with a 95 percent probability, the independence hypothesis is rejected. Therefore, there is a connection between the variables that will be described through ACP.

KMO and Bartlett's Test

.840

1506.720

66

.000

Kaiser-Meyer-Olkin Measure of SamplingAdequacy.

Approx. Chi-Square

df

Sig.

Bartlett's Test ofSphericity

Figure.no.4 Testing of the independence variable Source: author’s own, based on Eurostat data

The 98,907% percentage of the total variation is explained and interpreted by means of a factorial axis that shows a concentration.

Regions that have yet to develop are catching up fast in terms of productivity. Tis is particularly visible in the new member states: in the three Baltic states and in certain areas of POlant, productivity has increased four times faster than the EU average between 1995 and 2004. However, some of these regions have started from very low levels. Since the workforce in these regions is changing focus towards sectors with a higher added value, regional productivity is expected to increase, even if sectorial productivity remains at a constant level. Luxemburg and Ireland have recorded significant productivity increases, thus maintaining front rank positions between 2001 and 2011. On the other hand, the regional economic development in Spain almost exclusively relied on increasing employment, thus suggesting that such an increase can be difficult to maintain in the long run. In Portugal, employment has remained stable after 2001. Many of the EU member states have had employment rates that exceeded the European average, while the ones that could not reach the threshold in 2012 were Greece, Poland or Cyprus.


74

2.2. ENPLOYMENT AND UNEMPLOYMENT INDICATORS

Another indicator is the one related to employment. Certain countries experienced a consistent and widespread increase in employment, while others - such as Romania and Portugal - have experienced a downturn by four or five percentage points. The margin that separates the lowest employment rates of the highest rates of employment of labor in 2012 is still significant, Greece with 51.3% at one end, Netherlands with 75.1% at the other.( figure.no.5)

Figure.no.5 Comparative employment rates 2001-2012 in EU-27 Source: author’s own, based on Eurostat data

In order to achieve the Lisbon objectives which set an overall employment of 70% and a

60% employment rate for women, the EU should generate approximately 23.5 million additional jobs, of which 7 million should be for women and 7 million for people aged between 55 and 64 years. Occupancy rates vary considerably, not only on a national level but also within member states, according to regional characteristics with a relatively high dispersion (measured by the variation coefficient for NUTS2 regions, observed in Cyprus (20, 5%) in 2012.

In order to analyse how much the regions differ from one another in a country or across the EU-27, we need a different kind of indicator. The dispersion of employment and unemployment rates gives us an idea of how much regional rates differ from one another.

Figure.no.6. Dispersion of regional employment rates 2001, 2008 and 2012 (variation

coefficient of employment rates of the 15-64 age group) from the NUTS 2 regions. Source: author’s own, based on Eurostat data

Employment rates vary considerably, not only on a national level, but also within the EU

member states, depending on the regional characteristics, with a relatively high dispersion (measured by the variation coefficient for the NUTS2 regions, observed in Cyprus (20,5%) in 2012. There is also a relatively high dispersion level per regions in Spain (10,8%), while Bulgaria, Belgium, France and Malta have reported coefficients ranging between 8% and 9%. Unlike the


75

previous situation, there are very few differences between employment rates in Austria, Sweden, Portugal, Romania or Denmark (all below 4%). The dispersion of regional employment throughout the entire territory of the EU-27 is higher in 2012 than what it would have been four years ago (1,9 percentage points higher), but relatively similar to 2001 (figure.no.6.)

Long term unemployment is one of the major concerns for politicians. Apart from the financial and social effects on personal lives, long term unemployment negatively affects social cohesion and could ultimately impede economic growth. Overall, 4,6% of the workforce in EU-27 in 2012 has been unemployed for longer than one year, the numbers increasing considerably since 2008 when it amounted to 2,6% .

Figure.no.7.Comparative long term unemployment rates for 2008-2012 in EU states Source: author’s own, based on Eurostat data

On a national level, the Czech Republic, the Netherlands, Denmark, Luxemburg, Romania,

Slovenia, Slovakia and Bulgaria have significantly reduced their long term unemployment rates in 2008. After the inception of the economic crisis, the long term unemployment rate has increased significantly, with rates of up to 14,4% in Greece and 11% in Spain.

The European objective for social cohesion is directed at lowering to a minimum the existing differences on the regional labour market. It is rather easy to check whether the employment objectives set in Lisbon and Europe 2020 will be achieved. However, the mere analysis of these indicators will not reveal whether regional cohesion is part of achieving those objectives.

As the dispersion of these rates decreases, labor market cohesion increases. If we consider the rates of 2001, we will see the effect that the crisis had, the growth of these rates during 2008 and reversing the decline that began in 2001. From 2001 to 2008, the dispersion of unemployment rates in the EU-27 decreased significantly by 20.2 percentage points. Subsequently increased dispersion due to the crisis, and in 2012 recorded a rate of 63.2% in the EU27.


76

Figure.no.8 Dispersion of unemployment rates on a NUTS 3 regional level

Source: author’s own, based on Eurostat data Even though both rates have increased in 2008 on a EU-27 level, it has been proved that the

dispersion within these countries has followed an opposite trend, declining in most member states. This is due to the fact that there are wide disparities as concerns the ways in which countries have reacted to the crisis. The reactions across the regions of one country were rather homogenous, while reactions across regions from different countries were relatively unequal. In most member states, the dispersion of the employment rates seems to be rather stable, while unemployment rates are more likely to vary.

According to the previous figures, the country with the highest dispersion for both rates in 2012 is Italy, with 20,5% for employment and 42,3% for unemployment. There are important differences concerning regional performance on the labour market between the north and the south of Italy. Belgium also had a higher dispersion as concerns unemployment rates, amounting to 57,5%. Denmark had the lowest dispersion rates in 2012 (9,2% for unemployment and 1,3% for employment).

2.3. ALLOCATION OF FUNDS PROCESS A better understanding of the EU regional policy and its impact on various aspects of

regional economies requires an analysis of the allocation of funds process. Therefore, it is important to assess whether the funds are allocated in compliance with the

criteria established by the European Commission.

Table no.1. Financial allocation per programming periods since 1990-2013 Financial

allocations FED

R FSE FEO

GA IFOP

2007-2013 270.087.000

75.604.353.000

- -

2000-2006 225.975.652

76.120.100

56.798.282

12.469.418

1994-1999(ECU)

75 018,357

43 410,790

23 508,270

2 660,710

1990-1994 (ECU)

86.175.900

- 167.265.000

-

Source: author’s own, based on Eurostat data


77

The European Social Fund (ESF) is believed to be one of the first funds of the European Union, originating with the Treaty of Rome in 1957. Even though increasing employment was one of its primary objectives, the ESF has constantly changed its priorities throughout the years so as to be able to meet the needs of present times. In order to consolidate economic and social cohesion in the European Union by alleviating regional disparities, the European Regional Development Fund (ERDF) suggests various funding sources directed at meeting the set objectives. The Common Agricultural Policy (CAP) is one of the most complex and costly EU policies. The European Agricultural Guidance and Guarantee Fund (EAGGF) was created in 1962 for the financial support of CAP. EAGGF handles all the loans destined for the Common Agricultural Policy, accounting for a sizeable portion of the EU budget – 50% of the budget until recently. The Financial Instrument for Fisheries Guidance (FIFG) was founded in 1994, combining all EU instruments related to fishing.

The Cohesion Fund helps member states with a GNP per capita below the 90% of the European average, enabling them to alleviate the disparities between the economic and social development levels and to stabilize their economies. As the EU expanded on May 1st 2004, all the new member states qualified for the Cohesion Fund.

Table no. 2. New states eligible for the Cohesion Fund 2004-2006

-mill. euro- C

zech Republic

Estonia

Cyprus

Latvia

Lithuania

Hungary

Malta

Poland

Slovenia

Slovakia

936,05

309,03

53,94

515,43

608,17

1 112,67

21,94

4 178,60

188,71

570,50

Source: Structural Actions 2000-2006 The Solidarity Fund of the European Union (SF) is the main instrument the EU uses to face

natural disasters and to show its support for the regions afflicted by such disasters. The fund has been created as a reaction to the devastating floods that hit Central Europe in the summer of 2002.

In order to reduce economic disparities, the EU has granted financial aid to applicant countries through the instruments for pre-accession assistance that have played an important part in this endeavour. These pre-accession aids have been presented by the European Commission as part of the Agenda 2000 documents.

Starting with January 2007, the Instrument for pre-accession assistance (IPA) replaces a series of EU financial programmes and instruments destined for countries that have or might apply for accession to the EU.

Additionally, four special programmes have been created to represent EU initiatives financed from the structural funds budget. Each programme is backed by a single fund, absorbing around 5,35% of the total budget allocated for Structural Funds.

Another instrument is the European Investment Bank, which has the role to lend money for projects of European interest, such as road and rail communication routes, airports or environmental schemes. As a reaction to the statement of the European Council convened in December 1992 that promoted the recovery of the European economy, the Governing Council has decided upon creating a European Investment Fund, governed by the European Investment Bank (EIB) (62%) and the European Community, through the European Commission (29%). Moreover, EIF holds significant stakes in public or private banks and financial institutions (30 out of 17 countries, accounting for 9%).

In 2009, the EU economy has experienced the worst recession since the Second World War. GDP fell by over 4% and unemployment rose up to 10% by the end of the year. Regional policy has undergone a number of changes associated with the economic crisis:

a) The first set of changes concerns the effects on economic development and government policies. These changes are more visible in Ireland, Italy, Germany and France.


78

b) A second set of recent changes in policies refers to new government programmes, legislative changes or any other major domestic reassessments related to the development or enforcement of regional policies. This is to be found in Denmark, Norway, Sweden and Finland.

c) The third set of changes is directed at improving the policy efficiency and effectiveness. This is to be applied in Poland, the United Kingdom, the Netherlands, Austria, Belgium, Luxemburg and in some of the new member states.

d) The fourth set of changes in regional policies has occurred in countries where there is already a close relationship (or even harmonization) between the national and regional policies of the EU. In these cases, the changes that have occurred are highly influenced by the agenda of the cohesion policy, as is the case of Greece, Portugal, Spain and many of the new member states.

The negative effects of the crisis which began in 2007, were mitigated in the European Union by the European Economic Recovery Plan (EERP), adopted by the European Council in December 2008. This European Economic Recovery Plan proposes a counter-cyclical macroeconomic response to the crisis in the form of an ambitious set of actions to support the real economy. The objective is to avoid a deep recession.

3. CONCLUSIONS In the analysis of the achievement and evolution of regional development process in the

EU member states, we have assessed the productivity and the employment rate of workers in the period from 2001 to 2012 . Dispersion of employment and unemployment rate gives us an idea of how much, the regional rates differs from one another . As the dispersion of these rates decreases, labor market cohesion increases.

From the analysis at NUTS 2 regions level of the EU, taking into consideration the indicators of GDP and GDP/capita in the period 2000-2010, we can notice the upward trend of total GDP in all regions, in the context of emphasizing the difference between the region with the highest and the lowest level of GDP.

In conclusion, is confirmed a process of real convergence in the EU, in terms of GDP/capita, driven by the reduction of disparities process, as some of the less developed EU regions grow at a pace, faster than most developed regions. Although regional disparities in terms of GDP/capita increased in some of the member states in the period 2000-2010, almost all regions of the less developed member states have approached the EU average.

The economic crisis has had a severe impact on the economies of EU member states, each of them taking action accordingly .

BIBLIOGRAPHY 1. Dettori, B., E. Marrocu, R., Paci(2012), Productivitatea totală a factorilor, active

necorporale și dependența spațială în regiunile europene, Studii Regionale 46.10 2. Dory, Tibor,(2008) RTD policy approaches in different types of European regions,

Office for Official Publications of the European Communities, Luxembourg 3. . Kalvet T.(2010), Expert evaluation network delivering policy analysis on the

performance of cohesion policy 2007-2013, Task 2: Country report on achievements of cohesion policy Estonia

4. Porfiroiu ,Marius, Profiroiu ,A., Popescu,I,(2008), Instituţii şi politici europene, Ed. Economică, Bucureşti

5. Puşcaşu, Violeta,(2000) Dezvoltare regională, Edit. Economică, Bucureşti 6. Socol Cristian., Socol A.,(2009) Modelul european: creştere economică, convergenţă şi

coeziune, Revista Economie teoretică și aplicată , Ed. AGER, Bucureşti 7. European Commission, Economic Crisis – the response from European Cohesion Policy,

(2011),Directorate General for Regional Policy


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8. Fifth report on economic, social and territorial cohesion ”Investing in Europe’s future”, (2010), Luxembourg, Publications Office of the European Union

9. http://epp.eurostat.ec.europa.eu, Eurostat

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

80

AN ANALYSIS OF UNEMPLOYMENT IN THE COUNTRIES OF

EASTERN AND CENTRAL EUROPE IN THE CONTEXT OF E.U.

ADHERING

LecturerPhDAdrianLiviuSCUTARIU“ŞtefancelMare”UniversityofSuceava,RomaniaFacultyofEconomicsandPublicAdministration

[email protected]

Abstract: Unemployment is a negative phenomenon that manifests itself in any economy with varying degrees of

intensity. In this paper we propose to analyze the evolution of unemployment in the EU. There are countries where economic recession was felt more intense and harder recovered from it, such as Greece or Spain. Within the European Union one notes some differences in unemployment between Member States but also in terms of age groups. In the EU youth unemployment rate is approximately double that the general unemployment rate, but the situation is worse in some countries where youth unemployment rate is even higher. Our analysis also focuses on trends recorded at regional level in Central and Eastern Europe countries in the context of their accession to the EU, highlighting positive developments, which were maintained in the coming years. The unemployment rate decrease is one of the objectives followed by the EU through its policies. Key words: unemployment, European Union, adhering, regional development JEL classification: E24

INTRODUCTION

Unemployment is a phenomenon existing in any national economy, and over time its definition and measurement was the subject of some debates of ideas. Over time unemployment has covered specific realities, which is why the opinions referring to it were diverse.

The emergence of modern macroeconomic theory has fostered understanding the causes, the forms of expression and the effects of unemployment, although it has made its presence felt long before.

Unemployment is, essentially, an under-utilization of resources, so that individuals able and willing to work at the current market salaries are not put to productive use [1]. The structuring of labor and goods market and services market determine the existence of a part of unemployment. In any society there is a natural unemployment (3-5%) that occurs as a result of labor market imperfections and lack of information of those who lose their jobs [2].

UNEMPLOYMENT EVOLUTION IN THE EUROPEAN UNION COUNTRIES

As the European Union brings together economies with different characteristics, our analysis reveals that in the case of employment degree of the workforce we have a quite heterogeneous picture. The EU unemployment rate in 2013 is shown graphically in Figure no. 1, where we see that the highest rates of unemployment are registered in Greece and Spain.

With only 7,3%, Romania ranks seventh among countries with the lowest unemployment after Austria (4,9%), Germany (5,2%), Luxembourg (5,5%), Malta (6,4 %), Denmark (7%) and the Czech Republic (7%). However, this low rate of unemployment in Romania could be due to factors such as migration of part of the workforce to west and partial inclusion in the statistics of the existing unemployed persons.


81

Figure no. 1. Unemployment rate in the EU countries, 2013

Source: Eurostat (http://ec.europa.eu/eurostat/tgm/graphDownload.do?tab=graph&language=en&plugin=1&pcode=tsdec450)

It is interesting to be seen the evolution of unemployment rate and the level of EU countries.

We observe a downward trend until 2008, after which values start to increase in the context of international economic crisis. Unemployment rates are generally below 17,5%, except for Greece and Spain, with values falling, after successive increases recorded (Figure no. 2).

Figure no. 2. The evolution of unemployment rate (%) in the EU countries

Source: Eurostat (http://ec.europa.eu/eurostat/tgm/graphDownload.do?tab=graph&language=en&plugin=1&pcode=tsdec450)

The unemployed people may have characteristics which differ from country to country. One

of these features is age. Each group of employees is affected in a different way by unemployment. Youth unemployment is a major problem in the EU, so we observe that the Community average rate


82

of youth unemployment is about twice compared with the overall unemployment rate. Regarding Romania, here the youth unemployment rate is close to the EU overall unemployment rate (Figure no. 3).

Figure no. 3. Unemployment rate for the population aged below 25 years, in the EU countries,

2013 Source: Eurostat (http://ec.europa.eu/eurostat/tgm/graphDownload.do?tab=graph&language=en&plugin=1&pcode=tsdec460)

Croatia, Italy, Cyprus and Portugal are the following among countries with most young people unemployed. Germany, Austria, Denmark, the Netherlands and Malta have the lowest youth unemployment, the first two with values below 10% and the other below 15%. Within the EU, this is a phenomenon to be combated by measures at Community level, but also locally. THE EVOLUTION OF UNEMPLOYMENT IN THE REGIONS OF E.U. MEMBER COUNTRIES IN CENTRAL AND EASTERN EUROPE

A clearer picture of the differences between EU regions in unemployment rate is shown by Figure no. 4. The level of unemployment rate is represented by different colors on the map.

Figure no. 4. Regional unemployment rate (%) in the NUTS 2 regions – 2013

Source: Eurostat (http://ec.europa.eu/eurostat/tgm/mapToolClosed.do?tab=map&init=1&plugin=1&language=en&pcode=tgs00010&toolbox=types)


83

Typically, higher values are found in Greece, Spain, Portugal, Croatia, southern Italy,

Cyprus. The lowest values are in Germany and Austria. It is remarkable that in the same state interregional notable differences may exist in terms of unemployment rate.

The analysis of unemployment evolution is continued by observing the trends that occurred in the NUTS 2 regions with the EU accession. To better highlight the evolution in the context of EU accession and EU integration process influence on the unemployment rate, we calculated evolution indexes of unemployment rate. They were calculated for ante and post-accession symmetrical periods of four years [3]. From Table 1 we can see that in most regions (35) of countries analyzed unemployment rates intensified their decline in the period after accession (highlighted in yellow in Table 1, column 6). If at the time of accession there were only 25 regions that did not exceed the EU average unemployment rate, at 4 years after accession there were 26 regions that did not exceed the EU average (highlighted in yellow in Table 1, column 2 and 3, respectively). Regarding the unemployment rate, compared with the EU 28 average, here it is also to be noted that in 2013 34 regions recorded values below the EU average values (highlighted in yellow in Table 1, column 4). The highest unemployment rate in 1999 was 20,5% and in 2007 it was 15,3%. Tabel 1. Indices of evolution for unemployment rate in the NUTS 2 regions of the Eastern and Central Europe countries

Regions \ Years 1999 2003 2007 2013

Modification (%)

1999-2003

Modification (%)

2003-2007 0 1 2 3 4 5 6

EU28 9,1 7,2 10,8

CZ01 - Praha 3,6 4,2 2,4 3,1 16,67 -42,86

CZ02 - Strední Cechy 8,0 5,1 3,4 5,2 -36,25 -33,33

CZ03 - Jihozápad 6,2 5,0 3,5 5,2 -19,35 -30

CZ04 - Severozápad 13,1 11,0 9,5 9,6 -16,03 -13,64

CZ05 - Severovýchod 7,6 6,2 4,8 8,3 -18,42 -22,58

CZ06 - Jihovýchod 8,0 7,0 5,2 6,8 -12,5 -25,71

CZ07 - Strední Morava 9,6 8,4 5,9 8,0 -12,5 -29,76

CZ08 - Moravskoslezsko 12,5 14,0 8,5 9,9 12 -39,29

EE00 - Eesti 11,6 11,3 4,6 8,6 -2,59 -59,29

CY00 - Kypros 4,1 3,9 15,9 18* -4,88

LV00 - Latvija 13,8 12,1 6,1 11,9 -12,32 -49,59

LT00 - Lietuva 13,4 12,9 4,2 11,8 -3,73 -67,44 HU10 - Közép-Magyarország 4,9 4,1 4,7 8,7

-16,33 14,63

HU21 - Közép-Dunántúl 6,2 4,3 5,0 8,8 -30,65 16,28

HU22 - Nyugat-Dunántúl 4,5 4,6 5,0 7,8 2,22 8,7

HU23 - Dél-Dunántúl 8,4 7,8 10,0 9,1 -7,14 28,21

HU31 - Észak-Magyarország 11,7 9,8 12,3 12,9 -16,24 25,51

HU32 - Észak-Alföld 10,0 6,4 10,8 14,4 -36 68,75

HU33 - Dél-Alföld 5,9 6,4 7,9 11,3 8,47 23,44

MT00 - Malta 7,5 6,5 6,4 19,05* -13,33

PL11 - Lódzkie 12,2 18,9 9,3 11,1 54,92 -50,79

PL12 - Mazowieckie 10,2 16,7 9,1 8,0 63,73 -45,51

PL21 - Malopolskie 9,3 17,7 8,5 10,9 90,32 -51,98

PL22 - Slaskie 11,1 19,3 8,1 9,7 73,87 -58,03

PL31 - Lubelskie 11,0 15,4 9,5 10,3 40 -38,31


84

PL32 - Podkarpackie 12,6 18,0 9,6 14,4 42,86 -46,67

PL33 - Swietokrzyskie 13,2 18,0 12,1 13,0 36,36 -32,78

PL34 - Podlaskie 12,3 17,4 8,9 9,9 41,46 -48,85

PL41 - Wielkopolskie 9,8 16,1 8,3 8,8 64,29 -48,45

PL42 - Zachodniopomorskie 19,8 26,7 11,5 10,1 34,85 -56,93

PL43 - Lubuskie 16,3 23,9 9,8 9,7 46,63 -59

PL51 - Dolnoslaskie 14,8 25,6 12,7 11,3 72,97 -50,39

PL52 - Opolskie 14,1 20,1 9,4 9,4 42,55 -53,23

PL61 - Kujawsko-Pomorskie 13,2 21,3 11,3 12,4 61,36 -46,95 PL62 - Warminsko-Mazurskie 19,5 25,0 10,5 11,4

28,21 -58

PL63 - Pomorskie 11,1 20,8 9,5 10,0 87,39 -54,33 SI01 - Vzhodna Slovenija (NUTS 2010) 7,9 5,6 11,4

21,54** -29,11

SI02 - Zahodna Slovenija (NUTS 2010) 4,9 3,9 8,7

4,26** -20,41

SK01 - Bratislavský kraj 7,0 6,9 4,3 6,4 -1,43 -37,68

SK02 - Západné Slovensko 14,1 15,6 7,8 11,7 10,64 -50

SK03 - Stredné Slovensko 18,2 20,4 15,3 16,8 12,09 -25

SK04 - Východné Slovensko 20,5 20,8 14,9 18,5 1,46 -28,37

EU28 9,1 7,2 10,8

2002 2006 2010 2013

Modification (%)

2002-2006

Modification (%)

2006-2010

EU28 9 8,2 9,6 10,8

RO11 - Nord-Vest 7,6 5,9 6,8 4,1 -22,37 15,3

RO12 - Centru 8,2 9,0 10,5 9,7 9,76 16,7

RO21 - Nord-Est 6,8 5,9 5,8 4,6 -13,24 -1,7

RO22 - Sud-Est 10,4 9,0 8,8 10,0 -13,46 -2,2

RO31 - Sud - Muntenia 10,2 9,4 8,3 9,9 -7,84 -11,7

RO32 - Bucuresti - Ilfov 8,6 4,8 4,6 7,8 -44,19 -4,2

RO41 - Sud-Vest Oltenia 6,1 7,1 7,5 8,0 16,39 5,6

RO42 - Vest 6,3 6,4 6,0 5,3 1,59 -6,3

BG31 - Severozapaden 11,0 11,0 14,0 -9,09* 0

BG32 - Severen tsentralen 13,5 11,5 15,3 -8,16* -14,8

BG33 - Severoiztochen 11,0 14,5 16,8 -45,81* 31,8

BG34 - Yugoiztochen 8,1 10,6 13,0 -47,4* 30,9

BG41 - Yugozapaden 13,6 6,5 6,8 9,8 -52,21 4,6

BG42 - Yuzhen tsentralen 8,2 11,4 13,5 -31,09* 39

HR03 - Jadranska Hrvatska *** 15,0 HR04 - Kontinentalna Hrvatska *** 18,3

EU28 9,0 8,2 9,6 10,8 *2000 ** 2001 *** Croatia joined EU in 2013 and at the paper elaboration moment there was no data available for 2014, necessary for the calculation of post-accession indicators Source: elaborated on the basis of Eurostat data (http://appsso.eurostat.ec.europa.eu/nui/setupDownloads.do)

The unemployment rate decreased from one year to another, so that the overall trend is

positive. In terms of reporting to the EU average, we note that at the four years before accession


85

moment to the one with four years after accession, values are decreasing. Compared to the EU average in the analyzed period, most regions recorded declining values.

CONCLUSIONS

In EU countries unemployment is manifested in different ways, proved by the values of the unemployment rate. If by 2008 unemployment rates have decreased, after this year there has been an upward trend, due mainly to the global economic crisis, which has affected all EU countries, in a greater or smaller degree. Within the EU there are differences between Member States' unemployment rate and in terms of age groups. The states that have the highest unemployment rates are Greece and Spain, about one quarter of the working population, while the EU average was 10,8% in 2013. Youth unemployment is a problem, its rate is about double compared general unemployment rate. Greece, Spain and Croatia are countries where more than half of young people don’t have a job.

With the EU accession countries in Central and Eastern Europe, we noticed positive effects in terms of employment. The pace of decline in the unemployment rate has increased in the post-accession period, compared with pre-accession period. Later this trend was maintained.

The recent period has witnessed a decline of the working population. Labor employment is necessary both for economic progress and for the sustainability of social protection systems. The EU, through the European Social Fund, the Europe 2020 Strategy and other instruments, envisages growth of employment. We think of great importance are organization of requalification courses and professional retraining, as well as exploitation of new fields able to provide jobs.

ENDNOTES

[1] Joseph E. Stiglitz, Carl E. Walsh, Economie, Editura Economică, Bucureşti, 2005, p.437 [2] Carmen Năstase, Mihai Popescu, Carmen Boghean, Adrian Liviu Scutariu, Macroeconomie: concepte

fundamentale, Editura Didactică şi Pedagogică, Bucureşti, 2008, p.195 [3] The data for 2003 are calculated until 31 December 2003 and the accession of the Czech Republic,

Slovenia, Latvia, Lithuania, Estonia, Malta, Cyprus, Hungary, Poland and Slovakia took place on 1 January 2004. So, 1999-2003 includes exactly the four years preceding accession (31 December 1999 - 31 December 2003) and 2003-2007 include the first four years after accession (31 December 2003 - 31 December 2007). Romania and Bulgaria case is similar, they joined the EU on 1 January 2007 and ante and post-accession periods considered are 2002 to 2006 and, respectively, from 2006 to 2010.

BIBLIOGRAPHY

1. Comisia Europeană, Să înțelegem politicile Uniunii Europene: Ocuparea forței de

muncă și afaceri sociale, Luxemburg: Oficiul pentru Publicații al Uniunii Europene, 2014, http://europa.eu/pol/pdf/flipbook/ro/employment_ro.pdf

2. Năstase Carmen, Popescu Mihai, Boghean Carmen, Scutariu Adrian Liviu, Macroeconomie: concepte fundamentale, Editura Didactică şi Pedagogică, Bucureşti, 2008

3. Scutariu Adrian Liviu, The evolution of overall development in the Central and Eastern Europe countries in the context of E.U. accession, Economic Insights - Trends and Challenges, Volume III (LXVI), No.2, 2014, pp. 65-73

4. Stiglitz Joseph E., Walsh Carl E. - Economie, Editura Economică, Bucureşti, 2005 5. http://www.capital.ro/salariile-vor-creste-in-europa-de-est-firmele-nu-mai-reusesc-

sa-si-pastreze-angajatii.html 6. http://ec.europa.eu/eurostat/tgm/graphDownload.do?tab=graph&language=en&plugi

n=1&pcode=tsdec460 7. http://ec.europa.eu/eurostat/tgm/graphDownload.do?tab=graph&language=en&plugi

n=1&pcode=tsdec450


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8. https://ec.europa.eu/eures/main.jsp?countryId=RO&acro=lmi&showRegion=true&lang=ro&mode=text&regionId=RO2&nuts2Code=RO21&nuts3Code=null&catId=9460

9. http://www.fonduri-ue.ro/res/filepicker_users/cd25a597fd-62/2014-2020/Dezbateri%20parteneriale/Rezultatele%20analizei%20documentare/03.06.2013/5.Employment_22%20mai.pdf

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

87

DIVIDEND POLICY, SIGNAL INFORMATION FOR

THE CAPITAL MARKET

LecturerPhDAngelaNicoletaCOZORICI

'StefancelMare'UniversityofSuceava,[email protected]

Abstract: Accumulated profits represent one of the most important sources of financing for companies and dividends

represent cash flows due to holders of shares. The decision on the distribution of dividends to the shareholders, although it seems very simple at first sight, affect both the investment decision, as well as the financing policy of the firm because it is a question of choose between dividend distribution and reinvesting a big part of profits, by the company in question. The dividend policy of firms is influenced by rules, customs, beliefs, public opinion, general economic conditions and other factors who are in permanent change with a different impact on the companies. In these circumstances, it can not be mathematically and uniform modeled for all companies and for all the moments. Thus, the policy adopted by a company must be in accordance with the degree of shareholders satisfaction and with firm objectives.

Key words: benefit; dividend policy; profitability; reinvestment; shares.

JEL classification: G11, G32, G35 I. INTRODUCTION

Finances are the subject of a policy of business drivers, which is the expression of behavior, of an election, a tactical or strategic decision to help, in the best measure, the objective to maximize the value. According to Stancu (1997), financial policy of the company represents a ”set of decisions, fundamental options for the most efficient allocation of capital”. In relation with the special notes on financial activity of the enterprise we can identify three financial policies, which shall be regarded, at the beginning, as independend, which is an integral part of the economic policy of the business.

Figure no. 1 - Financial policies at enterprise level

Investment policy, as part of the company's financial policy, address the issue of capital allocation for physical or financial assets, and between these, the central place returns fixed assets acquired as a result of the capital investments.

The funding policy is considering decisions on capital formation, including financial funds of the enterprise. It directly targeting options on using different formation sources of capital and financial structure of the company.


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Dividend policy is synthetic materialized through enterprise options between partial or full reinvestment of net profit, including establishment of other funds or reserves at its disposal and/or distribution of this profit as dividends to shareholders.

Financial policy cannot be determined once, it grows, changes, is improving and continuously adapts to the requirements and problems that arise, considering both financial instruments as well as the aims pursued. II. EPISTEMOLOGICAL FRAMEWORK OF DIVIDEND POLICY The profit distribution policy refers to the decision of the general meeting of shareholders to distribute dividends resulting at the end of the financial year and/or to reinvest in the company's development. If we consider an economic environment characterized by a relative simplicity, the dividend policy defines the distribution of net profit by destination (for dividends or reinvestment), but with the development of the economic environment, there were new options so that financial management must respond to new questions about the decision to distribute cash dividends or buying back shares, ordinary or special dividend distribution, which is more important: increases in market price or paid as dividends or how to harmonize views belonging to different classes of investors. Distribution of dividends complete the image of a profitable company, and constant distribution of dividends lead to the increase public confidence towards the company, to an increase of market value of the firm. Reinvestment of net profits lead to increased self-financing capacity and improve the financial structure of capital company. In these circumstances, the company will have a higher financial potential to support their own development (self-financing and capacity to appeal to new loans), all these factors constituting the increase of the company.

The alternative to reinvest all or part of the net profit in financing investment projects of the company is part of the funding policy and for this reason we can say that dividend policy is part of the funding policy.

Numerous studies on dividend policy requires an epistemological analysis of it. Thus, in the scientific literature were outlined two models on this concept: one that is based on a set of limiting assumptions providing a standard in the distribution of dividends and one which emphasizes the need for distribution of dividends because this is the actual reward

of shareholders. The first type of models belongs to the authors as Miller, Modigliani, Walter and Bhattacharya, and for the second category we remember on Graham and Dodd.

In the paper Dividend policy, growth, and the valuation of shares, Miller and Modigliani (1961) proves that in the perfect market conditions, a rational investor will be indifferent between receiving dividends and reinvesting profits. On the other hand, Brennan (1970) takes into account the tax differential between reinvested profits and dividends and proposes that the last ones should not be ever distributed.

Modern theories focuses on informational content of dividends (Bhattacharya, 1979), as well as on their importance in monitoring the activity of managers by shareholders (Rozeff, 1982; Easterbrook, 1984).

Dividend policy has a significant influence on the risk of the bankruptcy of a company because there is a decrease of availabilities which may cover loans when they should be reimbursed.

Kalay (1982) believes that a decision which is based on the dividend decrease may be a premise to keep under control a possible decision to increase the indebtedness of the company. Thus, those companies that have high level of loans will be characterized by a low rate of dividend.


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III. DETERMINANTS OF DIVIDEND POLICY

The dividend policy of firms constitute a cultural phenomenon, influenced by a variety of factors in a permanent change, with a different impact on firms. In these circumstances, it cannot be mathematically and uniform modeled to all firms and for all the moments.

Figure no. 2 - Determinants of dividend policy

Some theories are trying to identify exactly determinants of dividend policy actually applied on the firms. In this category includes models developed by Lintner (1956) and by the researchers who developed its theory. They do not attempt to provide the answer to the question "How should it happen?", but also tries to offer an answer to the question” why it happens as it actually happens?”. These theories propose to explain these phenomena not only in mathematical considerations, but also psychological. Some of the arguments which may be taken into account by such a vision are given by issues of convenience (investors collect dividends without any effort on their part), by control of the company (power to vote at general meetings of shareholders) or simply by fashion or mood (Shiller, 1989). IV. THEORIES ON DIVIDEND POLICY

In the specialized literature there are a diversity of opinions on the reason why companies distribute a part of their earnings as dividends. These explanations, which are based on assumptions more or less restrictive, are trying to create some standard models underlying the dividend policy and to solve the inherent paradox linked to shareholders remuneration.

In this sense, Graham and Dodd (1951) developed the first theory addressing the shareholders perception on the distribution of dividends according to which shareholders do not want higher receipts in the future but effective receipts at present. Thus, they claim the need for dividends and obtaining receipts at present in the detriment of reinvest the profits which will bring higher receipts in the future.

Classical theories of dividend policy failed to provide an final and unquestionable explanation of it, reminding among them neutrality theory of the dividend policy on the company, necessity theory of dividend distribution and necessity theory of profit reinvestment.

Miller and Modigliani (1961) argues, as we mentioned a little earlier, that dividend policy would be irrelevant, while Walter (1956) recommends first to achieve attractive investment and the rest of the profit shall be distributed to shareholders as dividends. In this regard shall be fixed part of the profit required for investment, and the difference should be distributed as dividend, this showing us a different approach to dividend, namely residual variable.

Gordon and Shapiro (1956) argue that to maintain the attractiveness of the shares of a company is required a policy based on constant growth rate of dividends. According to the authors, share value is given by the relation:


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Where: Po = value of shares D1 = amount of dividends received Kc = required rate of return g = dividend growth rate

The main disadvantage of this model refers to the fact that the dividend represents the only indicator that determines the share value, and the evaluation of a company can be wrong determined if it is not correctly approximated. In the paper Dividend Policy, the author Victor Dragotă argues that from a historic point of view, the first theories on dividends arise in connection with the most obvious pragmatic role of their distribution to shareholders. Thus, we must not forget that, through dividend, shareholders may recover the capital invested most easily once with the share acquiring. The need for dividends distribution is explained by three theories, namely:

Figure no. 3 - Theories on dividends distribution necessity

Signal theory is addressed to large companies and argues that through dividend can anticipate more correctly the company perspectives, therefore it has exclusively an informational role. A company has the ability to distribute dividends to a certain level only if it has sufficient financial resources and managers estimates the persistence of these resources in the future. Thus, large companies should distribute larger amounts as dividends towards smaller companies, to communicate better performance in the future. Otherwise, the public will have a feeling of insecurity externalized by reducing demand for the company's shares and, therefore, by decreasing the stock market course.

The agent theory claims that dividend role is to monitor the activities of managers or shareholders. Since they have the power of decision as regards financial resources, they will be able to orient them not only in the sense of maximizing the market value of the company, but also for the purpose of personal interests. The decision to distribute dividends makes such managers to give up of a part of these projects less attractive to the firm, what is constituted as a means of monitoring.

Behavioural theory. Various researchers revealed that market investors may manifest differently at certain times towards the rational behavior defined by financial theory dictates. Dividend is acting in this respect as a mean of monitoring the consumption.

If investors would be indifferent toward the two possible ways of remuneration (an increase in stock market course or dividends), they will find that perfectly substitutable receipts from dividends and those from the sale of shares. Thus, they may be tempted at certain times to consume more, by selling shares on the market.


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In this sense, the dividend acts as a mean of self control for shareholders, limiting their consumption at the level of amounts received as dividends.

V. THE DIVIDEND POLICY OF FINANCIAL INVESTMENT COMPANIES

The five investment companies were established in 1992 under Law no. 58/1991, as Private Ownership Funds (FPP). At the time of creation, each company has received in the portfolio 6% (30% in total) of the shares of all companies in Romania, including that of commercial banks. The difference of 70% was passed in the administration of the State Property Fund - FPS. In 1996, the five FPPs were transformed into Financial Investment Companies (SIF), according to Law 133/1996.

The initial share capital of each company has been set up as a result of subscriptions carried out by Romanian citizens entitled (all citizens who, at that time, they had reached the age of 18) of ownership certificates and privatization coupons.

Following this process, called ”The Great Privatization”, millions of Romanians, so-called ”cuponari” - have became shareholders at five SIFs, by subscribing famous carnets with ownership certificates. At establishment, all 5 SIFs were forced by law, as if the shareholders do not raise dividends, they will automatically receive a number of shares corresponding with the value of dividends. The situation of dividends offered by the five financial investment companies (SIF) during the period 2005-2013 is shown in the following table:

Table no. 1. Dividends granted by the 5 SIFs during the period 2005-2013 The

company (symbol)

SIF Banat Crisana

SIF1

SIF Moldova

SIF2

SIF Transilvania

SIF3

SIF Muntenia

SIF4

SIF Oltenia

SIF5 Dividend

2005 0.0500 0,0670 0,0500 0,0600 0.0600

2006 0.0600 0,0630 - 0,0700 0.0700

2007 0.0700 0,0500 0,0375 0,0700 0.0780

2008 0.0300 0,0450 0,0300 0,0400 0.0600

2009 0.0500 0,0600 0,0300 0,0400 0.1600

2010 0.1030 0,0900 0,0300 0,0810 0.0750

2011 0.1000 0,2200 0,1712 0,0810 0.1300

2012 - 0,2400 0,1750 0,1340 0.1300

2013 - 0,0660 - - 0.1600 Source: carried out by the author according to data taken from the http://www.bvb.ro/ and http://www.tradeville.eu/

The first financial investment company that has adopted a ”zero” dividend policy was SIF1 in 2012. Thus, after a long time in which all five SIFs have granted dividends (except SIF 3 which in 2006 has not granted dividends), in 2013, for the first time since their founding in 1996, three of the five Financial Investment Companies have not paid dividends to shareholders, namely SIF1, SIF3 and SIF4. The decision not to grant dividends taken by the 3 SIFs at general meetings of shareholders held in April 2014 led to a decline in the price of shares on the stock exchange.


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Figure no. 4 – Shares evolution of 5 Financial Investment Companies

Thus, if we look succinctly at the evolution of share price of the 5 SIFs at Bucharest Stock Exchange during the period in question we can notice that from March to April 2014 when they knew already the proposals concerning not granting dividends, the share price traded at the BSE has been in free fall, to all 5 SIFs, as shown in figure above.

Strategic intent of SIFs management for future business development has to intensify investment effort based on a optimal ratio between investment policy and dividend policy, aiming the shareholders satisfaction and ensuring future higher yields of company's, increasing attractiveness and liquidity of the shares. VI. CONCLUSIONS

Enouncement of rational arguments in terms of business practices on dividend policy raised over time many questions and caused a permanent concern in this respect.

Financial theory considers the dividend policy as an interesting field of study due to problematic incitements which they provide to scientific research. In conditions of an economic environment characterized by a relative simplicity, by this term was defined the distribution by destination of net profit, for dividends or reinvestment.

Together with the development of the economic environment, appears financial management which aims to answer at new questions about the decision mode; what type of dividends should be distributed; whether to count more on exchange rate increases than on dividends payments or how to harmonize different viewpoints of investors.

It can be concluded by the fact that the dividend policy of a company can target the following purposes:

- retention of shareholders who does not intend to sell shares and which contribute to strengthening and stability of the company; - increasing confidence of third parties to the company and its creditworthiness; - economic and social development of the firm through reinvestment of profit or a part of it. The evolution of studies on dividend policy has led to a better coordination of the financial

part of companies, this referring to a good correlation of dividends distribution according on what is more important for the society.

Thus, to reach a top spot market the company has to make loyal shareholders and to keep them in order to meet difficulties in the way to the podium.


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Dividend policy practiced by SIF aims at keeping a balance between shareholders remuneration by dividend and the need to finance investments from reinvested profits. VII. ACKNOWLEDGMENT This paper has been financially supported within the project entitled "Horizon 2020 - The doctor and Postdoctoral Studies: Promoting the national interest through Excellence, Competitiveness and Responsibility in the field of Romanian fundamental and Applied Scientific Research, contract number POSDRU/ 159/ 1.5/S/140106. This project is co-financed by European Social Fund through sectoral Operational Program for Human Resources Development 2007-2013. Investing in people! VIII. REFERENCES: 1. Bae, S., Chang, K., Kang, E., (2012) Culture, Corporate Governance and Dividend Policy:

International Evidence, Journal of Financial Research, Vol.35, pp.289-316 2. Bar-Yosef, S., Kolodny, R. (1976). Dividend policy and capital market theory. The Review of

Economics and Statistics, 181-190. 3. Bhattacharya, S. (1979). Imperfect information, dividend policy, and "the bird in the hand"

fallacy. The Bell Journal of Economics, 259-270. 4. Black, F., & Scholes, M. (1974). The effects of dividend yield and dividend policy on common

stock prices and returns. Journal of financial economics, 1 (1), 1-22. 5. Black, F., Scholes, M. (1974). The effects of dividend yield and dividend policy on common

stock prices and returns. Journal of financial economics, 1 (1), 1-22. 6. Brennan, M. J. (1970). Taxes, market valuation and corporate financial policy. National Tax

Journal, 417-427. 7. Brockman, P., & Unlu, E. (2009). Dividend policy, creditor rights, and the agency costs of

debt. Journal of Financial Economics, 92(2), 276-299. 8. DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the

earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial economics, 81(2), 227-254.

9. Dielman, T. E., & Oppenheimer, H. R. (1984). An examination of investor behavior during periods of large dividend changes. Journal of Financial and Quantitative Analysis, 19(02), 197-216.

10. Dragota, V. (2003). Politica de dividend: O abordare în contextul mediului economic din România. Bucuresti: Editura All Beck.

11. Dragotă, V., Ciobanu, A., Obreja, L., (2003). Management financiar, Ed. Economică, Bucureşti

12. Easterbrook, F.H., (1984), Two agency-cost explanations of dividends, American Economic Review, 74 (4), 650-659.

13. Fama, E.F., French, K.R., (1988), Dividend yields and expected stock returns. Journal of Financial Economics, 22(Oct): 3-25.

14. Gordon, D. (2014). Dividend Policy Relevancy in Theoretical and Practical Economics. International Journal of Business, Economics and Management, 1(9), 253-263.

15. Gordon, M., Shapiro, E. (1956). Capital equipment analysis the required rate of profit. Management Science, Vol.3.

16. Graham, B., Dodd, D., (1951) Securities Analysis: Principles and Techniques, McGraw-Hill, New York

17. Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 97-113.

18. Litzenberger, R.H. and K. Ramaswamy, (1979). The effect of personal taxes and dividends on capital asset prices. Journal of Financial Economics, 7(June): 163-195.


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19. Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411-433.

20. Miller, M. H., & Rock, K. (1985). Dividend policy under asymmetric information. The Journal of Finance, 40(4), 1031-1051.

21. Pilotte, E.A., (2003). Capital gains, dividend yields, and expected inflation. Journal of Finance, 58 (Feb): 447-466.

22. Rozeff, M.S., (1982), Growth, beta and agency costs as determinants of dividend payout ratios, Journal of Financial Research, 5 (3), 249-259.

23. Shiller, R. J., & Pound, J. (1989). Survey evidence on diffusio.n of interest and information among investors. Journal of Economic Behavior & Organization, 12(1), 47-66.

24. Stancu, I., (1997), Finante, Editura Economică, București 25. Walter, J., (1956). Dividend policies and Common Stock Prices, Journal of Finance 26. Yaseen Hanaan, (2003). Impactul factorilor socio-culturali asupra politicii de dividend,

Colecția de working papers Abc-ul Lumii Financiare. WP nr. 1/2003 27. http://www.bvb.ro/ 28. http://www.tradeville.eu/

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

95

BREAKEVEN DETERMINATION IN ENTREPRENEURIAL

DECISION

SeverianVlăduțIACOB

StefancelMareUniversity,Suceava,[email protected]

Abstract: Entrepreneurship has remote origins and is powered by entrepreneur’s action in response to meeting the needs

and aspirations that they have. Putting into practice the ambitions of entrepreneurs is done by demonstrating personal skills in taking advantage of opportunities and / or ideas in business. To launch and maintain market businesses, entrepreneurs need not only the flair and ideas, but also a strong entrepreneurial education. On the one hand, it enables them to understand changes in the competitive environment, on the other hand, to find solutions to support the business. The faster and more robust decisions of entrepreneurs are, the greater will be their chances of success in the business arena. Moreover, in the era of information technology, entrepreneurial decision is inconceivable without recourse to calculations from the use of mathematical models or without the use of various simulation techniques. By developing this material is intended to show that the mathematical model of breakeven is a useful and efficient tool in the entrepreneur decision to start a business.

Key words: entrepreneur, mathematical model, management tools, breakeven, entrepreneurial decision

JEL clasification: C61, L26

INTRODUCTION

In all countries, at present, due to the role of the market economy, "undertakings" or "entrepreneurship" generically called "business" (Mironov, 2013), indicates "the beginning stable economy" (Luca 2013) and are considered both "backbone" (Dinu, 2002), and "regulatory factor" (Istocescu, 2008) of it. As the "initiators of change" (Iacob, 2014) and as the support the achievement of the main goals of society, they are more and more "supported" (Dinu, 2002) by governments. There are also "source collaboration or partnerships" (Bugaian, 2010).

As representatives of affirmation private initiative, entrepreneurs, always "looking for opportunities" (Shane, Venkataraman, 2000) and "competitive advantage" (Barringer, 1998), are "creative people, innovative" (Iacob and Mironescu, 2013) that acquire ideas, knowledge, opinions, "setting the stage" (Nastase, 2004) for new products and markets. To properly conduct the business they initiates, the entrepreneurs need managerial knowledge that provides a broad perspective on the components and mechanisms, on "relationship with the environment" (Pete & all, 2010; Casson 1982). This knowledge can help to shape and decide how to carry out the strategies that they propose. It also allows them to make a clearer idea of certain events by comparing the results of calculations of alternatives, the use of models, techniques and tools of management. Thus, they are able to decide quickly being correctly informed. To remove the subjectivity of the act of decision, entrepreneurs can obtain explicit and rigorous information on "causal relationship" between the factors that influence the entrepreneurial decisions using forecast descriptive mathematical models (Pekar and Smadici, 1995).

MATERIALS AND METHODS 1. BUSINESS AND ENTREPRENEUR IN A BRIEF OVERVIEW

In an increasing number of economies, business and entrepreneur are considered "vital

force" (Audretsch, 2003; Mittelstadt and Cerri, 2008), especially in recent years when


96

entrepreneurship became "the most active element" (Hauge, 2010) of economic and social development.

Aiming to define entrepreneurship, Herbert and Link (1989) found that in the literature the authors share ideas grouped by "traditions" (trends) of the three major schools and their representatives: German (Thuenen and Schumpeter), American (Knight and Schultz), Austrian (von Mises, Kirzner și Shackle). Audretsch (2003) believes that the greatest impact in contemporary literature it has current Schumpeterian entrepreneurship, according to which the entrepreneur and his business task is to "reform or revolutionize the pattern of production by exploiting an invention".

The "creative" perspective of entrepreneurship is given by the "management of opportunities" (Sahlman and Stevenson, 1991), and the "innovations made by people" (Nicolescu, 2007; Nicolescu and Nicolescu, 2008) in "motivation" (Kalkan, Kaygusuz 2009) to identify "profitable economic potential" (Mittelstädt și Cerri, 2008). Widely accepted by scholars, this approach of "for profit" (Iacob and Mironescu, 2013; Mironov, 2013) refers to "the content of entrepreneurial activity" (Cunningham and Lischeron, 1991) and the notion of "business" viewed as a "competitive activities" (Sasu, 2001), or a "contractual relationship" (Gavrila and Lefter, 2002), or as "occupation" Certan (2005), or "occupation" (Smith, 2010) of individuals to produce and sell an "organized effort" (Iacob, 2014), "alone or in a group context" (Audretsch, 2003). Thus the concept of entrepreneurship appears to be multidimensional, shrouded in complexity, so that they activities more fixes forms of organization, and because the changes they produce are relative.

"Assuming the investment risks" Wedge (2008), entrepreneur, owner of capital, "motivated by making a profit" (Kalkan, Kaygusuz 2009), is the main character of the business. In so far as it directly involves the management of its business he accepts the challenge of being manager. Through a commitment of this kind he is solely responsible for the allocation of resources, and the results he obtain from the business. The success of such an approach is dependent on the nature of combining management knowledge with personal skills and especially the "will of personal development" (Rusu și Million, 2009). The accumulation of knowledge, relationships and long-term bonds provides creative and visionary capacity building allowing the mistakes avoidance. However, the use of methods, tools and techniques makes possible the increase of the management efficiency.

2. THE MATHEMATICAL MODEL FOR DETERMINING THE BREAKEVEN

Through this model it can be determine the evolution of a business when costs are covered and the activity becomes profitable. As a quantitative method of "diagnostic risk of production" (Tcaci and Tcaci, 2012), it is used in economic decision making. For example, in practice, this

model can be calculated using the level of production for the profit is zero; the structure of a modernization program; the impact of increased sales, etc. The results are all the more precise the more accurately terms of the pattern are set out, respectively fixed and variable costs. Breakeven determination (BEP) is shown graphically in Figure 1 and is done through mathematical formula

Q=FC/(P- VC) where Q is the production for the profit is zero, FC represents fixed costs, VC represents variable costs CA is the volume of sales


97

The critical point (BEP) so determined enables the entrepreneur to calculate the margin of safety (MS), ie, the difference between breakeven and turnover. Depending on its size, it can be known with mathematical precision the situation of a company: instability, when the CA is up 10% over BEP (MS <10%); stability when CA is 10% under 20% over BEP (MS> 20%); comfortable when it exceeds by more than 20% BEP (MS> 20%).

Using the "product information Quantitative Analysis for Management (QM)" (Suciu and Luban 1994), Break-Even Analysis module, determining the critical point is extremely simple and handy to managers in the decision process.

RESULTS AND DISCUSSION The determination of the breakeven point was made using the above mentioned software for

making the decision to start the production activities of "Fornetti" at SC Vlavis Tour SRL by providing the working point with one, two or three baking ovens products. Based on the prices demanded by suppliers following costs were estimated for each variant:

Table 1. The costs of introducing ovens

Fixed costs (€ / day) Variable costs (€ / day)

One oven 22 3,00

Two ovens 26 3,30

Three ovens 30 3,60

Through pricing policy of the franchisor in order to ensure the attractiveness of products, it

was established a sales price of € 4.49 / kg, relying on the sale of 30 kg / day. Running the software, led to the solutions presented in Table 2

Table 2. Solutions of the critical point

Unit selling price=4,49 €/ kg

One oven Two ovens Three ovens

Break even

quantity (kg)

Break even euro (€)

Break even

quantity (kg)


Break even

quantity (kg)


14,77 60,27 21,85 98,10 33,71 151,35

Figure nr. 1 Break even point


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A summary analysis of the solutions obtained allows to take into account the best first two options. The "One oven" option is undoubtedly the best both in terms of number of kg to be sold to overcome the critical point and in terms of the amount to be invested.

Estimating the profits that may result in three option was synthesized in Table 3.

Table 3. Value estimated profit

Expected sales units =30kg/day (-euro-)

One oven Two ovens Three ovens

Total Revenue

Total Cost

Profit Total

Rrvenue Total Cost

Profit Total

Rrvenue Total Cost

Profit

134,70 112 22,7 134,70 125 9,70 134,70 138 -3,3

As shown in Table 2 and Table 3, the "three ovens" option calls covering an amount of €

151.35 and requires an effort 3,71kg selling, more than expected, leading ultimately to a loss of 3,3 €. This option is not convenient.

"One oven" and "Two ovens" options already passed breakeven, being situated on stable and comfortable safety margin. Selling a reasonable number of kilograms of product, the company can achieve an acceptable profit. A careful tracking of costs and a sustained campaign to sell can greatly improve the profit. Of the two results, as amount of profit investment decision should be in favor of "One oven" option.

By simulating a reduction in variable costs by only 0.30 € to "Two ovens", the production effort becomes relatively small, however the profit almost doubles. This may tip the scales in the decision to invest for this version, especially since the wear of furnace is less and the productivity is greatly improved.

CONCLUSIONS For deep mobilization of material, human, financial and information, the presence of

entrepreneurs and their business is important in every economy in the world. Animated by the desire for profit and capitalize on opportunities and circumstances, entrepreneurs, through investments they make, it assumes various risks. Some of these can be prevented and eliminated, some can be mitigated, provided proper decision making, economic grounded on mathematical computations. Therefore, in addition to skills gained in long years of experience, entrepreneurs need management knowledge to maintain and develop their businesses. Continuous training and openness to acquire new knowledge can feed the potential. Moreover, the competitive environment of increasingly dynamic and compelling will only be generous with the entrepreneurs who know exactly what they want for their businesses.

In such conditions, business performance depends on the adaptability of entrepreneurs, the understanding and application management methods and techniques for decision making, becoming more concrete and mathematized, but also quite friendly to use.

The breakeven point model can be a very useful tool in entrepreneurial decision, whether it is desired to find the minimum covering of production costs, whether it is determined the structure of a modernization program, or to calculate the impact of higher sales.

The results of using the model are the same, whether it chooses to "hand" (by attaching values in the formula), or computer option (by completing values in a computer or smartphone application). Difference is obviously the speed with which information reaches the decider for it to be able to form an image and then choose. From the presented case study it was found that the solutions offered by using the method of determining the breakeven point can have a high degree of relevance and can fully meet the needs of the entrepreneur.


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8. Iacob, V. and Mironescu, R., 2013. Meanings of small business and his management, JESR – Issue No.4 - Volume 19, University of Bacău.

9. Iacob Vladut, 2014, Methods and tools used in the management of small business. Break even point , The 9th International Conference on Business Excellence, București, 9th -11th October,

10. Istocescu A., 2008. Analiza comparativa: întreprinderile mici sau mijlocii versus organizatiile mari din România în conditiile societatii bazate pe cunoastere, Economia seria Management Anul XI, Nr. 1, p.124-133

11. Kalkan M. Kaygusuz, C., The Psychology of Entrepreneurship, Entrepreneurship - Born, Made and Educated, 2009, available at http://cdn.intechopen.com/pdfs/31831/InTech-The_psychology_of_ entrepreneur ship.pdf, donload 04.04.2015

12. Luca, N., 2013. Eficientizarea activităţii întreprinderilor mici şi mijlocii din alimentaţia publică a Republicii Moldova, PhD thesis, c.z.u.: 334.746.003.13; 64.024 (479.9) (043), Chişinău.

13. Mironov, S., 2011. Dezvoltarea managementului afacerilor mici şi mijlocii în condiţiile economiei concurenţiale, PhD thesis, c.z.u: 334.7 (478) (043.3), Chişinău.

14. Mittelstädt A., Cerri F., 2008, Fostering Entrepreneurship for innovation, (OECD), Directorate For Science, Technology and Industry, http://www.oecd.org/sti/41978441.pdf.

15. Nastase, G., 2004. Politici şi strategii în sprijinul întreprinderilor mici şi mijlocii. În: Economistul, nr. 1552, p. 9-10.

16. Nicolescu O., 2008. Antreprenoriatul şi managementul întreprinderilor mici şi mijlocii. Concepte, abordări, studii de caz, Editura Economică, Bucureşti.

17. Nicolescu, O, and Nicolescu, C., 2008. Intreprenoriatul și managementul întreprinderilor mici și mijlocii, Editura Economică, București

18. Pană, M.C., 2008. Cine este întreprinzătorul şi ce "întreprinde" acesta? Centrul pentru Economie şi Libertate http://www.ecol.ro/content/cine-este-intreprinzatorul-si-ce-intreprinde-acesta, [Accessed 9 March 2015]

19. Pekar, V. and Smadici C., 1995. Modelarea economică a fenomenelor de piață, Editura Universității ”AL. I. Cuza”, Iași.

20. Pete Ştefan, Nagy Ágnes, Györfy Lehel-Zoltán, Benyovszki Annamária, Tünde Petra, Evoluţia factorilor de influenţă ai activităţii antreprenoriale în stadiu incipient din România, Economie teoretică şi aplicată, Volumul XVII (2010), No. 7(548), pp. 3-12


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21. Popescu D. 2010. Comunicare și negociere în afaceri, Suport de curs ASE, București, 22. Rusu, C, L. and Million J.C., 2009. Reasons and motivations of being an entrepreneur,

Studia Universitatis Petru Maior, Series Oeconomica, fasciculus 1, anul III, ISSN 1843-1127, p.105-119. http://www.upm.ro/facultati_departamente/ea/RePEc/oeconomica/09/oeconomica0901_07.pdf [Accessed 6 March 2015]

23. Sahlman, W.A. and H.H. Stevenson, 1991, “Introduction,” in W.A. Sahlman and H.H. Stevenson (eds.), The Entrepreneurial Venture, Boston: McGraw Hill, în Audretsch B. David, Entrepreneurship. A survey of the literature, Enterprise Papers No 14, 2003 http://ec.europa.eu/enterprise/newsroom/cf/getdocument.cfmFdoc_idD1837

24. Sasu, C., 2001. Iniţierea şi dezvoltarea afacerilor. Polirom, Iaşi. 25. Shane, S., Venkataraman, S., „The Promise of Entrepreneurship as a Field of Research”, 26. Tcaci,N.,and Tcaci, A., 2012. Metodologia diagnosticării pragului rentabilităţii în

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MIGRATION EFFECTS ON THE EDUCATIONAL ENVIRONMENT

PhDstudentLuminițaCORBU

PhDstudentIonela‐DanielaGĂITAN„ȘtefancelMare”UniversityofSuceava,Romania

[email protected]@yahoo.com

Abstract: In this paper we propose to present the current migration patterns and consequences which they have on the

economical and social life in Romania. Romania's integration in the European Union had numerous benefits, meaning that it opened gates to new jobs and to new systems of education. This paper aims to highlight the demographic, social, economical and educational effects of migration on the population of Romania. There is a social impact on the lives of migrant families, especially the temporary abandonment of minors by migrant parents, low academic achievement, early school leaving and adopting inadequately behaviors in society.

Key words: migration, labor, effects of migration, quality of life, impact.

JEL classification: O15

THEORETICAL APPROACH ON THE EXTERNAL MIGRATION Migration is usually defined as moving a person or a group of persons from a geographical

unit to another over an administrative or political border, and who wishes to establish permanently or temporarily in a place, other than his place of origin. Whereas the movement between two geographical units should not occur directly, it can still differentiate between place of origin or destination, transit areas and place of destination or the receiving region (ILO, 2003, p. 8). Movements within a country are usually defined as internal migration and, as a result, movements over international borders are known as international migration. For these reasons, we focus exclusively on international migration. Migration for employment has become the most important component of Romanian migration in the past few years. Unfortunately, official statistics do not capture the whole phenomenon of migration and employment, significant figures starting to exist since the year 2005. According to estimates of Romanian Office for Labor Migration (2), there are approximately two million people employees abroad, outside seasonal work, which represent more than 10% of Romania's inhabitants. In this article, we use data from temporary continued habitation study abroad.

Demographic trends in the last 10 years has been influenced by a number of factors, many of which are highlighted in particular: freedom couples decide whether to desired number of children and the amount of time in which to make a children, high level of economic and social costs supported by the population in the transition period, the lack of a house and low access of young people to an own house, changes in population behavior on the formation and division of families, social instability, the unemployment rate.

MIGRATION EFFECTS ON CHILDREN WHO ARE LEFT HOME ALONE

In Romania the issue of children whose parents are working abroad has become a

phenomenon. Among the most common and serious consequences for children are: the longing for parents who turns into depression, anxiety, decreasing school results, school absenteeism, delinquency problems, risk of school abandonment, labor exploitation, abuse and not least, even suicide. Labor migration has increased constantly on the past decade, the most of international migrants, 64 millions, having currently resides in the European Union[1]. Freedom of movement is beneficial to all the Member States economies and provides EU citizens a chance of economic


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development and personal, but the reality has shown that these positive effects can be reduced by undesirable side-effects of migration, including precarious conditions of life in which must live the children of migrants who remained in the country of origin, when their parents migrate to another Member State. Migration contributes to reducing poverty and to increase investment in human capital, in exchange for children who are left at home, there's negative aspects, including the risk of deficiencies in care, in terms of physical and mental health, and the mental health-related effects, such as depression, inappropriate use of free time to play and development, lack of participation in school, education and training, malnutrition and child abuse. Migrant children who move with their parents in the destination country can enjoy the improvement of living standards and education. Instead the children left behind became a phenomenon that has received little attention, even by depriving them the information on opportunities and benefits offered by the countries in which the parents find work. These observations are in proportion provisions of the European Parliament resolution of 12 March 2009 on migrant children who are left in the home .These provisions may be supplemented, adapted and adopted by each Member State, especially Romania where the phenomenon appears to be even more pronounced and I think we are all concerned about the high number of children who continue to be at risk.

According to studies carried out by specialized organizations in our country (UNICEF, Save the Children, Soros Foundation), in recent years, about 350,000 children have at least one parent abroad. Unfortunately, scientific studies could not been made for more than half of these children, specifically for an estimated 170,000 minors who are enrolled in the public education system, in secondary schools. Of these, approximately 80,000 children (47% of the total) are deprived of the presence of the father, 55,000 (33%) of the mother, while not less than 35,000 children (representing about 20% of the total) are forced to face an extremely difficult situation of departure of both parents. Conclusions resulting from the analysis can be easily extrapolated to the entire population of children affected by international migration of parents [2].

Figure 1. Proportion of children according to the parent gone to work abroad In the analysis of international migration of Romanians an important factor is the age at which they leave their residence. It was found that about 40% of all those who have established their residence abroad in recent years is represented by the people aged between 30 and 39 years. The situation can be regarded as being potentially dangerous for children who remain in the country because, in most cases, they are left unattended by the family during the teenage years, a period which is considered to be the most difficult in the psychological development of the child.


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THE EFFECTS OF TEMPORARY MIGRATION AT SOCIAL AND DEMOGRAPHIC LEVEL

Demographic trends in the last 10 years has been influenced by a number of factors, many

of which are highlighted in particular: freedom couples decide whether to desired number of children and the amount of time in which to make a children, high level of economic and social costs supported by the population in the transition period, the lack of a house and low access of young people to an own house, changes in population behavior on the formation and division of families, social instability, the unemployment rate.

From a demographic perspective, the consequences of migration, both temporary and that of the final, are significant. The tendency to remain permanently in the receiving countries is well known and leads to considerable losses among the population. This loss results in slowing down the growth or even decline in economic activity [3]. According to recent studies it can be concluded that international mobility is higher among people who have the appropriate age for work. Consequently, emigration countries face an accelerated aging process of its own people. The human factor is the most important source of economic growth, growth rates are expected to be lower in the case of remaining at home. Most of those who emigrate are young, and their percentage is constantly increasing and can thus argues that immigration affects the age groups with high rates of fertility, thus reducing the potential for newborns in Romania. This is even more worrying as it becomes permanent emigration.

The structure of emigration by sex reveals some changes so that immigrant women are becoming more numerous in recent years. In 2004, 62% of migrants were women in the age group 26-40 years, which means 58% of the immigrant population and the percentage is growing. An increasing number of children are born outside the country [4].

The implications of migration in the family are multiple, they form part both from the positive and negative effects. Money sent by migrants to their families improve the quality of life having a positive impact on family relationships. On the other hand, we face the family's grief for the loss of one or more members, even if this situation is temporarily. In fact, the higher is the period the stronger are the effects on the family.

The departure of one of the members determines the reorganization of roles within the family. In this case, family members take on roles / functions of that migrant, which may lead to loss of wealth within the family and disturbances in the couple relationship. All this can easily lead to family dissolution (divorce). One of the major negative effects of labor migration seems to be related to the children of migrants who remain (in the best case) with only one of their parents.

There are lots of cases when both parents migrate in order to find a job and therefore, grandparents, other relatives or friends take the guardianship of children. Sometimes migrants abandon their children, which eventually end up in state care. So children are affected to a great extent (in some cases these situations are traumatic) by their parents because people who take care of them cannot successfully perform the role of parent. Another social category that could be negatively affected are the elderly especially in communities with high levels of migration. In situations where children leave the country with their parents they should go through a period of adjustment, learn a new language and learn to live in a different social environment, which most often involves a degree of stress.

MIGRATION EFFECTS AT ECONOMICAL LEVEL

At the macroeconomic level migration leads to destabilization of the labor market by

creating either a surplus in certain areas, or to a deficit of labor force in certain sectors, in certain times and in certain areas. Labor overcapacity in a sector can be regarded as an aggressive phenomenon by the native population.


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At the individual level appear phenomena not only positive, by increasing the living standards, thanksgiving, a sense of job security and also negative, targeting in particular the relationship with the group of origin (feeling of alienation etc).

Impact damage in Romania means the damage of some sectors (construction, services, manufacturing) faced with a shortage of labor until the last half of 2008, currently alarming unemployment to international and national level as a result of the crisis that shook different sectors (construction, retail, banking, etc.). It also, an influence has the decline of active population (direct loss and time effects due to unbalance of the structure of age and young population migration) [5].

On the other hand, if we consider the situation from Romania, the contribution to the national economy through economic flows was surprised illustrated by the following data: in 2005 entered the country about 3,033 million euro, in 2006 about 4,358 million euro, 2007- 4,987 million euro. It seems that in the crisis, money transfers are numerous, and growing in volume, but less significant in amounts.

In the case of exodus of qualified staff to the west, in countries such as Romania, with an intense need for managers and specialists, that must ensure the reforming of a system that is, economic, administrative and social nearly bankrupt, is badly needed "peaks" and recently qualified execution personnel. Although the state is investing in their training, supporting them during studies through access to mainstream education, until recently advanced, and, recently, though scholarship programs (some insufficiently developed), the chain is broken at the time of employment.

Patenting inventions is difficult, apparently reduced exploiting of the potential of programs, but at least poorly applied. "Return of Investment" for the Romanian state almost missing. Developed programs run without a coherent legislative and administrative support, made to impress, not to be effective, do not give off already in an chaotic administrative system [6].

Bureaucracy and indifference are failing young people, defeat even the nationalist feeling and generates frustration and finally apathy. The result: departures to well-paid jobs in the west, sometimes resulting to giving up to Romanian citizenship, deprivation becoming more pronounced in the Romanian society. This land was and is fully exploited by companies which are permanently looking to well trained human resources, to support their business strategy and maximum profit with minimum investment.

Table 1. The evolution of international migration in the years 1990 -2009 Year People who have left Romania

1990 96.929

1991 44.160

1992 31.152

1993 18.446

1994 17.146

1995 25.675

1996 21.526

1997 19.945

1998 17.536

1999 12.594

2000 14.753

2001 9.921 2002 8.154 2003 10.673 2004 13.082 2005 10.938


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2006 14.197 2007 8.830 2008 8.739 2009 10.211

Source: Official data published by the National Statistics Institute

In the table above it appears that the first years were characterized by a very high value of international migration of Romanian citizens. The situation can be attributed to the the opening of borders, the transition to a democratic regime, which led to the final departure of more than 170,000 citizens only in 1990 - 1992. After 2000 the international migration of our citizens was relatively constant. During that period, about 10,000 people/year have left Romania for a job in another country [7].

Regarding the negative effects of emigration, the biggest impact is felt in the family, especially when one or both parents migrate temporarily. The effects of this situation are painfully felt by individuals who have gone through an experience of personal or family migration and are analyzed objectively by the participants who did not experience such situations. Some effects at social community or society at large are identified the economic ones, related to changing the balance of labor and transfers of financial resources. The effects of political, cultural or religious referred to a lower extent.

CONCLUSION International migration, temporary or definitive, of the Romanian citizens is a real

phenomenon and relatively large, affecting directly over 350,000 of children. Annually, around 10,000 Romanian have left during the last period, their families, in order

to find a better job in another country. Even if the material terms of this openness to international labor market is an important advantage for the families involved, the effects that the absence of one or both parents on the development of children left behind are particularly unfavorable. Even though, in terms of material, this openness to international labor market is an important advantage for the families involved, the effects that the absence of one or both parents on child development, who are left home alone, particularly unfavorable.

A large proportion of children affected by international migration of parents are experiencing real problems in learning, face to special problems of social adjustment and, quite often, led to the extreme situations of breach of national legislation.

Another negative aspect is the brain drain, meaning that from the country emigrate, primarily, highly qualified people. Romania loses twice: once when they spend with their training and tuition fee and, secondly, the fact that it cannot benefit from their superior training, which would lead to an increase in the competitiveness and efficiency of certain economic areas.

The migration phenomenon is complex. The data presented are quite summary, the phenomenon itself is too large to an approach at this level. In order to understand it is necessary to undertake further research projects at international level, but these projects are unlikely to succeed to capture illegal immigration (possibly negative effects can be seen up to a certain level and obtained indirect evidence), and to capture the causes of the real phenomenon.

To control the phenomenon should be well known the causes, otherwise we try to treat only the effects. Poor knowledge of the phenomenon and motivation lead to the establishment of some policies which do not lead to expected results.

The problems faced by Romania in this moment in terms of labor, especially of qualified labor, are those that require little attention, and on the phenomenon of migration and its impact is worth to stop and try to understand and counteract it.

It is necessary the collaboration at the international level regarding this phenomenon (not only at the level of knowledge, but also at the control level), and regarding the policy of Romania, it would be preferable to go on supporting Romanian migrants as well as a better supervision of


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foreign immigrants, promoting the image and interests of Romania on the international labor market, further studies on the real causes of migration (without understanding that we will continue to treat disparate effects) and on the creation of viable projects to support young people with potential.

REFERENCES

[1] Steliana Perţ, Circulaţia forţei de muncă, Biblioteca Economică, seria Probleme economice, Centrul de Informare şi Documentare Economică, Bucureşti, 2004; [2] „Analiză la nivel naţional asupra fenomenului copiilor rămaşi acasă prin plecarea părinţilor la muncă în străinătate”- UNICEF, Alternative Sociale, 2008; [3] „Studiu privind consecinţele şi efectele pe plan psihologic a plecării părinţilor asupra copiilor lăsaţi în grija unui părinte sau a altor persoane”- Fundaţia Salvaţi Copiii, 2010; [4] Fundaţia Soros Romania & International Agency for Source Country Information, 2011; [5] Maximizarea impactului fenomenului migraţiei asupra dezvoltării Romaniei.Prezentarea este disponibilă la:http://soros.ro/ro/program_articol.php?articol=286; [6] Eurostat http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/; [7] „Anuarul Statistic al României 1990 – 2011”- Institutul Naţional de Statistică, Bucureşti; [8] Institutul Naţional de Statistică www.insse.ro/.

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THE EU URBAN AGENDA CHALLENGES FOR THE BUCHAREST-

ILFOV REGION

AssistantProfessorPhDLiviuRÂNCIOAGĂ

Bucharest‐IlfovRegionalDevelopmentAgency,RomaniaNationalUniversityofPoliticalStudiesandPublicAdministration,Romania

[email protected]

Abstract: Few months before the Barroso’s mandate completion, the European Commission launched the

Communication on an urban dimension of the EU Policies. This one comes to support the achievement of the Europe 2020 Strategy, in the middle of its implementation. The revision of the Strategy is expected in the next spring, and the cities’ fundamental role to reach our common policies objectives is recognized. This is expected to be the key for a more inclusive, sustainable and smarter Europe. The meeting of 28 Mayors of the capital cities of EU on October 1st, 2014 in Rome shows the need to urgently adopt an Urban Agenda of the European Union. The administration of Bucharest strongly supports the initiative and considers as priorities in the coming period: the creation of a data base among the capitals comprising the best practices, making permanent the urban dialogue by creating a platform allowing and encouraging citizens’ involvement in the decision-making actions, the promotion of the success examples and strengthening the experience exchange in the context of the similarity of the problems the current society is confronted with. Meanwhile the subsidiarity is expected to be respect and a large part of European investments available over the next 7 years will be allocated to strategic targets concerning research, innovation and promotion of the small and medium enterprises.

Key words: urban agenda, regional development, urban regions, Europe 2020, Bucharest-Ilfov Region JEL classification: O10

INTRODUCTION

WHY CITIES MATTER Today, approximately 72% of the total EU population is urbanized. In the same time, 59%

of the total population of Europe living in metropolitan regions generate 67% of Europe’s Gross Domestic Product. According to the comparative studies on economic performance, the capital cities and metropolitan areas managed better the economic crisis than smaller metropolitan and non-metropolitan regions.[1] Nevertheless, the major European cities are relatively small. Thus, according to statistics, the first European settlement, Paris, is placed at 25th in the world with 10.75 million inhabitants. The second one in EU, London ranks at 34th with 8.58 million inhabitants. These represent an exception in Europe, far ahead of other cities. An EU Urban Agenda represents an ambitious approach coming to transpose the ambitious Europe 2020 objectives into urban objectives and actions better adapted to the various realities of Europe cities, involving the national level to agree with their cities on targets, strategies and actions.

The Commission’s Communication The Urban Dimension of the EU Policies – Key Features of an EU Urban Agenda [2] in the 18th of July 2014 aims to represent the most important and the efficient document responding to the economic, environmental, climate and society issues and challenges, including here a lot of issues of demography, human migration, education or even cultural aspects.

However, this concern is not something new, given that 17 years ago the European Commission launched the paper Towards an urban agenda in the European Union [3], a document of 18 pages, longer than the new one. At that moment, the 15 member states of the EU had some 80% of the population in cities, towns and suburbs, thus making the old continent the most urbanised in the world. The document dealt with unemployment, poverty, drug abuse, poor housing and other economic issues. The hopes were that the new efforts should be able to give cities the


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important role of social, cultural and economic integration, sustainable development, and the foundation of democracy. Beyond these aspects, there were mentioned two important elements: firstly, new challenges faced to urban development should represent an opportunity to involve citizens and improve their daily lives; secondly, cities have to play a very important role representing the European model of society. This means a strongest relation between local authorities and citizens, and actions taking into account equality on gender, ethnic origin, religion and other special needs. In order to improve their living conditions, citizens have to participate actively. [4]

Demographic statistics shows the growing urbanization trend in Europe, but at a slower rate than in preceding decades. However, the recent years put some major cities in front of a local migration, a lot of people choosing to reside in the neighbouring localities, including rural areas. What was valid in the ‘90s, it is also real today: larger cites continue to be the primary source of prosperity, to contribute asymmetric to the regional or national development in spite of their population, to reflect a higher productivity and very important, to benefit from improved infrastructures attracting so, in the same places, the major investors. [5]

WHY WE NEED A STRENGTHENED VISION

The agenda in the ’90, as well as the one in 2014 argues that an urban agenda for Europe doesn’t substitutes common urban policies better understood at local or regional level. However, having in mind that cities in Europe are facing similar problems, this can be transformed in opportunities that a wide European framework are able to share and offer solving perspectives in this respect.

Between these European frameworks aiming to understand the role and the opportunities of the urban areas for the entire Union, DG Regio has emphasised the importance to be given to the cities. It launched the comprehensive report Cities of tomorrow. Challenges, visions, ways forward. The commissioner in charge for Regional Policy, Johannes Hahn, claimed that this document represent a reflection process providing inspiration for practitioners, policymakers and other stakeholders in any level of urban development. [6]

According to this report, representing the results of the joint effort of representatives of European cities and urban, we need to take into account some specific factors of the cities, towns or suburbs.

First of all, cities have some specific features making them the key to the sustainable development in the European Union: - The high degree of urbanization of Europe. - The crucial role played in social, cultural creation and innovation matters. The density, the

concentration of population has implication for energy savings, for example. - The new challenges on social, economic, environmental or physical aspects exceed the

administrative boundaries of cities, meaning so the need of new forms of flexible governance and local actions.

- A quite common vision for cites as platform of democracy, social cohesion, better education and health systems, cultural diversity and environmental regeneration.

- The determinant role played in Europe’s territorial development. [7] In the same time, the report present the threats faced by cities:

- Demographic change, in terms of ageing population, suburbanisation or depopulation of former mono-industrial towns.

- Europe pass through a different stage of its development, facing seriously threat of economic stagnation or decline, especially in other cities than capital.

- The mismatch between the education systems to market needs. - Accentuate disparities between rich and poor, poor becoming poorer. This occurs especially in

the former socialist economies.


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- The pressure on urban ecosystems, because of chaotic expansion or soil sealing.[8] Having these aspects, which are the opportunities and what is expected to do in order to

assure a better life for the citizens and to respond to the accelerating changes and worlds’ challenges? EU relies on the competitiveness at the local level, focusing also on social participation and innovation. Economy should be resilient and inclusive in terms of employment and improvement of living conditions. Innovation is the concept gaining more importance, at least in the public speech. In order to make the urban agglomeration more eco-friendly and competitive, the cities should pursue more suitable housing policies. The environmental and energy issues need to be addressed in a holistic approach meaning more than simply reducing CO2 emissions.

What is exactly applied to the Bucharest-Ilfov region (Bucureşti-Ilfov, in Romanian), the medium-sized and small cities can play an important role for themselves but also for surrounding villages; having a grassroots approach, they contribute to the existence of life in rural areas. A sustainably city or urban agglomeration is defined by attractive public services in terms of mobility, networking, social, cultural and political matters.

All these aspects require new forms of governance. This means to integrate actions taken by different policymakers and actors, a bottom-up approach, to alternate formal and informal governance methods, and to use resources in a correct way. Cities have to adopt “multi-sectoral” visions for their development, with both horizontal and vertical coordination.[9]

Considering the number of population living in cities, the policies focused on cities represent the stake to achieve the Europe 2020 objectives. It should be clear for the policymakers this role.

The population with higher education lives mainly in cities. This can be the most important pylon for the smart growth. The urban agglomerations host usually most innovation projects and activities in some cities can be asymmetric comparing the country as a whole.[10]

Other urban challenges consist in the use of full potential of the dynamic Information and Communication Technology. A correct use of this instrument can contribute to good results on education, youth supporting, business and many other domains.

The concept of green growth try to understand the urban agglomeration as problem but also part of the solution. In this respect, the Commission launched in 2011 A resource-efficient Europe – Flagship initiative under the Europe 2020 Strategy [11] and An integrated industrial policy for globalisation era. [12] These specific policies are based on strategic and integrated approaches, involving local authorities, stakeholders and citizens.

The inclusive growth refers to the correction of social exclusion and segregation. The unemployment is higher in urban areas or can be more dangerous than in rural settlements. Cities face to social polarization and poverty, gender inequality, ethnic or religious segregation or self-segregation, migration and ageing. The poor population and at social exclusion risk should be reduced by 20 million citizens before 2020, according to the EU target.[13]

What brings the new document, The Urban Dimension of the EU Policies – Key Features of an EU Urban Agenda, in 2014? We find again the themes of poverty, social and territorial segregation, environmental degradation, and considering the previous results and state of facts in cities, is required an agenda, with an input from local, regional, national and supranational level. There are several sections composing this document: the current urban situation in EU and in the rest of Europe, the calls for a comprehensive document on urban issues – the present Agenda, the global dimension of urban development, and the potential ways forward with questions for consultation.

There are at least two general cleavages: one between capital cities and the other cities in a country on the one hand, and that between the non-capital cities of Western-Eastern countries of the EU, on the other hand.

Cities have a lot of similarities, but in the same time cities are unique, as well as their problems and solutions. The Agenda claims that “urban policy is often the implicit result of urban and spatial planning laws and the combined intervention of sectoral policies, rather than a domain that is given political and strategic direction.” [14] In this regard the European Union is counting on


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the ERDF, around 80-90 billion Euro, that means 50% of this financial instrument. Moreover, at least 5% of national allocations of ERDF have been reserved for integrated sustainable urban development for 2014-2020 programming period. There are some network-programs bringing together cities of Europe: URBACT, Eurocities, CiTIEs – Cities of Tomorrow - Investing in Europe, CEMR – Council of European Municipalities and Regions, ESPON, adding HABITAT III – the United Nations Conference taking place in October 2016.

The Commission had collected and taken into account different visions on what the EU urban agenda should be: ones have argued that such an agenda might rather imply a new working method to ensure coherence, while others have suggested that it should be seen as a strategy with a clear direction for long term but also seen as a set of operational guidelines.[15]

WHY BUCHAREST-ILFOV SHOULD BE INVOLVED

According to 2011 Romanian Census, the total resident population of Bucharest-Ilfov Development Region was 2,272,163 inhabitants, distributed 1,883,425 inhabitants in Bucharest and 338,738 inhabitants in Ilfov County. This represents 10.5% of the population at the national level, with 91.8% living in urban area, making it the most urbanised region of the country. This population is concentrated on 1821 km2 (0.76% of the total surface of Romania) having the highest density in the country, respectively 1247 inhabitants/km2, within 8100 inhabitants/km2 in the capital city. Thus, Bucharest is ranked the 5th most densely populated at NUTS 3 level, after Paris (21,000 inhabitants per km2), Inner London West (10,000), Inner London East (9,000), Hauts-de-Seine (9,000).[16]

Bucharest-Ilfov Region is atypical compared to other regions of Romania, being composed by Bucharest (capital city) surrounded by Ilfov County, the ex-agricultural sector for decades; these two component parts present very different characteristics. Geographically, Bucharest-Ilfov Region itself is an enclave in the South-Muntenia (Sud-Muntenia¸ in Romanian) Region – with a surface 18.91 times larger (14.54% of the total surface of Romania) and having 3,258,775 inhabitants.

According to Eurostat 2010 data, published 2013, Bucharst-Ilfov is ranked 76th out of 271 European regions (NUTS 2) in terms of GDP per capita in PPS with 27.100 Euro, representing 111% of the European average (EU27=100). This data show that Buchrest-Ilfov Development Region is richer than three quarters of the European regions, meaning richer than any regions of the countries like Bulgaria, Hungary, Poland, Portugal, Slovenia and the regions-Baltic states. In Romania, the next development region is West Region which recorded a GDP per capita in PPS of 12.900 Euro, representing 53% of the EU average in 2010.[17]

Labour resources of the region in 2011 were 1.541.000 persons, which represented 79.5% of the employed population; the average net salary is approximately 35% higher than the national average. Unemployment rate in 2013 was 2.0%, the lowest nationwide. It is worth talking into consideration that the density of SMEs in Bucharest-Ilfov regions is 48 SMEs per 1.000 inhabitants, being above both the EU average (42 SMEs/1.000 inhabitants) and the national average (21 SMEs/1.000 inhabitants). Thus, the region generates approximately 25% of the national economy.[18]

The major Forum “CITIES – Cities of Tomorrow: Investing in Europe” organised by the EC, hosted by the Commissioner Johannes Hahn and the Director General of DG Regio, Walter Deffa, on February 17-18, 2014 brought at the same table mayors of almost all the capital cities in EU.

Mayor Sorin Oprescu of Bucharest emphasized in his speech that adoption of the EU Urban Agenda will represent a first step towards the improvement of the quality of life of the European citizens. He urged the immediately adoption as a pragmatic document, that should be not only a vision but a mission of the policymakers for a better life in Europe.[19] Also, the Mayor referred at the importance of improving the citizens’ quality of life, a first step in this regard being the finalization of the Urban Agenda of European Union. He argued that Agenda should obtain an optimal degree of flexibility, “so as to be prevented the fragmentation of development policies, but


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the local elements based on their own needs of a limited territory and the development strategic objectives of a country or the whole Europe to be harmonized. [20] The EU Commissioner Johannes Hahn reiterated that an urban agenda represents an important pillar of achieving the goals of Europe 2020 Strategy.

In the next round table bringing together the 28 mayors of the European capital cities, held in Rome, on October 1st, 2014, the Romanian Capital General Mayor Sorin Oprescu supported again the need to urgently adopt an Urban Agenda of the Union.

Thus, Oprescu presented some proposal which the administration of Bucharest considers as priorities in the coming period: - the creation of a data base among the capitals of the member states comprising the best

practices; - the permanent urban dialogue by creating a platform allowing and encouraging citizens'

involvement in the decision-making process; - the promotion of the success examples and strengthening the experience exchange in the context

of the similarity of the problems the current society is confronted with. In his intervention Oprescu referred to the unique role of the European capitals to be the true

drivers of a sustainable and multidimensional development: “In the absence of some global and unitary strategies, efficiently coordinated and in agreement with the needs and requirements of the communities we cannot talk about the increase in the quality of life of our townsmen whose interests we represent. These desiderata can be reached only in the context of adopting an Urban Agenda of the European Union and this cannot exist without the direct and immediate participation of the 28 capitals.”[21]

In the same time, Athens Mayor Yiorgos Kaminis, said that “urban agenda put into question today is no more about the capitals future, but also to that of Europe, part of a globalized world really.” Anne Hidalgo, the mayor of Paris stressed that “today the European capitals are nothing more than miniature world”.[22]

At the end of the meeting, representatives of the 28 capitals agreed to form a group action among participants to present the conclusions of this meeting to President of the European Commission, Jean-Claude Juncker, thus triggering the permanent political dialogue between the mayors of European capitals and the Commission.

Regarding the Regional Operation Programme that is expected to be approved by the European Commission this summer, Bucharest-Ilfov Region has allocated for 2014-2020 period approximately 350 million Euro, the funds for the region being completed up to 900 million Euro through other available programmes. “We are more developed region and, therefore, the allocation is limited by the European Commission’s decision but the amount is comparable to the 2007-2013 contracting period”, said Dan Nicula, Director of the Bucharest-Ilfov Regional Development Agency.[23]

CONCLUSIONS

The urbanization of third quarters of European Union show without doubts the importance of this dimension and the importance that decision-makers and other stakeholders need to understand. The accelerate dynamic of the cities and their inhabitants should be well observed and used in order to respond to the changing needs of the population and to better assure the improving of life conditions. Bucharest-Ilfov region remains the most dynamic and developed in Romania, but according to the regional development law of the country, it is important to prevent the appearance of other disparities between regions. ENDNOTES [1] ‘8th Progress Report on Economic, Social and Territorial Cohesion’, European Commission 2013 [2] The Urban Dimension of EU Policies – Key Features of an EU


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Urban Agenda, Brussels, 18.7.2014, COM(2014) 490 final, http://ec.europa.eu/regional_policy/consultation/urb_agenda/pdf/comm_act_urb_agenda_en.pdf. [3] Towards an urban agenda in the European Union¸Brussels, 06.05.1997, COM(97) 197 final, http://ec.europa.eu/regional_policy/sources/docoffic/official/communic/pdf/urban/urban_197_en.pdf. [4] Ibidem, p. 3. [5] Ibidem, p. 4. [6] European Union, Regional Policy, Cities of tomorrow. Challenges, visions, ways forward, October 2011. [7], [8] Ibidem., p. VI. [9] Ibidem, p. VII. [10] European Commission, Second ‘State of European Cities Report, apud Cities of tomorrow. Challenges, visions, ways forward, op. cit., p. 6. [11] Communication from the Commission, A resource-efficient Europe – Flagship initiative under the Europe 2020 Strategy, Brussels, COM( 2011 ) 21 final. [12] Communication from the Commission, An integrated industrial policy for the globalisation era – Putting competitiveness and sustainability at centre stage, Brussels, COM( 2010 ) 614. [13] Cities of tomorrow. Challenges, visions, ways forward, op. cit., p. 6. [14] The Urban Dimension of EU Policies – Key Features of an EU Urban Agenda, op. cit., p. 5. [15] Ibidem, p. 10. [16] ‘Population change at regional level’, Eurostat Statistics Explained, data from March 2011, http://ec.europa.eu/eurostat/statistics-explained/index.php/Population_change_at_regional_level. [17] Eurostat Newsrelease, Regional GDP per capita in the EU in 2010: eight capital regions in the ten first places , 46/2013, 21 March 2013, http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/1-21032013-AP/EN/1-21032013-AP-EN.PDF [18] Ilfov County, Ilfov County Council, Internal and International Cooperation Service, n.d. [19] Council of Danube – Cities and Regions, Cities of Tomorrow – Investing in Future, Brussels, 17-18 February 2014, http://www.codcr.com/cities-of-tomorrow-investing-in-future-brussels-17-18-february-2014/. [20] Primăria Municipiului Bucureşti, Primarul General, Sorin Oprescu a participat astazi, 17 februarie, la Bruxelles, la o noua editie a dialogului dintre Comisia Europeana si primarii capitalelor tarilor membre ale Uniunii Europene, Comunicat de presă, 17 februarie 2014, http://www.pmb.ro/pmb/comunicate/presa_com.php?msj=5873. [21], [22] Primăria Municipiului Bucureşti, Primarul General, Sorin Oprescu, a participat la reuniunea primarilor celor 28 de capitale europene, intalnire organizata in scopul continuarii dialogului dintre Comisia Europeana si capitalele tarilor membre ale Uniunii Europene, Comunicat de presă, 02 octombrie 2014, http://www.pmb.ro/pmb/comunicate/presa_com.php?msj=5978. [23] Cristina Macuc, „900 mil. euro de la UE pentru regiunea Bucureşti-Ilfov între 2014-2020. Ce proiecte vor primi bani”, B365.ro, 15 mai 2014, http://www.b365.ro/900-mil-euro-de-la-ue-pentru-regiunea-bucuresti-ilfov-intre-2014-2020-ce-proiecte-vor-primi-bani_208027.html . BIBLIOGRAPHY 1. ‘8th Progress Report on Economic, Social and Territorial Cohesion’, European Commission

2013. 2. ‘Oprescu speaks in Rome about the importance of urgent adoption of EU's Urban Agenda’, Agerpres, 2

October 2014, http://www.agerpres.ro/english/2014/10/02/oprescu-speaks-in-rome-about-the-importance-of-urgent-adoption-of-eu-s-urban-agenda-11-52-13.

3. ‘Oprescu: Este esenţială pentru dezvoltarea Bucureştiului racordarea Capitalei la Dunăre’, Mediafax, 27 octomrie 2013, http://www.mediafax.ro/social/oprescu-este-esentiala-pentru-dezvoltarea-bucurestiului-racordarea-capitalei-la-dunare-11571456.

4. ‘Population change at regional level’, Eurostat Statistics Explained, data from March 2011, http://ec.europa.eu/eurostat/statistics-explained/index.php/Population_change_at_regional_level.

5. Comisia Europeană, Panorama Inforegio, Toamna 2014, nr. 50. 6. Communication from the Commission, A resource-efficient Europe – Flagship initiative under

the Europe 2020 Strategy, Brussels, COM( 2011 ) 21 final. 7. Communication from the Commission, An integrated industrial policy for the globalisation era

– Putting competitiveness and sustainability at centre stage, Brussels, COM( 2010 ) 614. 8. Constantin, Daniela Luminiţa, “Bucharest-Ilfov Region of Romania as a rising star in regional

competition. Some insights in the context of globalization”, in Romanian Journal of Regional Science, Vol. 7, Special Issue on New Urban World, n.d.


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9. Council of Danube – Cities and Regions, Cities of Tomorrow – Investing in Future, Brussels, 17-18 February 2014, http://www.codcr.com/cities-of-tomorrow-investing-in-future-brussels-17-18-february-2014/.

10. European Commission, Johannes Hahn Speech “The role of the capital cities in the EU Urban Agenda”, Rome, 1 October 2014.

11. European Union, Regional Policy, Cities of tomorrow. Challenges, visions, ways forward, October 2011.

12. Eurostat Newsrelease, Regional GDP per capita in the EU in 2010: eight capital regions in the ten first places , 46/2013, 21 March 2013, http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/1-21032013-AP/EN/1-21032013-AP-EN.PDF.

13. Ilfov County Council, Ilfov County, Internal and International Cooperation Service, n.d. 14. Macuc, Cristina, „900 mil. euro de la UE pentru regiunea Bucureşti-Ilfov între 2014-2020. Ce

proiecte vor primi bani”, B365.ro, 15 mai 2014, http://www.b365.ro/900-mil-euro-de-la-ue-pentru-regiunea-bucuresti-ilfov-intre-2014-2020-ce-proiecte-vor-primi-bani_208027.html.

15. Primăria Municipiului Bucureşti, Primarul General, Sorin Oprescu a participat astazi, 17 februarie, la Bruxelles, la o noua editie a dialogului dintre Comisia Europeana si primarii capitalelor tarilor membre ale Uniunii Europene, Comunicat de presă, 17 februarie 2014, http://www.pmb.ro/pmb/comunicate/presa_com.php?msj=5873.

16. Primăria Municipiului Bucureşti, Primarul General, Sorin Oprescu, a participat la reuniunea primarilor celor 28 de capitale europene, intalnire organizata in scopul continuarii dialogului dintre Comisia Europeana si capitalele tarilor membre ale Uniunii Europene, Comunicat de presă, 02 octombrie 2014, http://www.pmb.ro/pmb/comunicate/presa_com.php?msj=5978.

17. Secretariatul Tehnic Permanent, Planul regional de acţiune pentru ocuparea forţei de muncă şi incluziune socială 2012-2014, Regiunea Bucureşti-Ilfov, n.d.

18. The Urban Dimension of EU Policies – Key Features of an EU Urban Agenda, Brussels, 18.7.2014, COM(2014) 490 final, http://ec.europa.eu/regional_policy/consultation/urb_agenda/pdf/comm_act_urb_agenda_en.pdf.

19. Towards an urban agenda in the European Union¸Brussels, 06.05.1997, COM(97) 197 final, http://ec.europa.eu/regional_policy/sources/docoffic/official/communic/pdf/urban/urban_197_en.pdf.

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

114

THE IMPACT OF ROMANIA’S ADHESION TO EUROPEAN

UNION OVER THE LOCAL BUSINESS WITHIN ICT FIELD

PhDStudentLaurianGabrielTĂNĂSESCU

ȘtefancelMareUniversityofSuceava,[email protected]

Abstract: Romania’s adhesion to European Union has been a long process, carried out for almost fifteen years, and

which enjoyed in great measure the support of Romania’s people. As happened to the other Member States, which adhered to European Union after 1990, a decrease in popularity of the European Union took place after the adhesion moment.

The adhesion to European Union have had a negative impact for sure over some activity fields (the mining field that suffered significant restructuring and reorganization, for instance) and an indubitable positive impact over some other field (for instance, the trade or support services providing met within high international companies).

The field of Information and Communications Technologies (abbreviated as ICT) emphasizes that field having an extremely high dynamics on worldwide level, were the changes and readjustments have been very fast. For this reason, an analysis on this field referring to “what if we hadn’t adhered to EU” can be extremely difficult to be carried out, since it is impossible to build a hypothetical scenario (that regarding the non-adhesion), and the analysis parameters might be highly sophisticated. The paper work in the field proposes an analysis over the already existing situation and the impact reflected after the adhesion to European Union. The analysis has been carried out on two levels (both the normative and the available financing, respectively), especially from the SMEs point of view, with activity on the ITC field.

Key words: information and communication technology, impact evaluation, integration in European Union, European Fund for Regional Development, Structural and Cohesion Funds

JEL classification: M15, M21, M48, O11, O21, O22, O31, O38, R11

INTRODUCTION

The impact of Romania’s adhesion to European Union can be analyzed from many points of view. The most emphasizing are:

Changing the settlement frame. Romania had to harmonize the legislation to the European regulations.

Changing the national institutions politics. New institutions were defined (such as the People’s Lawyer or the Competition Council etc.) as national politics specific to the European approach (the regional development politics or the agricultural politics)

The availability of new financing sources, highly significant regarding from the strategic and financial size point of view, but which need new mechanisms of implementation, monitoring and control, in order to be accessed.

Social changes, especially by the free circulation of people, by the exchanges and cooperation carried out between the Member States, thus resulting in a series of significant changes within the public mental attitude and the approaches and expectations of the Romanian society. If one analyzes only these issues of changes determined by the adhesion to the European

Union, a significantly complex and multidisciplinary effort will be generated, fact that might get beyond the aim of the paper.

One should limit towards two levels of the changes, determined by the adhesion of Romanian society to European Union:

Changes of the regulation frame Available financing for the small and middle companies


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Regarding from the activity point of view specific to the analyzed field, the Information and Communications Technologies (abbreviated as ICT) represents one of the most dynamic fields of activity, seen on global level, but also one of the fields seen as having a special potential for supporting Romania’s development on middle and long term.

MAIN GUIDING MARKS OF ROMANIA'S ADHESION TO EUROPEAN UNION

Concerning the legal point of view, Romania’s adhesion to European Union has started simultaneously with signing on 1st of February 1993 the Agreement of Romania’s Accession to European Union. This document was confirmed by the Parliament of Romania and entered into force two years later, on 1st of February 1995.

Simultaneously with the enforcement of Agreement of Accession, Romania was eligible to solicit the adhesion to European Union. The adhesion requirement was submitted in 1995.

The European Council established at Helsinki in 1999 the beginning of negotiations specific to Romania and other five countries’ adhesion to the European Union. The official opening of negotiations for Romania’s adhesion took place in February 2000, within the reunion of the European Union Council for General Business, reunion dedicated to release the Inter-Governmental Conference.

A phase of negotiations between Romania and the Member States of European Union has followed. The negotiations were carried out on chapters of negotiations, and each chapter represented a field standardized on European level.

Romania received the political confirmation of concluding the negotiations of adhesion to European Union on 7th of December, 2004. As result, on 13th of April 2005, the European Parliament agreed with the proposals of Romania and Bulgaria of adhesion to European Union. Within an official ceremony that took place at Neumunster Abbey of Luxemburg, the Treaty of adhesion to European Union was signed on 25th of April 2005.

At the end this highly complex process, having many involvements, Romania became one of the 27 Member States of the European Union, starting with 1st of January 2007. As result of the negotiations carried out during the pre-adhesion phases, certain settlements of Romania with the European Union or other Member States were adjourned for a limited period of time. The maximum adjournment period of time was of seven years, but Romania earned the right to negotiate extensions of maximum three years, in highly limited and very well justified situations. Taking into account the public information available at the moment of writing the current work paper, such situation has not been found. The transition phases were agreed for the blind spot fields, phases with some exceptions from applying the community’s regulations; for such fields, disequilibrium occurred at the moment of adhesion, but estimated to end after some time. The most well-known fields were those dedicated to the free circulation of people (Romania’s citizens had limited rights of travelling to some member states of the European Union), or in treating equally the citizens of all Member States. These points of view were taken in accordance to the rights and obligations, especially the right of other Member States citizens of owning ground in Romania.

SIGNIFICANCE OF ICT FIELD AND INTERNATIONAL INITIATIVES PERTINENT FOR THIS FIELD

One of the powerful effects of Romania’s adhesion to European Union consists in the

impact over the Romanian economy. In accordance to the community’s regulations, the country’s development should follow

some priorities and should have an action plan. Such details took shape by means of the National Development Plan 2007-2013, document issued and assumed by Romania’s Government and by adopting the Government Decision. “The National Plan of Development (abbreviated as NPD) signifies the fundamental plan, by which Romania will try to recover as fast as possible the disparities of social-economic development, towards the European Union. The NPD signifies a


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concept specific to the European politics of economic and social cohesion (Cohesion Policy) and means the document of multiannual strategic planning and financial appointment, issued within a large partnership, which will be able to guide and stimulate the social-economic development of Romania, I accordance to the Cohesion Policy of the European Union.” Govern of Romania, 2006.

In pursuance of National Plan of Development 2007-2013, the main objective established by Romania to be reached by the end of 2013 consisted in reaching a level of the Gross Domestic Product (GDP) on almost 40% of the GDP of EU-25 (the Member States that adhered to European Union prior to 1st of January 2007). The moment of issuing the NPD 2007-2013, the GDP of Romania was of about 3.2 lower than the level reached by the EU-25.

The significance of Information and Communications Technologies field (abbreviated as ICT) within Romania’s development has been proven by an especial chapter included within the National Plan of Development 2007-2013 (pages 67-73), specific for this field.

The relevance of ICT in developing the Romanian society was recognized by other institutions or initiatives. This field signifies a potential engine of development on the emergent societies, engine recognized on the world-wide level. All over the time, and especially after 2000, more national and international initiatives have been shaped in the field.

Many international initiatives of using the ICT field have been started, in order to support the society’s development. Amongst the most relevant, one might mention the Knowledge Economy initiative of the World Bank. By the help of development and use of the Knowledge Economy, influencing in a consistent way the development of the under-developed societies or in progress of development was a point of view. Using these concepts will generate the following advantages:

The initial investments are much lower in comparison to the investments necessary within a project of development, which might involve a defined road infrastructure; Some phases of development might be left out. Fulfilling all the technological phases is not necessary in order to reach a certain level, and can be directly invested within the last technologies; By using the ICT, the communication between societies can be facilitated, fact that determines a series of social, behavioral and development points changes; Regarding many activities, the physical distances between someone that needs a service and the service provider are not relevant and have no major impact (including the financial point of view); By using the new technologies, the efficiency of educational processes (the e-learning) and governmental processes will be increased. The transparency of the governmental actions and the ability of a society to identify and react towards the anti-social actions, including the corruption actions will be higher. Among the significant national initiatives, one might mention the actions of India, started in

1995. India decided to support the IT field, even in the detriment of other fields. Many governmental facilities were provided to the investments in this field; the taxes were reduced, the support services were provided to the companies interested in the field and many programs of promoting the IT field in India were carried out. The education in the field was supported by all possible ways. The result emphasized that many companies carrying out activities in the IT field has moved at least a part of their activities in India. Multinational companies, as HP or IBM, have moved their headquarters in India. An entire industry of call centers was developed. Companies as British Airlines ensured the support for their customers, by using the headquarters in India. Services providing, support or software development headquarters have been started, not necessarily basing upon very high specialty knowledge. All well-known participants within the international market of the software industry have moved a part of their activities in India, but not on entirely.

Such development was in contradiction to the society. A situation occurred when a glass building of tens meters high was situated much closed (few hundreds of meters) to a poor neighborhood, full of unlettered people, with very low incomes and living in an extreme poorness. These discrepancies generated many social issues, conflicts that affected the governmental politics


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and the quality of services offered by the employees of headquarters in India. The explanation was that such way of development was unsustainable, and it was very difficult (or better saying, almost impossible) to develop only one field in a society or economy, without having the rest of the society to an adjacent level of progress.

INITIATIVES OF ROMANIA IN SUPPORTING THE ICT FIELD

Romania has had over the time many initiatives underlying upon the ICT field. Some of

them stopped to an official level or to plans that were only issued and published, but never implemented. There were although some initiatives that have proven results and generated the ICT field to be one of the Romanian economy’s engines, thus being situated to a level of progress over the European average mean.

One of the first initiatives that generally supported the ICT field in Romania consisted in tax deduction offered in accordance to the wages tax, for the employees in this field, deduction adopted in 2003. Similar to this situation, some economic activities within the ICT field were added at that time on the list of activities, for which the physical persons that provide such services might choose the revenue tax calculated in accordance to the revenue normative. In this way, the income tax for these persons (that operate as Authorized physical persons) is limited to a level equivalent to the yearly wage of 25.000-30.000 Ron (Ministry of Public Finances, 2014).

Concerning the level of governmental programmes, essential initiatives were taken in the ICT field of Romania. One of the most important initiative was the Project of Knowledge based Economy. Such project beneficiated from a pilot phase, where 20 local communities were involved, followed by the national phase, when 255 local communities were involved (Ministry of Information Society, 2007). The project beneficiated from financing assured by a loan taken from the World Bank, and the pilot phase was launched in 2004.

Many initiatives were carried out by the Government of Romania in the last years, in order to develop projects owning major components of ICT. The most known are those related to the Ministry of National Education (AEL system, implemented in the schools of Romania), to the National Health Insurance House (projects regarding the electronic health card, the electronic prescription), the National House of Public Pensions or the National Trade Register Office.

As regards the trade companies, some initiatives were carried out from the national public funds. The most significant represent those included in the public assistance schemes established by the Government Decision no. 979/2012 or the Government Decision no. 323/2014. By the help of such schemes, grants were given (non-reimbursement financing) for the companies that proved an essential investment that involve the ICT field, as well.

A high impact over the ICT field was given by the initiatives financed by the private funds. The most important (regarded from the financial point of view) consists in the programme of libraries information system, programme financed by the help of Bill and Melinda Gates Foundation.

INITIATIVES TAKEN ON EUROPEAN LEVEL FOR SUPPORTING THE ICT

FIELD The European Union mentioned beginning to 2000 that ITC field signifies an essential

position within the strategies of economic development, in order to transform EU as the most important world economy.

The first shape of carrying out such strategy was taken on the official and planning levels and the ICT field was mentioned in various strategies and action plans. The next phase was of including in some financing programmes the special lines for the ICT field. This happened with the Framework Programme V and afterwards, with the Framework Programme VI.

Then next phase consisted in initiating special programmes dedicated to the initiatives of the ICT field, and of defining this field as a horizontal priority, meaning this should be taken into


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account by all programmes and projects of European funds co-financing. The eContent and eContent+ initiatives were launched during this phase.

Being a Member State of European Union, starting with 1st of January 2007, Romania should analyze the impact of European initiatives over the ICT field regarding from the impact of the European legislation point of view, as well.

The European initiative within ICT field of high visibility on Romania’s level is probably that relating to the roaming taxes, which can be applied by the mobile phones companies. There is a plan with very well established terms, in order to reduce these taxes. Until now, the impact over the roaming taxes on phone lines has been quite visible (at the beginning of 2000, the tax was over 1.2 Euro/minute; nowadays the tax is five times lower than the previous, meaning 0.24 Euro/minute). The European officials declared that their plan is to fully discharge such taxes.

Other initiative taken on European level, with high impact over the ICT field in Romania, is that related to the minimal period of time, which is compulsory as warranty for the ICT devices that are traded by the citizens. By such measure, all the providers and traders of ICT equipment of long term using are obliged to offer at least two years of warranty, an extremely benefic issue for the population.

Regarding the European regulations, of impact over the activities included in the ICT field in Romania, here are many regulations not dedicated exclusively to the ICT field, but that have a direct or indirect influence or a lower or higher influence. One can therefore mention the following:

Settlements concerning the free competition and forbidding the monopolist type agreements between the main players on the market. Such regulations especially influence the fields where few players that carry out activities exist, for instance, the field of communications, where the first four players cover over 90% of the market. For instance, if the players agreed over establishing a minim limit on certain offers, the final consumer would be obliged to pay such tax, since he or she haven’t had any alternative solutions.

Settlements relative to free competition, by forbidding certain punctual agreements of restriction of other competitors. In this way, a producer or a provider of a product cannot set a unique provider or will be not allowed to reject to other providers the access to that product or service.

Free circulation of merchandise and services. Thus, a producer or a provider cannot forbid a product or a service, available in a Member State within European Union, to be available in other Member State. So, the market of European Union aims on becoming more and more a unique market, including this point of view, benefic aspect for the final user.

The settlements regarding the public acquisitions. Legislation in the field of public acquisitions, which was applied until 2006, allowed the expenditure on public funds (and) in ways lacked of transparency. Therefore, only certain companies or certain providers have had access sometimes to contracts. By applying the legislation of public acquisitions, the procedures have been transparent, and any not-legal inclusion or restrictions that might limit in any way the competition were forbidden (or executed, if met).

The free circulation of goods and services. By these rules, the Romanian companies are allowed to provide goods or services in any Member State. Within European Union, it is forbidden to introduce some regulations of differentiating between companies, depending upon the Member State, the headquarters or origin of services providers or goods manufacturers.

ICT FIELD WITHIN THE STRUCTURAL AND COHESION FUNDS AVAILABLE

TO ROMANIA Romania was assigned to almost 20 milliards of Euros during 2007-2013, from the

European non-reimbursement funds, other than those for the agriculture or rural development. These funds can be spent until the end of 2015. The allotted amounts were shared by means of Operational Programmes, and each programme had many Priority Axes or Major Fields of Intervention and Operations. Dividing the amounts between these programmes, as well as their


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areas of action represent a result of priorities established by Romania, by the help of National Programme of Development 2007-2013. From all the actions foreseen within NPD 2007 – 2013, almost half of them were about to be covered from European non-reimbursement funds (the total budget of actions during NPD 2007-2013 was estimated to almost 40 milliards of Euros, and the total budget allowed to the Operational Programs was of almost 20 milliards of Euros).

Concerning the amounts spent from European funds, the public data are available (the rate of absorption signifies a highly known indicator), and the percentage of fulfilling the NPD 2007-2013 was not evaluated or the results of such evaluations were not available to the large public.

During 2014-2020, the allotment of non-reimbursement European funds has maintained a relatively similar structure, and the total available budget was higher. A comparison between the two periods of time is highlighted in the following tab

Table 1. Position of structural and cohesion funds allotted during 2007 - 2013, of their

expenditure level and allotted funds on 2014 - 2020

Budget on 2007 - 2013 Budget on 2014 - 2020

Operational programme

Allotted budget

(milliards of

Euros)

Absorption percentage 31.05.2014

(%)

Amount reimbursed by the European Committee (milliards of Euros)

Operational programme

Allotted budget

(milliards of

Euros)

Sectorial Operational Programme on Increasing the Economic Competitiveness (POS CCE)

2,554 36,40% 0,930 Operational Programme on Competitiveness

1,6

Sectorial Operational Programme on Transport (POS Transport)

4,426 31,23% 1,426 Operational Programme on High Infrastructure

9,1 Sectorial Operational Programme on Environment (POS Mediu)

4,413 28,33% 1,279

Regional Operational Programme (POR)

3,966 46,70% 1,740 Regional Operational Programme

6,5

Sectorial Operational Programme on Developing Human Resources (POS DRU)

3,476 28,75% 0,999 Operational Programme on Human Resources

3,6

Operational Programme on Developing the Management Ability (PO DCA)

0,208 55,79% 0,116 Operational Programme on Management Ability

0,382

Technical Support Operational Programme (PO AT)

0,170 33,89% 0,058 Operational Programme on Technical Support

0,3

Total 19,213 34,29% 6,588 21,482

Regarding the interval 2007 – 2013 on the European level, the inclusion of informational technologies as horizontal objective was decided, this aspect being mentioned within the rules that establish all the available European funds. As consequence, all projects financed from European funds had to mention within the financing requirement the way they contributed towards the horizontal objective. Such trans-programmes approach has had certainly an impact over the inclusion of some IT components into projects, and this extremely difficult impact has been so difficult to be evaluated. It is hard to make a differentiation between the current situation and the situation that had existed, if such requirement wouldn’t have been asked as compulsory.

Besides the general component, valid to all projects, some amounts were allotted strictly to those projects of ICT investments. Within the Sectorial Operational Programme on Increasing the Economic Competitiveness 2007-2013, from five priority axes, one was dedicated to this field, meaning Prior Axis III, “Information and Communications Technology on private and public


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fields”. As the title emphasizes, this axis has financed projects carried out by public institutions (projects of e-government, e-management, e-administration, e-health, e-education) and by private companies, as well (projects on e-commerce, business intelligence and e-learning).

Unfortunately, the amount allotted to such tax was of only 383 million of Euros, from the structural funds, and of 86 million of Euros, meaning the national public contribution (the Ministry for Information Society, 2007), and of almost 2% from the structural funds and of cohesion allotted to Romania during 2007-2013.

In this way, concerning the official level, all political and decisional factors concluded that ICT field has been a priority, able to support a sustainable and long lasting growth of the Romanian economy, where the allotment of funds for supporting this field was extremely low.

Although during the programmes interval of time, meaning 2014-2020, the allotments on priority axes were not ended, it is estimated that the weights to maintain or even slow down. If one analyses the amounts allotted to each Operational Programme (Table 5-1, Position of structural and cohesion funds allotted during 2007-2013, the phase of their expenditure and the funds allotted for 2014-2020), one might notice that although the total of amounts allotted to Romania from structural and cohesion funds was increased by 11.81%, the allotted amounts to the Operational Programme on Competitiveness was reduced by 37.35%, reaching to represent from 13.29% from the allotted amounts during 2007-2013 to only 7.45% during 2014-2020. This thing has happened since POS CEE is placed on the 3rd position within the hierarchy of the eight Operational Programmes, depending upon their absorption level.

Unfortunately, there are no published reports of analysis regarding the impact of spending such funds. Such an analysis might be difficult to be accomplished, since one may notice the objective of the prior axis, “Full capitalization of ICT potential by the private and public fields” (Ministry on Information Society, 2007). Such an objective might be impossible to be evaluated.

Although the objectives of Operational Programme and Prior Axis are quite ambiguous, regarding from the analysis of available public documents point of view (the Guides of solicitor related to calls of projects developed up to that moment), it results that the individual projects have had indicators of evaluation extremely obvious and precise, well defined in time (being divided in: indicators that should be carried out until the end of project implementation time, and indicators that should be carried out until the end of monitoring the post-implementation time, meaning 3 or 5 years, from the end of the implementation time). There are also certain compulsory means that can be applied to beneficiaries of non-reimbursement funds, and there is also a possibility of reducing the non-reimbursement financing, proportionally to the level of not-accomplishing an indicator, for instance. As consequence, at the end of the implementation and monitoring of projects, one should have a very specific evaluation over the degree of reaching the indicators proposed by the beneficiaries from financing.

ICT IN OTHER EUROPEAN FUNDS AVAILABLE TO THE ORGANIZATIONS OF ROMANIA

At the beginning of 2000, the European Committee decided that one of the priorities should

consist in developing the Multilanguage digital content. Starting from the theory according to which, in order to use a technology, tools and content should exist. There were also analysis that proved that there is no cooperation between the Member States for future collaboration and complementary actions, as regards the digital content, so that launching a financing line dedicated to the field was decided. Therefore, during 2001-2004, the eContent programme was carried out.

Basing upon the experience accumulated within the eContent programme, the European Committee decided to continue the programme, in a reviewed form, under the name of eContent Plus. The new programme was carried out during 2005-2008.

For the following time, the European Committee decided to maintain a single tool of financing the innovative projects, and here the ICT projects were framed. This unique tool, known


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under the name of Competitiveness and Innovation Framework Programme (abbreviated as CIP) has covered all the areas of action specific to the innovation and competitiveness.

For this time, the main tool of financing the innovative projects consists in the Horizon Programme 2020 (programme built starting from the Framework Programme 7, as continuing the priory mentioned).

All these financing tools that were available at the level of entire European Union, as well as for some states in progress of adhesion (as the Romania’s situation, before 2007), have been allowed to projects with trans-national impact, at the level of many Member States. Therefore, the projects financed by these tools have been always carried out by more partners, these using in common their resources and abilities. In most situations, it is about more than 10 partners, from more than 10 countries. The partners should not only beneficiate of project, but they should also contribute in an active way to its progress.

Romania had access since the pre-adhesion time (before 2007) to such programmes, and the organizations of Romania were able to be involved. In most cases, during the pre-adhesion time, the Romanian organizations could only be partners, but they were not allowed to lead the consortium.

Taking in view the conditions described above, it is extremely difficult to evaluate the impact on such projects over the organizations of Romania. Unfortunately, there is no public information available, for neither the weight on budgets afferent to the partners in Romania nor the weight of responsibilities in the total of result or fulfillment indicators assumed by the project, so that one might be able to estimate the allotted resources (the funds) and the achieved results (indicators). Unfortunately, taking an empirical analysis, and without claiming that information achieved should be generally valid, one notices that such type of financing is less known and quite hard to be accessed by the Romanian organizations. These preferred to access structural and cohesion funds, managed by the ministries of Romania, which have had responsible representatives on central or regional levels in our country.

A significant impediment in accessing the funds available at the level of European Committee consisted in the need of partnership work and multi-institutional type, where many times, different categories of organizations of different management were involved. This type of partnership work was not specific to the Romanian society. As proof that partnership work signifies an impediment for projects, an example can be given: the proposals to projects implemented by operational programmes financing (for instance, the Operational Programme – Human Resources Development - POS DRU – 2007 – 2013), which have had such compulsory condition, and in such conditions, the projects are implemented in a more difficult way as comparing to other project proposals.

THE IMPACT OF CHANGES OVER THE LOCAL COMPANIES THE IMPACT OF NEW SETTLEMENTS

The new settlements have helped the local companies, especially regarding the confidence

of the new customers in applying to products or services provided by them. Thus, even if a customer does not know a certain company, never worked with it before, hasn’t been recommended by someone else, will have the courage to apply to services offered by that company, or to buy some products offered by that company, since the customer knows that he or she is protected by the legislation in force. For instance, if a customer knows that he or she should beneficiate of a warranty of minimum two years in case of long term products, the customer will know that he or she will be able to return, with no penalty taxes, any good purchased in accordance to terms established, without being necessary to prove his or her discontentment. All these legislative assurances will determine the customers to be more open to the new goods or products, offered by the local companies, as well.

Another significant impact of the legislative changes determined by the adhesion to European Union is that referring to the public attainments. As previously proven, the European regulations as regards the public attainments impose a very high level of transparency, and reduce


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the possibility of the contracting authorities to include criteria or elements of not-justified restraints of the competition. Therefore, the local companies have had access to information dedicated to organized attainments procedures (the online access www.e-licitatie.ro for the attainments organized by entities living in Romania and www.ted.europa.eu for the attainments organized by other Member States), and have minimal terms established between the moment of publishing an announcement and the moment of submitting the offers. In the situation when a company is not able to participate to a procedure by itself (the requirements are too high or the procedure covers fields that exceed the experience of that company), the company is allowed to have an associate, and to form a consortium with other local companies or from the European Union, and to carry out together a competitive offer. In this way, the local companies are able to access a larger market, including the international market (at the level of European Union).

Another major impact over the local companies is given by the settlements concerning the competition. Amongst the main elements of impact, the following are emphasized:

Interdiction according to which a Member State gives public assistance that distorts the competition. In this way, a company has the certainty that no competitor will receive benefits from the state, benefits that might help the competitor, making against the other participants that act on that market; No manufacturer or provider can restrict the access to the goods or merchandise provided. Channels of exclusivist distribution practically impossible to be built. Another primary impact of the new regulation frame is given by the confidence that high

international players have over this frame, trust gained due to knowledge (the essential elements are the same at the level of entire European Union), as well as the predictability of its changing, of the availability of some tools of trust arbitration, in the situation when such changes will affect in an inadequate way their business.

The higher confidence in Romania given by the well0known international players have as result, in the first way, an increase of their interest (occurred by the growth of financial flows carried out by branches in Romania), but also by means of making available to local companies all programmes of partnership opened to other companies from the European Union. Most of such multinational companies offer significant facilities for partners, facilities highlighted by the following:

free access or minimal costs to products and services offered by the multinationals, or for the partner companies; access to programmes of trainings, specific to technical on sales specialists; access to the technical support services and back office type services, as regards the partner companies or their customers; access to information specific to programmes of developing new products or services; Access to the multinational network’s partners, thus making easier the cooperation processes. As immediate result of improving the business environment of Romania, most of

multinational companies have started to open headquarters in Romania. If initially, these headquarters were opened exclusively in Bucharest, for the time being, the weight of work positions new created in our country has been significantly growing. The most significant exemplification in this sense is given by the list of projects approved, in accordance to receive public assistance, within the diagram announced by means of Governmental Decision HG 979/2012.

By analyzing the above mentioned list, one might notice that most of high competitors within international ICT market have decided to expand their headquarters in Romania, or to initiate new centers. Such headquarters of services have also had an effect over the local economy, by means of more guiding lines, meaning:

Working in accordance to standards and procedures highly severe actually represents an example (by its positive and negative parts) for the local companies. These can learn


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from multinational and are able to define the points of differentiation towards the high companies. By means of their activity, the headquarters use services and goods offered by the local companies, such as: starting from the immovable services and of buildings management, up to using the communications services, technical assistance for the complementary activities etc. The activity of such companies has had effects over the labor force, by carrying out programmes of training and improvement. A part of the labor force will be able to perform in local companies or to initiate local business etc.

THE IMPACT OF AVAILABLE FINANCING

Concerning the effect of non-reimbursement financing, that are available to local companies

as result of Romania’s adhesion to European Union, a detailed evaluation of projects carried out hasn’t been performed until now at the public level. Such an evaluation should analyze the size of financing achieved by the Romanian companies, the degree by which projects financed from European non-reimbursement funds reached their proposed objectives or the impact over the attained financing etc.

The already existing public information refers strictly to the number of projects submitted (the requirement of financing). An accurate analysis specific to this indicator would be relevant, since one might assume that percentages regarding the impact and financial size will be maintained. A synthesis of such information is illustrated in the following chart.

Figure 1. Number of financing applications submitted by private entities within the

applications carried out over POS CCE Priority Axis III Source: OIPSI website http://fonduri.mcsi.ro

The above emphasized chart shows that in application of projects no.2, the number of

financing applications has been increasing, by over 14 times more, specific to operation 3.3.2 – Support on developing the electronic trade systems and other electronic solutions to business; by over 5 times more, specific to operation 3.3.1 – Support on implementing the integrated information systems and other electronic systems over the business management; and over 4 times more, specific to 3.1.1 – Support on accessing the broadband and connected services in the field.

Such significant growths have indicated an increase in visibility for the European non-reimbursement funds that are available, as well as regarding their approachability. Unfortunately, the main points of reducing the impact and efficiency of these funds have been represented by the legislative changes that seem to be continuous in this field, by an excessive bureaucracy and those


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long periods of evaluation, specific to projects and to the Applications of reimbursement relative to these.

CONCLUSIONS AND RECOMMENDATIONS

Romania’s adhesion to European Union has proven an amalgam of positive and negative

involvements. For the time being, there is no public data allowing an analysis in an indubitable way over many components of the adhesion (especially one cannot evaluate the efficiency and effectiveness of the non-reimbursement funds attained by the companies of Romania).

Another essential issue in evaluating the impact of adhesion is represented by the identification and evaluation of the scenario: What if we hadn’t adhered. It is quite difficult to achieve a qualitative evaluation of this scenario, since it would generate a series of uncertainties and of parameters that should be defined. For instance, what type of economic model would Romania have adopted in such position? What would have been the relationship to high economic and political powers of the world? And so forth.

Taking into account all these uncertainties and doubtfulness, and underlying on those described in previous chapters, one might conclude that in generally, the impact of Romania’s adhesion to European Union is positive, as regards the local companies and the society level, impact that has brought more benefits rather than disadvantages. The highest benefits are related to the credibility of local economic environment, by a framework more steady and predictable on settlements, by taking into consideration some points of view. All these factors have inclusively generated a growth in concern for the well-known multinational companies, over developing their business, as well as establishing their headquarters and enlargement of the partnership basis in Romania.

Concerning the future, the decisional factors should take the necessary requirements, so that the allotted amounts over companies, which aim to implement ICT projects on their own or on their customers, should increase. In order to determine a real impact, the rate of absorption of non-reimbursement European funds should also be increased.

An essential part whereof Romania should pay attention is represented by a powerful and steady engine of developing the ICT component, specific to the Romanian economy. In this way, the funds over research and innovation can be established, in the view of supporting the trans-national partnerships relative to the initiation and implementation of innovative projects.

REFERENCES

1. Guvernul României. (2006, decembrie 01). Planul Național de Dezvoltare 2007 - 2013. Retrieved iulie 01, 2014, from Ministerul Fondurilor Europene: http://www.fonduri-ue.ro/posdru/images/downdocs/pnd_ro.pdf 2. Ministerul Finantelor Publice. (2014, 01 02). Norme Anuale de Venit: Anul 2014. Retrieved 07 01, 2014, from Ministerul Finantelor Publice - Agenția Națională de Administrație Fiscală: http://www.anaf.ro/anaf/internet/Ilfov_old/asist_contrib_ilfov/norme_venit_2014_if/!ut/p/a1/lZDbCoJAEEC_pR9wxkvrvpqhIsmm4G1fQsE2QV0xyd_Peup-mbeBc-DMAIcMeFecalGMteyK5rJzsvNUj3ga1XzmbhAtZrjEDFBHZs5AfgvQ0HBmAJf-OrFV2yT_-oSZaFHHDRhNVErU33x8MxZ-81Pg98iLCx6A58Qr8KHBBy4aWc7_TFfA3SCL-vBSbnWlTgXwodpXQzUoB3kcIZumSRFSiqZSBgl9G8cZ1ts2yhdnx6Wvmw!!/dl5/d5/L2dBISEvZ0FBIS9nQSEh/ 3. Ministerul pentru Societatea Informațională. (2007, 01 01). Organismul Intermediar pentru Promovarea Societății Informaționale. Retrieved 07 01, 2014, from Ministerul pentru Societatea Informațională: http://fonduri.mcsi.ro/?q=system/files/Axa3.pdf


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4. Ministerul pentru Societatea Informațională. (2007, 01 01). Proiectul Economia Bazată pe Cunoaștere. Retrieved 07 01, 2014, from Ministerul pentru Societatea Informațională: http://www.ecomunitate.ro/Proiectul_Economia_Bazata_pe_Cunoastere(51).html

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

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SECTION 2

MANAGEMENT AND BUSINESS

ADMINISTRATION

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

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RESEARCH ON RISK MANAGEMENT, AS PART OF CORPORATE

GOVERNANCE, IN ENTITIES

AssociateProfessorPhDFlorinBOGHEAN


Abstract: The Romanian companies are nowadays facing process of extinction of decisions based on risk and uncertainty,

as a consequence of the permanent transforming process of the economy and because of the privatization, restructuring and globalization activities. The main forms of risk are can be grouped in eight categories: economical risks, financial risks, commercial risks, manufacturing risks, political risks, social risks, juridical risks, natural risks. Through its nature the decision is referring to the future, mainly being provisional. In any decisional process developed at the company level, there are involved in the same time some economical, techniques, juridical, human and managerial variables. As a consequence of the decision (generally) and of managerial decision (particularly), because of its complexity and its contextual deter in its growth there are associated many risks. The main objective of this paper is to capture the factors that influence the decisional process, in the context of the implementation of corporate governance in view of the company’s resources, production methods and its operational environment and the identification of decision making support systems. I consider that the study contributes to the development of knowledge in the risk management field associated with decision making processes in the context of efficient corporate governance, based on a series of new elements and authenticity.

Key words: financial risk, strategic decision, global strategy JEL classification: G 34, M 14

1. THEORETICAL BACKGROUND

An increased interest can be seen, from practitioners as well as accounting university professors, towards the corporate governance, since the publishing of the Blue Ribbon Committee report on the efficiency of the audit committees, in the U.S. in 1990. The financial scandals that occurred in the winter of 1999 have without doubt contributed to the increasing of this interest. The scandals have highlighted the fact that, at that time, corporate governance was nothing but “mirage” (Field, 2003). Thus, corporate governance is often seen as a key element of the regulatory apparatus destined to prevent, or at least to reduce, the frequency of this kind of scandals. Under the impetus legislative impulse characterised probably by a strong doze of isomorphism, many countries and jurisdictions have elaborated different regulations following the enactment of the Sarbanes-Osley Law in the USA. This legislative movement has significantly influenced the issue of risk management in entities, participating in the globalization of the regulatory area.

The papers published in the field go beyond the nature of individual results and their findings. In fact, as a hole, these papers refer to taking an epistemological stand that aims to encourage the intellectual pluralism in the social sciences field – pluralism that can only open promising routes of knowledge enrichment and develop these sciences whose frontiers are only the ones which the scientist desires to reveal. This includes both, quantitative and qualitative empirical studies, as well as reviewing some papers on corporate governance efficiency. This irregularity results from the more and more often believe (even in the most positive environments) as the “risk” is too complex, ambiguous, contradictory and instable to be treated only from one point of view. Therefore, Clegg (2006) highlights that social research can prosper only in a world run by the long-winded pluralism principle, in which the differences between the disciplinary matrices are explicitly acknowledged and expressed instead of being wiped out by a narrow-minded conformism. According to Abbott (2001) and Flyvbjerg’s (2001) findings, the relevance of the social sciences resides in their capacity to understand the truth based on a number of analytical perspectives. Such


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an epistemological approach has found resonance in the research between the borders of accounting and governance (Shapiro 2006). Otherwise, one of these authors has recently pleaded in favour of intellectual plurality (Gendron 2009), highlighting that gaining of knowledge on a specific theme depends on the coordination of a series of analytical perspectives and methods. In my firm opinion there is no method better than the other: the choice of the method must be made related to the objective of the research. Actually, it is better to consider the triple adequacy of the data collected, the way the research is conducted and the purpose of the research. In this case, we are referring to the third essential stage in the research process. In other words, this belief, and we subscribe to it, is that the research renders dry under the hegemonic influence of some ways of thinking. Thus, the theoretical and methodological pluralism is one of the key elements of this thematic area.

In 2004 were elaborated the OECD Principles of Corporate Governance (table 1), which are today the only set of unanimously accepted principles, being universally acknowledged as one of the twelve supporting pillars of the international financial stability. The OECD principles have served as a reference point for compiling a collection of national codes regarding corporate governance. First of all, they concentrate on the publicly traded companies, also approaching topics related to the large shareholding societies, but which are not listed. They can also be useful regarding certain aspects of the management of the smaller private firms and of the state enterprises.

Table no. 1 - OECD Principles of Corporate Governance

- the shareholders’ rights and their protection (the right to dividends, the right to be informed concerning the decisions related to the important changes in the company’s life, the right to participate in and to be able to vote in general meetings); - equal and fair treatment of all the shareholders, including the minority and foreign ones; - role and rights of the stakeholders – this concerns the role of the employees, of the creditors, of the suppliers and of the clients in the management of the companies, which must be respected as it is defined in the national legislation; - information transparency and their quick dissemination (reporting to the shareholders all the current financial, administrative, extraordinary activities, on a regular basis, in time and correctly, the independent audit, and so on); - responsibilities of the Board of Directors and of the business executives (number of members of the Board of Directors, number of independent members, way of appointment, revocation, remuneration, and so on).

Source. www.oecd.com These principles were elaborated at an extremely general level, the countries enjoying the

possibility of endorsing them and of granting a higher or smaller degree of importance to certain particular aspects. They even state that it is not desired to impose a universal pattern of corporate governance: at the same time, but the long-term tendency is to achieve global standards (J. Holly Gregory, 2000).

The role of corporate governance in the decision making process of an entity was approached in many books and papers, amongst others: Transparency and Corporate Governance (Benjamin E. Hermalin, Michael S. Weisbach, 2007), Corporate Governance (Luigi Zingales, 1997), A Survey of Corporate Governance (Andrei Shleifer, Robert W. Vishny, 1996), Law and Finance (Rafael La Porta & al., 1996), Auditing, Trust and Governance. Developing regulation in Europe (Quick R., Turley S., Willekens M., 2008); Essentials of Corporate Governance (Anand S., 2008); Corporate Governance. A Practical Guide to the Legal Frameworks and International Codes of Practice (Calder A., 2008); Corporate Governance (Monks R., Minow N., 2004); Handbook On International Corporate Governance (Mallin C.A., 2006); Corporate Governance and Accountability (Solomon J., Solomon A., 2004); Corporate Governance in a Globalising World: Convergence or Divergence? A European Perspective (Lutgart Van den Berghe, 2002). Many studies have shown the need of developing decision models based on risk; for example, see Azuma and so on (2006) and Endsley and so on (2007). Moreover, the need, to develop decisional models that can describe the risk stance of people from a systemic point of view, is felt (see Power and


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Sharda (2007); Parker and Fischhoff (2005); Miller (2008); Betsch and Kunz (2008); also see Kahneman and Tversky (1979); Lopes (1997); Kull and Talluri (2008)).

Many researchers have analysed the way: risk, the perception of risk and the resistance to risk influences individuals when they make choices under uncertainty conditions. The term of risk, in the decision making process is an essential element in the classic economic theoretic context (the so called regulatory approach), from the expected utility hypothesis of Von Neumann (1944) to Markowitz H.’s modern portfolio theory (1952). However, in stark contrast, the first behavioural Economics papers, in the 1970’s, have provided proof of the existence of cognitive confusion that hinder the decision making process in a rational way (an descriptive approach), papers like Kahneman and Tversky A.’s prospect theory (1979) to the latest behavioral portfolio theory (Shefrin and Statman, 2000; Hoffmann, Shefrin, Pennings, 2010).

2.THE RESEARCH OBJECTIVES AND METHODOLOGY The research presented in this paper falls under a positive scientific approach, certainly, it is

not without some critical and interpretivism approaches that aim to explain different concepts, but also to highlight the possible solutions for the identified issues. In order to scientifically examine the issues and to obtain the objectives pursued and aims to be achieved, I will use the following research methods:

the analytical method will be used to conducted an analysis of the theoretical approach of decisions, of risks and their role in the decision making process;

the quantitative and qualitative research method will be conducted by collecting data using a research based on a questionnaire applied on decision makers from public and private sector, at national level, on a sample of 100 decision makers;

deductive and inductive methods. The research performed in the current paper has an empirical testing phase of some

assumptions about the impact of embracement of risk management in the decision making processes in the context of efficient corporate governance. The framework of the heuristic model will consist in designing an analogue system with the one investigated (the real system) and is made of the following steps:

1. I will design an initial solution; 2. I will test it in conditions of admissibility (the restrictions system); 3. I will determine the performance function of the initial admissible solution (based on

some economic indicators); 4. I will determine the performance function for a certain time lapse. 5. I will monitor if the suggested solution from the model is overlapping the historical

economic and financial data of the companies from the quantitative analysis. 3. BASIS OF THE CORPORATE GOVERNANCE The issuers of codes of corporate governance are different from country to country. They

include: stock exchanges, securities commission, governmental entities, institutional investors, business associations, protecting the rights of shareholders associations and so on. In the next Table are presented the mod important codes designed after 1997, as well as the issuers, but also the objectives set in them.


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Table no. 2. Corporate governance codes in the European Union countries

The issuing body The name of the code and the year it was designed

What kind of companies it

refers to Objectives

Governmental and quasi-governmental organisations

The recommendations of the Banking and Finance Commission of Belgium (1998)

The listed companies

Improve companies’ performance, competitiveness and /or access to capital

The recommendations of the Securities Commission of Portugal (1999)

The listed companies. They can be used as a model for other companies.

Improve companies’ performance, competitiveness and/or access to capital

The guideline of the Trade and Industry Ministry from Finland (2000)


Improve companies’ performance, competitiveness and /or access to capital

The stock exchanges commissions and business associations

The Cadbury report (1992), (UK)


Improve quality of board (supervisory) governance, also stipulating some compelling regulations on the information disclosed.

The Peters report (1997), (The Netherlands)


Improve quality of board (supervisory) governance

The Hampel report (1998), (UK)



The business associations The Vienot report (1999), (France)



Federation of Industries (2001), (Greece)



The Central Chamber of Commerce and the Confederation of Finnish Industry and Employers (1997), (Finland)



The Greenbury report (1995), (UK)



Berlin Initiative Group (2000)



German Panel Rules (2000) The listed companies

Improve quality of board (supervisory) governance and disclosing information for shareholders.

The Code of Institute of Chartered Secretaries and Administrators (1991), (UK)



Investors associations Institutional Shareholders’ Committee (1991), (UK)



VEB Recommendations (1997), (The Netherlands)


Improve quality of board (supervisory) governance and disclosing information for


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The issuing body The name of the code and the year it was designed

What kind of companies it

refers to Objectives

shareholders. Danish Shareholders Ass’n Guidelines (2000), (Denmark)



Source: own adaptation By analysing this Table we can see that the themes recommended by these codes are the

creation of audit comities for companies (Hampel from UK, similar codes issued by France and The Netherlands), formed by independent directors, which need to be responsible with the financial reporting and monitoring the internal and external auditing. Otherwise, the audit comities have become a common trait of European firms, which means the trend is to perfect the administrative structure of the companies. In some EU countries, a component of the corporate administrative code is the ethical code, whose implementation is done in the same manner as the other corporate elements. The ethical code is issued based on the corporate rules of conduct; it needs to be accepted by the management board of the company in unanimity and to have ethical and deontological rules, for the members of the board and executive, as well as for the shareholders and the employees of the company.

4. RESEARCH ON THE ATTITUDE TOWARDS RISKS MANAGEMENT IN

ENTITIES

The most common method of obtaining primary data is the survey, it needs a questionnaire and a representative sample for the population under consideration and it was chosen in this research. The persons the questionnaire was applied on were contacted by e-mail and asked to complete it on an electronic platform. In this case, we had the managers. The designed questionnaire has 30 questions; it was designed considering that it should not bore the respondent, it should not take up a lot of time (it is said that the optimal time for the maintaining of the respondent’s interest is 10 minutes/questionnaire). I used closed and semi-closed questions, in designing the questionnaire.

The responses I received after sending of the questionnaire through e-mail and direct contacts, were then centralised with the help of a statistical software SPSS (USV licence for Statistical Analysis Software), that allowed me to make an easy centralisation of the data for the analysis and then to draw the conclusions. I wanted to take into account all of the conditions in order to maximize the response level obtained. Next, I will present the most results for the most representative questions that overlap the theme of the present research.

1. Which of the following pillars of the corporate governance can we find in your organization: (please use the

following terms: (5) a very large extent, (4) a large extent, (3)a somewhat extent, (2)in a small extent, (1) a very Little extent)

5 4 3 2 1 Shareholders – Directors – Managers 37,68% 24,64% 18,84% 8,70% 10,14% Performance assessment /responsibility assuming 30,43% 27,54% 27,54% 8,70% 5,80% The existence of some specific regulations of the field/ ethical standards and so on 44,93% 26,09% 17,39% 8,70% 2,90% External audit 21,74% 24,64% 23,19% 14,49% 15,94% Audit comity 14,49% 14,49% 23,19% 13,04% 34,78% Internal audit 18,84% 26,09% 31,88% 10,14% 13,04% Risk management 17,39% 15,94% 31,88% 17,39% 17,39%

In 2004, COSO has published a new model called „The enterprise Risk Management

Framework” – COSO-ERM, which explains the essential elements of risk management in a


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company, linked to the former COSO model, and the context of management processes and corporate governance. Risk management is an important mean that cannot and must not operate isolated in an organisation, but needs to act as a mean of reassurance of the management processes. At the same time, it is linked to corporate governance, by insuring information to the board of directors, information about the most important risks and the way they need to be handled. Also, corporate governance is linked to the performances of the risk management and the internal control systems, as part of risk management in an organisation. In July 2002, as a response to the financial scandals, The Institute of Internal Auditors from UK and Ireland has issued “The new corporate governance reform agenda”, which identifies 6 pillars of corporate governance. The answers given on this question showed that the standard model of corporate governance is implemented in the entities part of the sample. This simple model has, in general, a few malfunctions, many of them referring to the level of trust of the reports and the results published by the big organisations. These potential problems can include the administration board activity, corporate ethic and so on.

2. When you think about the word „risk”, in a financial context, what of the following words come first in mind? (Please use the following terms: (5) a very large extent, (4) a large extent, (3)a somewhat extent, (2)in a small extent, (1) a very Little extent)

5 4 3 2 1 Risk 40,58% 23,19% 15,94% 15,94% 4,35% Uncertainty 36,23% 42,03% 14,49% 2,90% 4,35% Opportunity 10,14% 28,99% 26,09% 20,29% 14,49% Thrill 7,25% 24,64% 24,64% 17,39% 26,09%

The activity of managing risks is an important concern for the management of the entity. It

is also taken into account the fact that the risk cannot and should not be completely eliminated from the business environment. Its management is fundamental in trying to diminish the negative effects implicated in its occurrence. Because its whole avoidance is not possible, the entity’s management must concentrate on avoiding the risk categories that cannot be controlled or understood, as well as assuring monitoring and the use of risks that contribute to the development of performances.

3. What are the main categories of risk that your organisation needs to deal with? (Please use the following terms: (5) a very large extent, (4) a large extent, (3)a somewhat extent, (2)in a small extent, (1) a very Little extent)

5 4 3 2 1 Financial risks 24,64% 34,78% 28,99% 7,25% 4,35% Commercial risks 8,70% 23,19% 28,99% 20,29% 18,84% Manufacturing risks 5,80% 7,25% 18,84% 10,14% 57,97% Political risks 4,35% 23,19% 20,29% 18,84% 33,33% Employee risks 15,94% 18,84% 37,68% 20,29% 7,25% Legal risks 10,14% 20,29% 36,23% 15,94% 17,39% Natural risks 1,45% 10,14% 17,39% 23,19% 47,83% Administrative risks 11,59% 24,64% 33,33% 21,74% 8,70% Operational risks specific to the activities flows 11,59% 28,99% 31,88% 14,49% 13,04%

From the research made arise three significant distinctions with respect to the way the risk is

presented: the first distinctions refers to fact that many managers associate the concept of risk with

bad results (40,58%), they do not see risk as an important aspect of business life. In other words, there is a constant tension between the concept of risk seen as an assignment of possible results and the concept of risk seen as a threat or as an incidental event.

the second distinction is that for managers, the risk does not represent a concept with a likelihood regard. But, for them, the results that are under expectations have a decisive importance.


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Most of the managers that were put to the test has shown increased concern in the field of analysing “the worst results” or were more concern with the “biggest deficit”. It can be seen that managers are more drawn by presenting risk by some value sizes.

the third distinction that is determined from the managerial activity, which, although initially has at the foundation a rich activity of potential risk assessment using quantitative methods, in the end, it all resumes to the low number of wishes that apply for paltry amounts.

4. Please prioritise the benefits of incorporating risk management in the organisation culture. (Please use the following terms: (5) a very large extent, (4) a large extent, (3)a somewhat extent, (2)in a small extent, (1) a very Little extent)

5 4 3 2 1 A bigger attention for the issues that really matter 37,68% 31,88% 23,19% 5,80% 1,45% Reducing time spent by the management on quarrelling 20,29% 36,23% 27,54% 11,59% 4,35% Less surprises 14,49% 23,19% 36,23% 20,29% 5,80% More satisfied customers 36,23% 34,78% 20,29% 5,80% 2,90% Protecting the reputation 49,28% 33,33% 14,49% 2,90% 0,00% More attention in doing things right in a right way 34,78% 42,03% 14,49% 7,25% 1,45% Bigger possibility to obtain the organisation’s objectives 40,58% 37,68% 17,39% 4,35% 0,00% Less complaints 24,64% 37,68% 23,19% 14,49% 0,00% Better opportunity for change initiatives and obtaining the benefits of projects/projected 30,43% 37,68% 20,29% 7,25% 4,35% Taking risks and making better informed decisions 37,68% 33,33% 18,84% 5,80% 4,35% Innovation support 33,33% 28,99% 23,19% 10,14% 4,35% Lower insurance costs 17,39% 20,29% 33,33% 20,29% 8,70%

The internal audit function is concern with establishing if the organisation risk culture is

mostly adverse to risk or if it accepts risk and it perceives it a corporate element. If the risk culture within the organisation, set by the upper management, is adverse towards risk, but some levels of management are in favour of risk, this can lead to confusion and even conflict in the organisation. Of course that the opposite scenario is also full of threats. From the centralized data we can see an awareness of the benefits of incorporating risk management in entities. Through the analysis of the opinions of the respondents we can confirm that the objectives of the risk management approach by organisations are based on the following principles:

handling risk is a key component of strategic management; positive attitude toward risks; taking into account risks whenever making a decision; assessing options when they appear in the process of handling of risks and threats

that may jeopardise the objectives.

5. Please choose the order of importance of financial information users in your organisation. (write 1 for the most important, 2 for the second and so on)

5 4 3 2 1

Current or potential shareholders 20,29% 20,29% 10,14% 14,49% 34,78% Managers 21,74% 20,29% 14,49% 21,74% 21,74% Employees 11,59% 21,74% 33,33% 24,64% 8,70% Suppliers 20,29% 21,74% 23,19% 18,84% 15,94% Customers 23,19% 13,04% 26,09% 13,04% 24,64% Credit institutions 13,04% 14,49% 30,43% 27,54% 14,49% State institutions (for example financial ones) 26,09% 18,84% 23,19% 21,74% 10,14% The public 24,64% 13,04% 21,74% 14,49% 26,09% Financial consultants 14,49% 17,39% 21,74% 24,64% 21,74%

We can see from the centralisation of answers to this question that a great importance is

granted to owners (34,78%), because they take the risk by coming and investing in the company, so


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they need to convince them to stay. 24,64% of the respondents consider financial consultants and customers as being important and 30,43% consider credit institutions to be important because they guarantee the supplementing of finance needed for the operating activities. Still, we can say that the financial information users are a heterogeneous group, and every one of them has special needs, different from the others. That is why by designing the information for the needs of a single user and publishing it in a single presentation form cannot satisfy the needs of all the users, but only for that one user and in a small regard the ones of the rest of the users. Managers have 21,47% and state institutions 26,09%.

6. CONCLUSIONS

Seeing the trend on the international market, a natural conclusion is that corporate governance will remain on the list of companies’ top management for a long time from now on. It is all about a simple reality: companies that embrace a transparent culture and efficient corporate governance will have a better performance and the ones that refuse to accept this reality, and, more recently, a necessity will have weaker performances. It goes without saying that the market volatility, combined with the shareholders pressure and the economic uncertainty, will create the necessary premises for the risk that top management will act ethical incorrectly. Thus, the importance of an efficient corporate governance model that will control and asses the company’s performance, at the same time satisfying the needs of all the involved stakeholders and implicitly creating added value, will increase even more. In order to survive a complex economic environment, global and hampered by the financial crisis, entities must act extremely aggressive on international markets and not to use just one risk management tool, but a mix of leverages. The importance of this department is very high; it is a leading department of the company.

To summarise, the new trends in making decisions in risk management are mostly linked to the so called double decisional process model in which the rational analysis is combined with intuition. A variety of terms are used by several academics and practitioners in the field, including quasi-rationality, conscious, subconscious or rational and irrational thought. Although there is a distinction between the terms, the essence of changes in daily decisional process is unchanged and it implies making global decisions in which the ratiocination is mixed with intuition of the manager. The rational analysis was largely searched in empirical studies and is well documented in the published literature. Consequently, the intention seems to be well grounded and try and find answers to questions about the role of intuition in decision making, as well as, about the contributing factors of its actual implementation.

Thus, the collecting of the data, actual information in the present study have led to an analysis that allows us to better understand the phenomena and the existing links between component elements of corporate governance, and consequently allowing the improvement on a theoretical and practical area, the quality of the image reflected by the consolidated financial statements. A more real and fair image brings with her a series of advantages for company users with a direct, as well as indirect interest.

ACKNOWLEDGEMENTS This paper has been financially supported within the project entitled “Horizon 2020 - Doctoral and Postdoctoral Studies: Promoting the National Interest through Excellence, Competitiveness and Responsibility in the Field of Romanian Fundamental and Applied Scientific Research”, contract number POSDRU/159/1.5/S/140106. This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development 2007-2013. Investing in people!


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BIBLIOGRAPHIC REFERENCES 1. Behnam Malakooti (2012), Decision making process: typology, intelligence, and optimization, J Intell Manuf (2012) 23:733–746, Springer. 2. J. Holly Gregory (2000), The globalization of corporate governance, OECD Business Sector Advisory Group on Corporate Governance. 3. Jaba, E., Grama, A. (2004), Analiza statistică cu SPSS sub Windows, Editura Polirom, Iaşi. 4. La Porta, R., & al., (1998), Law and Finance, Journal of Political Economy, volumul 106, nr. 6. 5. OECD (2004) Principles of Corporate Governace, online la: http://www.oecd.org/document/49/0,3343,en_2649_34813_31530865_1_1_1_1,00.html, (accesat 05.12.2014). 6. Shleifer A., Vishny R. W., (1996), A Survey of Corporate Governance, National Bureau of Economic Research, Cambrige MA 02138, april 1996, http://www.nber.org/papers/w5554.pdf, accesat la data de 27.06.2015 7. Turnbull, S., (1997), Corporate governance: Its scope, concerns and theories, Corporate Governance an International Review, volumul 4.

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

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INNOVATIVE LEADERSHIP STYLES AND THE INFLUENCE OF

EMOTIONAL INTELLIGENCE

CameliaBĂEȘU


RuxandraBEJINARU


Abstract:

This paper argues a set of solutions to be applied by leaders in order to make their work with the employees more effective. We consider that the innovative approach we bring is a specific approach regarding the emotional intelligence influence on leadership styles. Throughout this paper we present a comparative analysis of interdependencies and connections between emotional intelligence skills and different leadership styles. We present a mixture of the conceptual approach and practice evidences regarding the relevance, the reflection and the impact of certain emotional intelligence skills of leaders in the knowledge economy. Throughout the paper we describe the most relevant aspects/layers of the emotional intelligence and the way they may lead to positive or negative results for leaders. We also approach the theories about effective leadership styles and thus we propose innovative strategies to enhance these. The paper bases on a thorough study of the domain and presents a series of research results that could represent a solid base for any other academic work or managerial training. Key words: innovation, emotional intelligence, transactional leadership, transformational leadership

JEL classification: M10, M12, M21

1. THE ESSENCE OF BASIC LEADERSHIP STYLES

Leadership and management, leaders and managers all have specific and distinctive

elements which confer them distinctiveness and relative autonomy and also a series of common elements which facilitates their interaction and mutual influence. (Zlate, 2004) We believe that promoting a proper leadership requires the ability to adapt to different situations, instituting the essential elements, approaching differently the apparently similar problems and treating each case using the most appropriate methods. Through an adequate style, a manager may extend its role beyond the formal authority conferred upon it by its position in the organization's hierarchy, becoming a leader. The leader who exercises authority seeks formal things to be well made, regarding the finality of his actions and the group he leads. The leader does what needs to be done, and awards vigilance in the thing itself, thus imposing their informal authority; thus obtains to transform the group, becoming a true "social architect". Leadership is the result of many factors, among which an important role has the organizational culture, qualities and characteristics of leaders, motivation tools, hierarchical position, functional and psychological autonomy, managers and subordinates groups and information system. The qualities, characteristics and mental structure of managers represent the most important factors of leadership style. Personality, level of education, experience, and personal motivation are instrumental elements in the behavioral manifestations of leaders. A good manager is continuously informed about the key issues the organization is focused on, trains his subordinates in shares of continuous innovation and is committed to ensuring motivation. A leader must possess specific skills to be effective, quick to notice deviations from the normal course of business and to take effective decisions. (Pastor, 2014) The hierarchical position and the exercise of power influences the style of management, meaning that it is easier to lead a group when the manager is on a higher hierarchical level and the power of his position is higher. On the other hand, the value system puts a prominent mark on the


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attitude and behavior of leaders. In authoritarian management systems the control exercised by leaders in order to obtain subordinates’ motivation is achieved in particular through coercion. In democratic systems, the leaders’ power is in direct correlation with their ability to drive staff to achieve organizational objectives, motivation is achieved by adopting and identification. (Pastor, 2014) A sensitive dimension in the leadership developed within an organization is autonomy. Autonomy measured by the period of time that a manager can exercise his duties and responsibilities without resorting to the head hierarchical structure depends on his mental (psychological autonomy) and his position (functional autonomy). Autonomy aims at both the conceptual and the action. Psychological autonomy depends on the period of time that the leader set on a particular hierarchical position is able to think and act independently, without any feeling of insecurity. The authoritarian system diminishes the autonomy of first line and medium line leaders, turning them into "administrators" and "guards". In such situations, they have autonomy in action, but lack the conceptual autonomy. Functional autonomy is formalized through the organization of the firm, is in direct correlation with the level of seniority. According to a leading position in the company hierarchy, the relationship between conceptual and autonomy of action is amended. In a centralized organization, delegation of strategic action or a goal will increase interference, due to the fact that the conceptual autonomy is much lower than the autonomy of action.

Leaders’ personal styles vary and meanwhile some are noticeable some are modest and analytical. Some of the main leadership styles identified across time both within the literature and practice are the ones briefly presented below. Along with presenting each style’s specific features of behavior and action we shall provide alternatives which refer to the emotional intelligence’s solutions.

The autocratic leader (1). The autocratic leader has total power upon his subordinates, closely supervises their work and keeps in touch with them strictly professionally. The team members are not involved in the decisional process and don’t have the possibility to give suggestions with repsect to improving the activity. Employees are told exactly what to do and how to do it and it is expected the precise accomplishing of instructions. The advantage of this kind of leadership is the high efficiency of work because decisions are taken very fast and jobs are efficiently delivered. This approach may generate resistance and instability among employees. Rather it is recommended in the case of unexperimented but motivated teams, when the work is routine and for crisis moments when quick decisions are needed.

The laissez-faire leader (2). This type of leader is practically the opposie of the previous and he always prefers to allow his team to work on its own without interfering. This attitude justifies also the name of this leadership style: “don’t get involved” or “let it be”. This leader offers his employees the total freedom to organize and develop their own activities. He offers support only when it is asked for. The laissaiz-fair leader may be efficient if he closely supervises the team performance and gives feedback regularly. This type of leader is suitable for teams formed of people with experience, motivated, with initiatives who don’t need continuous supervization in order to accomplish their jobs. The advantage of this kind of leadership is that offers its employees the professional satisfaction and may motivate them to be very productive. The drawback of this laissez-faire syle is that in case of lowly motivated employees, with low skills of time management, without expertise and necessary abilities to work individually, the works’ efficiency shall decrease greatly.

The democratic/participatory leader (3). This type of leadership is characterized by the involvement of the whole team in decision making. It implies encouraging people to share ideas ad synthethize information in order to take the best decision. Members are encouraged to express their own opinion within the decisional process but the responsibility for the final decision is assumed by the leader. This is why the employees of such a leader are truly motivated and professionally satisfied by the feeling of control over their work. The drawback of this leadership style is that slows the decisional process as each member of the team is encouraged to express its opinion. The participatory style is less recommended in critical contexts when the rapidity and efficiency of the


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actions are important, for exemple in crisis situations when precious time may be lost for analyzing each member’s opinion. The approach is suitable in the cases where the quality of the work is more important then the rapidity or productivity and when the team work is more value-adding. It is recommended for the teams formed of experimented and professional individuals as it is the style that may best valorize the expertise of such a team-work. Participatory leadership raises the team moral because they have the feeling that their judgement makes the difference.

The transformational leader (4). The leader who applies this style inspires people because he expects that each employee gives his best. He focuses on the team members’ transformation in order to become better. He appreciates initiatives which may bring added value to the organization. The transformational leadership style leads towards productivity and increases engagement of employees. It is known that transformational leaders are experienced and have good knowledge about their activity domain, are energic and don’t avoid taking risks. They dare employees to think on their own, independently. They raise the team members’ moral and motivation, inspiring them to coordinate their personal objectives with the ones the company works for. The disadvantage of this styles is that leaders tend to award insufficient attention to details. Though it is characterized as a very effective leadership style, it is demonstrated that sometimes it must be combined with other styles in order to ensure the process efficiency. (Leban & Zulauf, 2003)

The job oriented leadership style (5). The job oriented leader focuses on determining his team to achieve their objectives. This leader establishes roles, plans, organizes and monitorizes the team activity. The leader makes sure that the performance standards are complied. The main advantage of this style is that it ensures the compliance of deadlines. The job oriented leadership style is recommended for the teams within which the employees don’t have very good abilities of time management. The disadvantage of this style is that people might lower their motivation and interest if their needs are not accordingly attended.

The bootom line of reviewing all these leadership styles is that people act and react in correspondence with the way they are approached. House (1995) considers that professional satisfaction and acceptance of the leader may be achieved only if subordinates perceive the leader’s behaviour as bringing immediate or future satisfaction. House (1995) states the employees will reject the leader’s behaviour that they perceive unnecessary.

2. TRANSACTIONAL AND TRANSFORMATIONAL LEADERSHIP STYLES

The analysis of the previous leadership styles characteristics demonstrate that leaders

present energy, generate ideas, communicate efficiently with others and take command when situations are critical and necessitate coordination. (Brătianu & Anagnoste, 2011) In order to describe if a leadership style is transactional or transformational we should identify each stle particularities. Transactional leadership is defined as the style when the leader acts as agent of change, achieving significant transformation with subordinates, resulting in improved productivity (Bass, 1997). On the other hand, transformational leadership is a model where the leader empowers team members to achieve the vision of the organization, resulting in increased productivity and employee morale, workplace satisfaction and personal and professional growth. (Anagnoste et.al. 2010)

One of the difficulties of transformational leadership is to ensure that it is propagated to the top level of the organization. Bass's research (1997) quotes the conclusions revealed by a lot of studies worldwide, and among them is the fact that transformational leadership has a direct and positive influence on a range of variables such as labor productivity, job satisfaction, and loyalty to the organization and lower stress levels. It is a continuing need to invest seriously in human capital and skills to coordinate those people with leadership roles in the organization, as they are key elements to the success of a business. As this title suggests people may be changed with such leaders. At one extreme you can get to the point where the transformational leader can be considered spiritual mentor and his approach as a complement to education conducted in a direct and active manner in the social or professional life. At the other pole we have leaders who they can


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just manage to convince people that their vision of doing things is the right one and at least for a short time are followed unconditionally. From this perspective transformational leaders are interested in both the objective and the "spirit" of people acting to achieve that objective. (Leban & Zulauf, 2003)

Transformational leadership can be practiced by those who have charisma, by those who have the courage of responsibility, emotional intelligence, empathy, guided by the ideals and values, with the force of persuasion. Warren & Benis (1998) believe that this type of competent leaders has 4 major competences:

-management of attention - draw attention to things that "matter" really have the ability to create and share their vision, charms and spells on those who are led;

-management significance - but do not give explanations of meaning creates the entire organization, gives examples of "how to interpret" information;

-management confidence - I know how to give confidence and gain trust - trust is the "currency" are predictable in expectations and do not change their views overnight.

-self-management - but these leaders know their limits and skills and resources. Transformational leadership is usually analyzed as opposed to transactional leadership,

concerned with the kind of leader who persuades others to act through the provision of immediate gratification and some short-term needs (generally extrinsic). In case that the transformational leader convinces employees to act in a spirit of great ideals, corporate aims, scientific, human, transactional leader is mercantilist type: "if you do something you get something in return." At a first sight some would say there are no major distinctions between transactional leadership and transformational leadership - both terms underscore the "make people follow you based on their intrinsic motivation." Many researchers have used transformational leadership area Multifactor Leadership Questionnaire (MLQ, Bass and Avolio, 1995) to assess leadership styles. The area covered by this resource model ensures that a leader can use to assess the strengths of respondents on leadership. The four elements of transformational leadership described by Bass and Avolio include: Idealized Behaviors (IB) - makes a leader to be respected and trusted; Inspirational Motivation (IM) - the ability to get people to surpass themselves; Intellectual Stimulation (IS) - leaders encourage employees to ask questions and to address

old situations from new perspectives; Individual Assessment (IC) - the concern to listen to the needs and desires of the

subordinate. The description and the representation of transactional and transformationl leadership suggest

very clearly that great results may be obtained when combining the two leadership styles with their best traits.

Figure no.1 - Components of transactional and transformational leadership stlyes.

Source: (http://imagefriend.com/transformational-leadership-theory-burns.shtm)


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There are many requirements that leaders must comply with and most of them are generated by the people they lead. An important aspect is that people will follow a leader who will answer the question "What benefits do I have in your team?". Leaders must maintain a constant communication with the people they lead, because that encourages the development of the organization through innovation, motivating employees and generating ideas; all these three aspects happening simultaneously. (Harms & Crede, 2010)

Leaders also must prepare a group of people from the top management to hand over the key moments in the organization, such as negotiations on behalf of the organization, taking over the position of leadership of the organization, etc. This model is similar to situational leadership (Behling & McFillen, 1996), which stresses that effective leaders change their leadership style depending on the needs of the organization at a time, paying attention to a given situation. Thus, it follows that leadership is not just a way to lead but leadership style is determined by a particular situation. The development of the team impacts the leadership style used by the leader, and this leadership style can be focused more on relationships or tasks. As part of this flexibility, leaders must assess their own reputation by responding to the decisions they take, good or less good. The ability to take risks is an important aspect that differentiates a leader from those subordinated.

In 2004 a Gallup poll conducted on 782 CEOs, reported strengths and weaknesses of leaders, as follows:- strengths: integrity, ability to communicate, reliability, intelligence, business knowledge, leadership and education;- weakneasses: restricted view, failing to understand the team members, the inability to work with others, indecision, lack of initiative, lack of responsibility, lack of integrity. These findings reflect that many of the traits of effective leadership are based on personal characteristics and behavior, along with the ability to relate to others. Leaders must be aware of the areas where they are highly trained, and those which need to be developed or when it is needed to work with someone to fill that void. (Harms & Crede, 2010) If you trust people, then they will grow and will perform. People need to believe that they will be treated fairly, so it must be a degree of confidence in the management process because a correct relationship with employees leads to the success of any organization.

At his stage we may draw the following synthetic conclusions about the transactional and trnsformational leadership styles. We considered summarizing these leadership styles which emerged once with the social, economic and organizational evolution throughout the following ideas: what kind of actions does each one take and what effects it generates.

Table no.1. Comparative features of the transactional and transformational leadership

Source: (http://leadingengineers.org/category/transformational-leadership/)


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Burns (1978) was credited with developing the first transformational leadership model, envisioning the transformational and transactional leadership at opposite ends of the continuum. Several years later Bass (1985) expanded on Burns’ idea by depicting transformational and transactional leadership as complementary, thus augmenting active transactional leadership behavior. There are recognized four components of transformational leadership that confers the status of an organization described by Bass (1995) and resumed by Northouse (2007):

Individualized consideration - the degree to which each leader attended to the needs of his followers. He acts as a mentor or coach and listens to their concerns and needs. Leader offers empathy and support, keeps the open communication and challenges for those they lead.

Intellectual stimulation - the degree to which the leader launches the challenges, risks and asks the team for new ideas. Leaders with this trait stimulate and encourage creativity on those they lead. For such a leader, learning is a value and such situations are happy cases because they offer the opportunity to learn. The subordinates ask questions, reflect on possible answers and then make decisions.

Inspirational motivation - is the degree to which a leader is able to develop a vision that is appealing and inspiring to all who follow him. This type of leader challenges the followers to the high standards inspiring optimism in order to reach those targets. To succeed, those who do so should have a definite purpose and to be motivated.

Role and identification - the highest model of transformational leadership. The leader provides that level of vision and purpose, values and norms that stimulate labor. The leader instills pride and feelings which increase the ability to perform of those who follow him, leading to a situation where most who follow the leader to be included fully in the vision and the mission and carry forward its work even when the leader is not present. Hence the relationship between the emotional intelligence of executives and their leadership practices needs more introspective look and an attempt is made here. Which was proposed by George (2000) that emotional intelligence play a particularly important role in leadership effectives. We consider that emotional intelligence applies in every domain of our life because to know how to work and communicate with people is the ability that no one can lack of. (Roco, 2004)

3. SPECIFIC TRAITS OF THE EMOTIONALLY INTELLIGENT LEADERSHIP

STYLES In this changing environment, leadership is seen by many synonymous with the success of

the organization. Nowadays leaders must be more adaptable in this context of continuous change and uncertainty. Future leaders will have to adapt their leadership style depending on the context, ensuring that results are obtained. Qualities such as self-awareness, empathy, confidence and emotional intelligence will come forward. Additionally to struggle with continuous change, personalities and behavior will determine how successful leaders will be, but as expectations rise, the future leaders will have to earn the right to lead others.

According to Goleman (et.al. 2007), all leaders have a touch of emotional intelligence. He accepts that cognitive intelligence (IQ) and technical skills are important, but stresses that leaders must have an additional factor if they want to perform. His research showed how cognitive skills such as the ability to see the whole picture (big picture) or long-term vision are vital ingredients for effective leadership, however, the third element represented of emotional intelligence is more important for a person who wishes to advance in the hierarchy of the organization. The five concepts of emotional intelligence, which he defined are the self-awareness, moderation, motivation, empathy and social skills. Thus, a leader must take into consideration his personal strengths and style in each of these five areas to understand their levels of emotional intelligence and the others. A good question is why emotional intelligence is needed in leadership. Analyzing theory we concluded that the emotional intelligence of leaders can be best observed at the work place as that is


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the context were its effects may be noticed. Emotional intelligence does not fit the classic historical models of leadership. The latter are usually associated with great figures of military history and conjure up charismatic and sometimes despotic images. However, people often use the same language for leadership today - bold, brave and tough with a strong sense of purpose and resolve. Although some scientists acknowledge that emotional intelligence is as old as time there is still much to be discovered, learned and practiced about it. (Steven, 2009)

Table no. 2 – The influence of emotional intelligence on six leadership styles

Source: (Goleman, 2000, p. 82-83)

Emotional intelligence provides alternatives of leading people through mutual respect which

represents a basic need of today’s employees. Today's workforce does not accept the authoritarian style often adopted by leaders following historical models of leadership. Leadership has had to evolve to match a growing sense of democracy and independence in the workforce. Employees now have far more options and choices than the foot soldiers of yesterday (Reldan & Nadler, 2011)

Several researches discussed the influence of emotional intelligence in terms of four key leadership issues. One issue concerns the role of empathy for leadership. Empathy is shown to be an important variable that is central to both emotional intelligence and leadership emergence. Of all the dimensions of emotional intelligence –empathy is the most easily recognizable. Empathy is particularly important today as a component of leadership for at least three reasons: thea increasing use of teams and teamwork; the rapid pace of globalization; and the growing need to retain talent. Successful leaders have shown in many examples that in crisis moments if you acknowledge your employees’ feelings and thoughts you would anticipate their reactions and decide for the best option. (Humphrey, 2002 – p. 236) Effective leaders manage and steer their own feelings, acknowledge subordinates feelings about their work situation, and intervene effectively to enhance morale. (Cherniss, 2001) Globalization is another reason for the increasing importance of empathy for business leaders. Cross-cultural dialogue can easily lead to misunderstandings. Empathy is the antidote as it makes one hear the message beneath the spoken words. With respect to talent retention it is known that leaders have always needed empathy in order to grow and to keep talented people. Today the stakes are higher because when good employees leave they take away their knowledge and the company’s knowledge. (Humphrey, 2002 – p. 237)

The second issue concerns the relationship of emotions to the leadership process. It is argued that a key leadership function is to manage the emotions of group members, especially with


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regard to feelings related to frustration and optimism. The third issue involves our perceptions about leaders. Leaders' emotional displays are demonstrated to have a larger impact on perceptions of leaders than the content of the leaders' messages, at least in some circumstances. The fourth area involves the relationship between leadership and performance. Leaders' influences upon emotional process variables are found to have a large impact on performance. (Goleman, 2007; Humphrey, 2002) Thus the people’s necessities draw new demands for the leaders. Leaders now need to manage and lead an "empowered" workforce and go beyond the consultative, cooperative and democratic styles of today. These new demands include: Consultation and involvement - leaders still get criticized for not having and communicating a compelling vision and purpose. Autonomy and freedom - leaders are still expected to take full responsibility when things go wrong. Opportunities for growth, challenge and glory - leaders must be on hand to coach and mentor us so that we develop our potential. Inclusion and team spirit - we still want our leaders to give us individual recognition and acknowledgement. However, there are not enough talented (ie: super-human) individuals who can meet all these demands. Emotional intelligence can become a multiplier factor of the revenue of a company with millions of dollars. But, as the emotional qualities create a precise value added, their deficit has a high price. According to the analysis, a company’s climate, how people feel, is responsible for 20% -30% of the business performances of the company concerned. And the climate is determined at a rate of 50% -70% by one person: the leader is the one who creates the conditions that lead directly to people's ability to work with gain. (Reldan & Nadler, 2011, P 51-53)

A dramatic question would be wether emotional intelligence represents the „sine qua non” of leadership or it is just a false issue. Whereas academics still debate over the relevance of emotional intelligence for the performance of leadership, for understanding workers behavior and effectivenes, the practitioners are real supporters of the role that emotional intelligence plays for leadership. Many researches and especially Goleman’s works argue the role of developing specific features of the emotional intelligence of leaders, of teams and organizations. (Goleman, 2007)

4. CONCLUDING IDEAS Within this paper we argued that the values of an organization are found within the humans

in that organization. An organization with strong values attracts more easily talented staff and will be able to keep them on a long term. Productivity is higher when the organization's values overlap with the values of individuals, thus prompting them to become better representatives of those organizations. Also, the organization will be better at managing differences of opinion within it, and this is extremely important for a large organization.

Reffering to the leadership debate – we consider that the leadership style is closely related to the stability of employees in the workplace and job satisfaction. The effect targeted by leaders is to obtain the desired results from their employees. This goal may be achieved through different leadership approaches and we emphasized various situations in this regard. The effectiveness and the degree of involvement depend on the management of relationships between employees. The availability of employees to engage in other roles or new tasks increases along with their satisfaction towards the management and leaders. By practicing, for example, a transformational leadership, the manager becomes a binder of relations between members and between them and the management. Within the sections of this paper we focused on presenting the distinct effects that each leadership style generates towards the employees perspective and the organizational performance. Recently scientists (George, 2000) have reached to argue about an idealistic and complex style of leadership – the authentic leadership. According to this new hypothesis authentic leadership


144

bases on the ideas of trust and transparency which are essential when people work together and have to rely on each other. George (2000) articulated that authentic leaders know with a high degree of confidence that they are contributing to others’ success, not just their own.

The emotional intelligence level helps leaders to think positive in their attitude which in turn makes them to feel comfortable with their work relationships. It is concluded that the emotional intelligence of executives has a significant relationship with their leadership practices. (Anand & UdayaSuriyan, 2010)

There are many leadership styles which are positively influenced by emotional intelligence like: the visionary, the affilliative, the democratic and the coaching. Thus managers have a wide range or alternatives to choose from which style is the most appropriate for his/her own personality, for his/her employees and for the respective context. Managers should acknowledge that they have to change something in their style if they want to obtain better results from the collaboration with their employees and thus to increase the performance of the organization. What they need to do is to get aware of their own personality and actual managing style, to study what other alternatives might offer better results and to decide for the most appropriate to the given context.

Throughout this paper we presented a variety of interdependencies and connections between the emotional intelligence’s dimensions and different leadership styles. We presented a selection of conceptual approaches and practice evidences regarding the relevance, the reflection and the impact of certain emotional intelligence skills of leaders in the knowledge economy. Throughout the paper we described the most relevant aspects/layers of the emotional intelligence and the way they may lead to positive or negative results for leaders. REFERENCES

1. Anagnoste, S., Agoston, S., Puia, R. (2010) Transformational leadership as a tool of knowledge dynamics, In: Proceedings of the 2nd European Conference on Intellectual Capital, ISCTE Lisbon University Institute, Lisbon, Portugal, 29-30 March 2010, pp.54-58, ISBN: 978-1-906638-58-0

2. Anagnoste, S. et. al. (2009) Transformational leadership as a tool of knowledge dynamics, The Proceedings of the 2nd European Conference on Intellectual Capital, Lisbon, Portugal, pp. 54-58

3. Anand, R. & UdayaSuriyan, G. (2010) Emotional Intelligence and Its Relationship with Leadership Practices, International Journal of Business and Management, vol. 5, no.2, pp.65-76

4. Bar-On, R. (1997) The emotional quotient inventory (EQ-i): a test of emotional intelligence, Multi-Health Systems, Toronto

5. Bass, B.M. (1985) Leadership and Performance beyond Expectations, New York: Free – Press

6. Bass, B.M. and Avolio (1995) Individual consideration viewed at multiple levels of analysis: A multi-level framework for examining the diffusion of transformational leadership, The Leadership Quarterly, Vol. 6, No. 2, pp 199-218

7. Bass, B. (1997) Does the transactional-transformational leadership paradigm transcend organizational and national boundaries? American Psychologist, 52, 130-139

8. Behling, O., & McFillen, J. M. (1996) A syncretical model of charismatic/transformational leadership, Group & Organizational Management, 2, 163-191

9. Bennis, W. (1989) On becoming a leader, Reading, MA: Addison-Wesley Publishing Company Inc.

10. Bratianu, C. & Anagnoste, S. (2011) The role of transformational leadership in merges and acquisitions in mergent economies, Management & Marketing, Challenges for the Knowledge Society, (2011) Vol. 6, No. 2, pp. 319-326

11. Burns, J.M. (1978) Leadership (1st Ed), New York: Harper & Row


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12. Cherniss, C. (2001) Emotional intelligence & organizational effectiveness, in. C. Cherniss & D. Goleman (Eds), The emotionally inteligent workplace (pp. 1-12) San Francisco: Jossey-Bass

13. George, J.M. (2000) Emotions and Leadership: The role of emotional intelligence, Human Relations, 53(8), 1027-1055

14. Goleman, D. (2000) Leadership that gets to results Harvard Business Review, March-April 2000

15. Goleman, D., McKee, A. & Boyatzis, R. (2007) Emotional intelligence in leadership, Curtea Veche, Bucharest, pp.319

16. Guillen, L. & Florent-Treacy (2011) Emotional intelligence in leadership effectiveness: the mediating influence of collaborative behaviors, sent for review to Journal of Organizational Behavior, February 2011

17. Harms, P.D. & Crede, M. (2010) Emotional Intelligence and Transformational and Transactional, Leadership: A Meta-Analysis, Journal of Leadership & Organizational Studies, 17(1) 5–17 © Baker College 2010

18. House, R. & Klein, K.J. (1995) On fire: charismatic leadership and levels of analysis, Leadership Quarterly, 6(2), 183-198

19. Humphrey, H.R. (2002) The many faces of emotional leadership, The Leadership Quarterly, Volume 13, Issue 5, October 2002, Pages 493–504

20. Leban & Zulauf, (2003) Linking emotional intelligence abilities and transformational leadership styles, The Leadership & Organization Development Journal, Vol. 25, No. 7, pp. 554-564

21. Nordin, N. (2012) Assessing Emotional Intelligence, Leadership Behaviour and Organizational Commitment in a Higher Learning Institution, Procedia - Social and Behavioral Sciences, No. 56, pp. 643 – 651

22. Northouse, P.G. (2007) Leadership. Theory and Practice, 4th Edition, SAGE Publications, London

23. Pastor, I. (2014) Leadership and emotional intelligence: the effect on performance and attitude, Procedia Economics and Finance 15, 985 – 992

24. Roco, Mihaela (2004) Creativity and emotional intelligence, (Creativitate si inteligenta emotionala), PH Polirom, pg 179

25. Steven, J. Stein & Howard, D. (2009) The force of emotional intelligence, (Forta inteligentei emotionale), PH Alfa, pg 15

26. Stone, Russel & Paterson (2003) Transformational versus Servant Leadership: A Difference in Leader Focus, A Difference in Leader Focus, http://www.regent.edu/acad/sls/publications/ conference_proceedings/servant_leadership_roundtable/2003pdf/stone_transformation_versus.pdf

27. Zlate, M. (2004) Leadership and management, PH Polirom, Iasi pp. 177

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

146

SECTION 3

ACCOUNTING – FINANCES

The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

147

POLICIES AND PRACTICES FOR IMPLEMENTATION OF IFRS

AND NAS IN THE REPUBLIC OF MOLDOVA

LicaERHAN

AcademyofEconomicStudiesofMoldova,FacultyofAccounting,AccountingDepartment

[email protected]

MarianSOCOLIUCStefancelMareUniversityofSuceava,Romania,

FacultyofEconomicStudyandPublicadministration;Accounting,FinanceandEconomicInformaticsDepartment

[email protected]

SvetlanaMIHAILAAcademyofEconomicStudiesofMoldova,

FacultyofAccounting,[email protected]

VeronicaGROSU

StefancelMareUniversityofSuceava,Romania,FacultyofEconomicStudyandPublicadministration;Accounting,

[email protected]

Abstract: This study aims to analyse the process of harmonization of national accounting standards of the Republic of

Moldova to the international standards. It highlights the main advantages, disadvantages, risks and opportunities regarding the implementation of the new standards. A major step for the Republic of Moldova was the implementation of IFRS, which has become mandatory for all public interest entities from 1 January 2012 and the adoption of new NAS in accordance with EU Directives and IFRS for small and medium-sized entities, for which the transition to IFRS was difficult due to high costs involved. The new NAS came into force on 1 January 2014 as a recommendation, but starting with 1st January 2015 it will be mandatory for all entities. The paper includes a practical analysis of the impact of transition to IFRS on the financial results of a public interest entity- Moldova Agroindbank, which is the largest commercial bank, with the highest market share in the banking sector of the Republic of Moldova. A result of the analysis of primary and secondary indicators calculated on the base of the financial statements prepared by commercial bank at 31.12.11, we found that the transition to IFRS has resulted in the growth of all financial indicators.

Key words: Financial reporting, financial statements, IFRS, NAS, financial indicators JEL classification: M41

1. INTRODUCTION

Thus, it led to the increase of the bank assets, liabilities, equity value and obligations. Under IFRS, the weight of equity in total bank liabilities has increased, but the weight of obligations has decreased. Implementation of IFRS resulted in the increase of the net profit, which contributed to strengthen the stability of the bank on the market. Simultaneously, the liquidity ratio, solvency and global financial autonomy rate have increased and indebtedness has decreased which is considered positive. By the light of the analysis of the impact of transition to IFRS can be concluded that the connection to the new standards had a beneficial impact on the bank, maximizing its market value, increasing investors, customers, business partners’ confidence and contributing to the reduction of risks.


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2. OVERALL ASSESSMENT OF THE INTERNATIONAL FINANCIAL REPORTING FRAMEWORK

International Financial Reporting Standards are a set of accounting standards issued by the International Accounting Standards Board (IASB). IASB was established in 1973 by professional accountancy bodies from nine countries (Germany, Australia, Canada, USA, France, Japan, Mexico, the Netherlands and the UK) for the purpose of issuing accounting standards to be used for the preparation and presentation of financial statements and promote their acceptance and implementation worldwide. IFRS are considered to be a set of standards that establish general rules, but also require some specific treatments. International Standards in their evolutionary process, involve two types of standards:

1. International Financial Reporting Standards (IFRS) - standards issued after 2001; 2. International Accounting Standards (IAS) - standards issued before 2001. Application of IFRS around the world involves common accounting principles valid in all

the countries of the world, facilitating the development of international relations between states and ensuring comparability of accounting data, minimizing costs of information systematization and ensuring the transparency of local business environment.

Currently, IFRS is applied in many countries of the world, like: EU Member States, Hong Kong, Australia, Russia, South Africa, Singapore, Pakistan, Brazil, Chile, Costa Rica, Guatemala, Mongolia, Namibia, Panama, Venezuela, Kazakhstan, Tajikistan, Georgia, Belarus, the Baltic States and other 100 countries promote a policy of convergence to them.

The banking sector of the Ukraine adopted IFRS from 1998. IFRS is applied in Uzbekistan since 2002, and in Azerbaijan - since 2006. Russian banks have implemented IFRS from 1 January 2004. IFRS are longer applied in Armenia, Kazakhstan, Kirghizstan, Tajikistan, Georgia, Belarus, the Baltic States, etc.

According to European Directive from 2002, listed companies on European stock exchanges were required to present consolidated financial statements according to IFRS since 1 January 2005. All the neighbouring countries of Western Europe, including Romania, began the transition to international standards since 2005, these changes being perceived as a part of the process of European integration.

3. THE GENERAL CONDITIONS OF IMPLEMENTATION THE IFRS IN THE

REPUBLIC OF MOLDOVA

Since the entry into force on 1 January 2008 of the Accounting Law no.113-XVI, in the Republic of Moldova many changes have occurred on the connection of the national accounting standards to the international ones. A special place in this law lies on the subject related on the application of International Financial Reporting Standards - IFRS, according to EU Directives. According to the new law, all public interest entities (financial institutions, investment funds, insurance companies, non-state pension funds, joint stock companies that are listed on the Stock Exchange of the Republic of Moldova) were obligated to apply international financial reporting standards IFRS since 1 January 2012. In this way, about one hundred of Moldovan companies have complied with this law. As concerns, for small and medium enterprises sector, the accounting reform has undergone a longer and more difficult way. So, till 1 January 2014 there were developed the new NAS that meet international standards requirements and EU Directives, which became mandatory for the small and medium-sized entities, replacing the existing ones. Initially, the transition to the new NAS was established on 1 January 2014, but later it was extended till 1 January 2015 because of the expert accountants’ adaption to new requirements and standards.

The need to meet the requirements of the global economy dictates the passing of the Moldavian entities to a financial reporting in accordance with International Financial Reporting Standards (IFRS). Implementation of IFRS in the country was a difficult process, but also a necessary one, its main objective being both the increase of financial reports transparency and


149

reliability, within the country for shareholders, state authorities, as well as externally, among investors and international financial organizations.

According to article 3 paragraphs (1) of the Law on Accounting (Accounting Law, no.133-XVI of 27.04.2007), IFRS are standards and interpretations issued by the International Accounting Standards Board (IASB), which are valid in Moldova after their acceptance by the Government. These standards include International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and Interpretations on the application of these standards. On September 1st, 2013, in the Republic of Moldova were available 13 IFRS, 28 IAS, 16 IFRIC Interpretations and 8 IAS Interpretations (Nederiță, 2013, p.7). Thus, in 2013, in the country were accepted additionally 5 IFRS: IFRS 9 "Financial Instruments", IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements", IFRS 12 "Disclosure of interests in other entities" and IFRS 13 "Fair Value Measurement" (www.mf.gov.md). There were also withdrawn IAS 31 "Interests in Joint Ventures", which was replaced by IFRS 11 "Joint Arrangements" and 5 interpretations (IFRIC 8, IFRIC 11, IAS 12, IAS 13, IAS 21) (Nederiță, 2013, p.8).

IFRS 13 "Fair Value Measurement" is a relatively new standard, which started its applicability from 1 January 2013. The purpose of this standard is to strengthen guidance on the use of the fair value term. It does not introduce new requirements regarding its necessity, but it only provides a single source of fair value measurement, that must be used every time when the fair value is required or permitted in other IFRSs.

With the implementation of international financial reporting standards and new NAS in the Republic of Moldova, a wider approach lies on the concept of fair value, which is a mix of three measurement bases used extensively in the period before the adoption of international standards : current value, realizable value, present value. Fair value is a relatively new concept, but extremely necessary, because it relies on entity’s, external information, which it cannot influence in any way (Grigoroi, Bunget, 2012, pp.132-137).

According to IFRS, the fair value is the activity of the evaluators, who believe that the fair value is nothing else than the market value of assets. Fair value is the amount for which an asset could be exchanged or a liability can be settled between stakeholders. Therefore, the concept of fair value is a challenge, but also a premise of value in the context of transition to international standards.

In some cases, however, the consideration given or received (or face value) may not necessarily be the fair value of the financial instrument. For example, the fair value of long-term receivables bearing no interest is not equal to its nominal value and, therefore, a part of the consideration received is different than its fair value. Whereas the receivable should be initially registered at the fair value, this value must be estimated. The fair value of the instrument can be highlighted in comparison with other transactions that may be currently observed on the market in connection with the same instrument or based on a valuation technique that includes only data from observable markets. For a loan or receivable free of declared interest, the fair value is identified using the discounted cash flow technique. However, the standard allows that short-term receivables and debts to be assessed at original invoice amount, when the effect of updating/discounting is insignificant.

The adherence of the Republic of Moldova to the International Standards is quite difficult but also very necessary.

The main difficulties faced by the Republic of Moldova in the context of transition from the national accounting standards to international ones are: insufficient staff qualification; high costs related to the implementation of IFRS (IT, training, etc.); lack of transparency in the local business environment; fiscal instability caused by frequent legislative changes; the difficulty to perceive the essence of IFRS at the initial stage of implementation; the limits imposed by the existence of outdated IT systems.

The main problems in the implementation of IFRS in the Republic of Moldova are as follows:


150

About 98% of the RM entities are SMEs for which the implementation of IFRS is expensive;

Insufficient financial resources deriving from the high costs related to the transition to IFRS and accounting reform;

Educational materials do not comply with IFRSs, and the curriculum do not provide adequate training of future specialists in accounting field;

Low level of training in accounting field, of the public officials, that belong to the tax and legal system;

Contradictions between Romanian and Russian translation version of IFRS. However, the connection to international standards ensures to the Republic of Moldova

several advantages, including: increasing transparency of local business environment, of foreign investments; ensuring the comparability of accounting information worldwide; reduction of corruption and accounting or fiscal fraud; decrease financial reporting costs; development of internal and external control system; Increase the number of specialists; development of international relations between Moldova and other countries; increasing the competitiveness and investment attractiveness of the Republic of Moldova companies, that would be internationally listed; increasing the confidence in the financial reporting in the Republic of Moldova; modernizing the educational system and its adaptation to international requirements; capital market development in the Republic of Moldova; easier way to identify the entity’s financial problems and to take measures to combat them; attraction of external funding for developing accounting regulatory framework.

The harmonization of the accounting system regulatory framework in accordance with the requirements of IFRS will create a unique accounting system available internationally. As a result, it will be possible to strengthen the financial statements for multinational companies and the confidence of potential foreign investors. IFRS ensure a greater transparency in financial reporting, but also a better understanding of the financial performance of the reporting entities, increasing the national entities access to international financial markets.

With the adoption of a common accounting system of terms accepted globally, that will allow to perceive correctly the reports, there will be promoted and active developed the capital markets.

However, implementation of IFRS will reduce costs of financial reporting and external audit, eliminating the need for multiple sets of preparation of financial reports. And last but not least, the implementation of IFRS facilitates the economic integration of our country in the European Union.

IFRS is not just a pretty innovative approach of financial reporting, balancing between the desire to optimize costs used in your own business and the desire to maximize profits by dishonest optimization, but also a way to check their good implementation. Respectively, with the implementation of new standards by public interest entities (since 2012), several problems were identified both in terms of financial accounting and tax record level, which need to be resolved.

The main disadvantages regarding the implementation of IFRS are as follows: insufficient resources; the risk that the specialists won’t understand the essence of the accounting reform; the possibility of allocating the financial resources in other purposes than those originally set.

However, the transition to IFRS mainly produces positive effects on the local business environment. Thus, implementation costs are insignificant, compared to the benefits of implementing IFRS, the main costs involving personnel training and provision of information systems.

By analysing the information included in Tab. 1, it can be noticed that budgetary funds were insufficient to reform the financial reporting regulatory framework, covering only a small part of the expenses related to improving the financial reporting regulatory framework and strengthening the key institutions responsible for financial reporting. All the other costs were covered using in this sense the external funds, like subsidies given to the Republic of Moldova by the other countries, in order to encourage the adoption and implementation of the new standards.


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Table. 1. The costs needed to adapt the national financial reporting framework to the

international one

Therefore, although expensive and difficult, the process of reforming the financial reporting

regulatory framework was an important step in harmonizing the economic relations between the Republic of Moldova and other countries, in attracting the foreign investments, in capital market development and also for improving local business competitiveness on the international market. For a more precise identification of strengths, weaknesses, opportunities and risks that characterized the economic and financial situation of the Republic of Moldova during the period of implementation of international standards, in Tab. 2 it is represented the SWOT analysis matrix of this evolutionary process.

Table 2. SWOT analysis matrix regarding the process of harmonization of national

accounting system to international standards requirements The accounting framework reforming process in the Republic of Moldova

Strengths Weaknesses The approval of the Accounting Law, that meets the

international requirements Shortage of resources, educational materials,

specialists The existence of international companies designed to

train specialists in the field of the new way of accounting regulation - ACCA, ACAP RM

Insufficient financial resources

Costs, MDL/EURO

National priorities

Consulting, developing,

implementing MDL/EURO

Training MDL/EUR

O

IT equipment MDL/EU

RO

Managerial Expenses

MDL/EURO

Total MDL/EU

RO

including

external funds

budgetary

funds Improving the

financial reporting regulatory framework

28 838 278/

0 0

28 838 278/

27 866 478/

971 800/

2 059 877 2 059 877 1 990 462 69 415

Strengthening the main

institutions responsible for

financial reporting

5 686 422/ 1 123 458/ 22 469 132/

29 279 012/

28 626 812/

652 200/

406 173 80 247 1 604 938 2 091 358 2 044 772 46 586

Supporting the auditor

profession

1 555 554/ 0

216 048/

1 771 602/ 1 771 602/ -

111 111 15 432 126 543 126 543

Modernising the education, professional training and informating the public

3 041 976/ 6 222 216/

0

9 264 192/ 9 264 192/

- 217 284 444 444 661 728 661 728

Project management

for implementing

the Plan

0 0

190 120/ 4 650 590/ 4 840 710/ 4 840 710/

- 13 580 332 185 345 765 345 765

Total cost 39 122 230/ 7 345 674/

22 875 300/

4 650 590/ 73 993 794/

72 369 794/

1 624 000/

2 794 445 524 691 1 633 950 332 185 5 285 271 5 169 270 116 001


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Framing the higher education institutions in the Bologna process

Outdated IT systems

Partial subsidizing the costs of transition to IFRS for companies with Moldovan capital

High costs for accomplishing the accounting reform

In RM two main programs of training and certification of accountants are applied: Certified

Accounting Practitioner (CAP)/ Certified International Professional Accountant (CIPA) and

Accountant Certified by the Association of Chartered Certified Accountants (ACCA). According to these

programs, there are 218 accountants possessing international certificates, including 193 – CAP, 7 -

CIPA and 18 - ACCA.

The existence of NAS and other outdated and incomplete laws

Non-compliance of educational materials with the international requirements

Preparation the financial statements according to printed forms, which include a large amount of

information, but do not convey enough the entity's real financial situation.

Opportunities Risks Developing the international relations with other

states The difficulty, for some accountants or audit

organizations to understand the need and essence of accounting and auditing reform

Increasing the investment competitiveness and attractiveness of the companies from the Republic of

Moldova, by ensuring transparency of the local business environment

Managerial and organizational imperfection of the institutions involved in improving accounting and

auditing framework

The reduction of undetected tax fraud The absence or reduction of necessary external funds The comparability of accounting information,

internationally

Increase public awareness Decreasing the influence of shadow economy by

combating illegal transactions and corruption.

Source: Government decision Nr. 1507 from 31.12.2008 regarding the approval of the Action Plan in the domain of accounting and auditing for the corporative sector for 2009-2014.

Since 1 January 2012, all public interest entities were required to apply IFRS, but

nevertheless, 98% of companies from the Republic of Moldova are small and medium sized entities (Fig.1) for which, reporting according to IFRS provisions is difficult and expensive.

SMEs98%

Large Entreprises

2%

Total Entities in the Republic of Moldova, 2

SM

Figure 1 - Total Entities in Republic of Moldova, 2014

In this way, during the years 2009-2013, 16 new NAS were developed, and starting with 1

January 2014 they have replaced the existing ones, as well as the comments on their application which, starting with 1 January 2015 will be repealed. The new NAS are based on EU Directives and IFRS, their content being in compliance with international accounting rules. They will not extend the action on public interest entities that have already adopted IFRS (you can see in the Tab.3 the total number of corporate entities on 1 January 2012). Compared to the existing NAS and IFRS, the new NAS do not contain accounting valuation methods.


153

Table 3. The number of corporate entities by major sectors on 1 January 2012

Sector Number of

registered entities Number of

active entities Total assets, million MDL

% of assets

Public interest entities 45 42 53 698 17 Banks (all corp.) of which 14 14 49 489 15

Listed 7 7 37 038 11

Insurance companies, of which 24 24 2 198 1

Corp. 9 9 916 0 LLC 15 15 1 282 0

Pension funds 3 - - - Listed companies (all corp.)

other than banks 4 4 2 011 1

State-owned entities 390 326 32 200 10 State enterprises 274 233 16 900 5

Joint stock companies owned by the state

116 93 15 300 5

Other entities 154 063 48 558 237 306 73 Other corp. 4 532 1 693 12 923 4 Other LLC 75 934 37 494 150 033 46

Co-operative entrepreneurship 3 971 1 235 189 0

Savings and credit associations and microfinance institutions

436 399 2 145 1

Others 69 190 7 737 72 016 22 Total 154 498 48 926 323 204 100

In essence, the nonbanking financial sector from the Republic of Moldova is governed by

the insurance sector regulated by the National Commission for Financial Markets, Savings and Credit Associations (SCAs), Leasing Companies and Microfinance Institutions. In 1 January 2013 the number of insurance companies decreased to 17 because their licenses have been withdrawn or have expired (see the financial reporting requirements in Tab.4).

SMEs play an important role in Moldova's economy. 98% of businesses are SMEs, which concentrate about 58% of the workforce and generate 35% of economy’s income.

Table 4. Financial reporting requirements for Moldovan companies Entities Accounting Standards Audit requirements

Public Interest Entities IFRS Required

Limited liability companies NAS or IFRS voluntary Not required

Joint Stock Companies NAS or IFRS voluntary

Required for JSCs that meet the criteria set out in Article 2 of the Law on JSCs. (except PIE)

State-owned entities NAS or IFRS Not required for state enterprises; for

JSC – the same rules above.

Savings and Credit Associations (SCAs)

NAS 63 Unfolding information in financial reporting of savings-loans associations and another analogical

enterprises

Required for SCAs having C or B licence that exceed a certain value of

assets.

Non-profit organizations NAS and The Rules approved by

the Ministry of Finance of Republic of Moldova

Not required

Micro entities SNC 62 Simple discount system.

The preparation of financial reports is not required.

Not applied

Source: developed by authors based on the Observance of Standards and Codes on Accounting and Auditing in the

Republic of Moldova (Report regarding the compliance of the Standards and Codes, Accounting and Auditing, Moldova, June 2013, pp.18)


154

The new NAS and other accounting regulations have been developed over the years 2009-2013 by the working groups set up under the Ministry of Finance. Their content generally corresponds, to the provisions of the EU Directives and International Financial Reporting Standards (IFRS). The same time, when developing the regulations mentioned above, it was considered the current legislation requirements, the current level of local entities economic development as well as the experience of other countries such as Croatia, Estonia, Kazakhstan, Romania, Slovakia and others (Nederiță, 2013, p.1).

Compared with IFRS, the new NAS do not include alternative methods of recognition and valuation the accounting elements. For example, according to NAS „Intangible and Tangible Assets” the further evaluation of these assets is recommended to be carried out only by basing on their accounting value model. However, in accordance with the accounting policies, an entity may apply the revaluated value model, regarding the nominated assets, under the provisions of relevant IFRS (Nederiță, 2013, p.2).

Unlike IFRS, NAS and other accounting regulations provisions are presented into a simpler and more accessible way for the practitioner accountants. Except this, the above-mentioned documents contain practical examples and explanations regarding the accounting elements registration, which facilitates their practice use (Nederiță, 2013, p.3).

The new NAS and accounting regulations are compulsory for all double entry bookkeeping entities, except entities applying IFRS and public institutions. The new regulations correspond to EU Directives and IFRS provisions, revealing terms that significantly differ from both the concepts contained in the NAS and other existing accounting regulations.

The new NAS were prepared either with the purpose of improving the existing ones, or in order to add and implement something new. Thus, all 16 new NAS elaborated as well as the methodical guidelines, in line with existing NAS that are going to be substituted by them are indicated in Tab. 5. On 01.01.2014, the new NAS came into force as recommendation, but starting with 01.01.2015, it will be mandatory for all entities in the SME sector.

Table 5. The classification of the new and existing accounting regulations

New NAS Existing NAS that are going to be substituted NAS „Presentation of Financial

Statements” NAS 4 „Special features of discount at the enterprises of small

business”, NAS 5 „Presentation of financial reports”, NAS 7„Report on money circulation”, Comments on the application of NAS 7

NAS „Accounting Policies, Changes in Accounting Estimates, Errors and

Subsequent Events”

NAS 1 „Record policy”, NAS 8„Clear profit (dead loss) of reporting period, significant mistakes and changing record policy”, NAS 10 „Events happening after the date of making up financial report”,

Comments on the application of NAS 1 NAS „ Intangible and Tangible

Assets” NAS 13 „Non-material assets discount”, NAS 9 „Discount of

expenditure on research work”, NAS 16 „Long-term material assets discount”, Comments on the application of NAS 13 and NAS 16

NAS „ Investment Property” It has no analogue NAS „Leases ” NAS 17 „Leasing discount”

NAS „ Impairment of Assets” It has no analogue NAS „ Receivables and financial

investments” NAS 25 „Investments discount”, Comments on the application of NAS

25 NAS „Inventories” NAS 2 „Commodity-material stores”

NAS „Equity and liabilities” NAS 20 „Discount of subsidies and unfolding information about state aid”, NAS 26 „Pension plans discount”

NAS „Income” NAS 18 „Income”, Comments on the application of NAS 18 NAS „Expenses” NAS 3 „Composition of outlay and expenditure of the enterprise”

NAS „Building contracts” NAS 11 „Building contract”, Comments on the application of NAS 11 NAS „ Borrowing Costs” NAS 23 „Expenditure on loans”, Comments on the application of NAS

23 NAS „Course of Exchange and

amount differences” NAS 21 „Consequences of changing the course of exchange”

NAS „Connected sides and civil contracts”

NAS 24 „Connected sides information unfolding”, NAS 31 „Reflection share of taking part in joint control business activities in

financial reports”, Comments on the application of NAS 24


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NAS „Accounting in agricultural enterprises”

NAS 6 „Special features of discount at the agricultural enterprises”

Methodical indications regarding the production costs accounting and the

calculation of the products and services cost

NAS 3 „ Composition of outlay and expenditure of the enterprise”

Methodical indications regarding the accounting for the individuals operating business activities

NAS 62 „Simple discount system”

General plan of accounts Plan of accounts of the enterprise’s economical and financial activities Source: developed by authors based on the data from the fiscal Monitor from the Republic of Moldova (Nederiță, 2013,

pp.5-6). All these new National Accounting Standards and methodical indications have been

approved and entered into force on 1 January 2014, by publishing them in the Official Monitor of the Republic of Moldova and on the official website of the Ministry of Finance. National Accounting Standards and methodical indications listed above shall be applied by entities starting with 1 January 2014 as a recommendation, but starting with 1 January 2015 it will become mandatory for all the SMEs, when the NAS, Comments on the application of National Accounting Standards (CNAS) and conceptual Basis of preparation and presentation of financial statements will be repealed. Note that, additionally to the standards shown in Tab. 5, another standard that remained in force is NAS 63 " Unfolding information in financial reporting of savings-loans associations and another analogical enterprises" that will be used until the drafting of a new standard designed to replace it.

In Tab. 6 are revealed some parameters of generalization of the information regarding the accounting regulatory framework in the Republic of Moldova.

Table 6. General aspects regarding the financial reporting in the Republic of Moldova Requirements for IFRS adoption in the Republic of Moldova

Who currently applies IFRS in the Republic of Moldova?

Public interest entities

Is the IFRS application required or permitted? IFRS are required for all public interest entities, since 01.01.2012.

IFRS are permitted for the other entities, including the SMEs.

For instance, are IFRS required or permitted for companies whose securities do not trade in a public

market?

IFRS are required for all public interest entities even if their securities do not trade in a public market. Public

interest entities are financial entities, investment funds, insurance companies, private pension funds, joint stock

companies that are listed on the Stock Exchange of Moldova and entities whose shares are not listed on the

Stock Exchange. IFRS are permitted for other entities whose securities

do not trade in a public market. Alternatively, the other entities whose securities do not trade in a public market

may use Moldovan National Accounting Standards. Translation of IFRS

Are IFRS translated into the local language? In the Republic of Moldova IFRSs are translated. The Romanian translation is used.

If IFRSs are translated, what is the translation process? In particular, does this process ensure an ongoing translation of the latest updates to IFRS?

The Romanian translation is prepared under the direction of the IFRS Foundation, and the standards,

with the latest changes made are published on the official website of the Ministry of Finance of the

Republic of Moldova. Application of the IFRS for SMEs

Has the jurisdiction adopted the IFRS for SMEs for at least some SMEs?

No

If no, is the adoption of the IFRS for SMEs under consideration?

No, because at this stage were developed the new NAS, under which all SMEs are obligated to report


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since 01.01.2014, or no later than 01.01.2015. Source: developed by authors based on IFRS APPLICATION AROUND THE WORLD (Moldova) (www.ifrs.org.)

4. STUDY ON THE APPLICATION OF IFRS IN THE REPUBLIC OF MOLDOVA

BY PUBLIC INTEREST ENTITIES

According to the Report on the Observance of Standards and Codes on Accounting and Auditing in Moldova (A&A ROSC), report implemented by the World Bank and the International Monetary Fund, where is presented the evaluation of the accounting and auditing practices, currently, in the Republic of Moldova there are 45 public interest entities and approximately 50,000 active entities. A total of 569 entities are required to audit their financial statements. This figure consists of 524 joint stock companies and all the public interest entities (Report concerning compliance of Standards and Codes, 2013, p.16).

MOLDOVA AGROINDBANK is an example of a lending financial institution from the Republic of Moldova that annually prepares and submits consolidated financial statements according to the provisions of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

The financial statements are prepared in Moldovan Lei (MDL). These financial statements are prepared under the historical cost convention, excepting the securities held for trading which were estimated at fair value, as well as buildings and grounds.

MOLDOVA AGROINDBANK prepares the financial statements according to the following basic principles: continuity of activity, accrual accounting, assets and liabilities separation, consistency.

The consolidated financial statements include the financial statements of Moldova Agroindbank and subsidiaries - MAIB Leasing and MoldMediaCard LLC – on 31 December every year. The consolidated financial statements include the following types of reports:

1. Consolidated statement of the financial position; 2. Consolidated statement of the global outcome; 3. Consolidated statement of changes in equity; 4. Consolidated statement of cash-flows. Additionally, financial statements prepared in accordance with International Financial

Reporting Standards include notes to the financial statements and independent auditor's report, which is mandatory. Below, a model of financial reporting in Moldova Agroindbank is presented in accordance with the provisions of both IFRS and NAS, by realizing a comparative analysis of the registered outcome.

5. COMPARATIVE ANALYSIS OF THE INDICATORS IN THE FINANCIAL

REPORT OF MOLDOVA AGROINDBANK, PREPARED UNDER NAS AND IFRS PROVISIONS, 31.12.11

5.1 Consolidated statement of the financial position (Balance Sheet), 31.12.11

In the process of analysing the results from the table above, there is a tendency to increase

the total value of bank assets, as well as the total banking liabilities (total debts and equity) if reporting under IFRS provisions. In this case, when reporting under NAS provisions their value is 9.201.531 thousand lei but when reporting under IFRS – 9.617.713 thousand lei, that is 416.182.000 lei more.

To study deeper the incidence of reporting under IFRS provisions, in the table below, there is presented the liabilities weight and, respectively, the equity weight in the total bank liabilities.


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Table 7. The comparison between the economic and financial indicators according NAS and

IFRS NAS IFRS

Indicator Amount, thousand lei

Indicator Amount, thousand lei

Total Assets 9201531 Total Assets 9617713 Total Debts 7439194 Total Debts 7624404 Total Equity 1762337 Total Equity 1993309

Total Debts and Equity 9201531 Total Debts and Equity

9617713

The analysis of data presented in the table above reveals that when reporting according to

IFRS, equity’s weight in total liabilities (about 21%) is higher than when reporting under NAS, when its weight in total bank liabilities constitutes about 19%. In the same context, the weight of debts when reporting under IFRS tends to be lower than under NAS, constituting, respectively, 79% and 81%. Therefore, it can be easily noted that, under IFRS provisions, there is a tendency to increase the capital’s weight in total bank liabilities and to decrease the weight of debts, unlike the reporting under NAS.

A more detailed representation of this information is given in Fig. 2 and Fig.3 below.

Figure 2 - The weight of debts and equity in the total banking liabilities, according to IFRS

Figure 3 - The weight of debts and equity in the total banking liabilities, according to NAS

5.2. Consolidated statement of the global outcome (Profit and Loss Report), 31.12.11

Analysing the data presented in the table above it can be noted that the net profit of Moldova

Agroindbank at 31.12.12 is higher in the case of preparation the financial statements according to IFRS requirements, representing 290.802.000 lei. At the same time, the net profit obtained by the bank when reporting under NAS provisions constituted 282.362.000 lei, which are 8.440.000 lei less. Also when reporting as required by IFRS, the net income before tax is higher than that obtained when reporting under NAS requirements. Therefore, the adoption of the international


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standards by the bank led to the increase of the income before tax (Tab. 8). Nevertheless, increasing the tax base, even if the income tax grows up, the net profit increases too, contributing to increase the market share of the institution as a whole.

Table 8. Cash flow analysis under NAS and IFRS provisions, 31.12.11 NAS IFRS

Indicators Amount, thousand lei Amount, thousand lei Net cash flow from the operational activity -653211 -622886 Net cash flow from the investment activity -24914 -37371 Net cash flow from the financial activity 191969 175293

Net flow before extraordinary posts -486155 ------- Net flow after extraordinary posts -486155 -------

Total net flow -494353 -494095 Cash and cash equivalents at the end of the period 1703631 1706618

5.3. Consolidated statement of cash flows (Cash flow statement), 31.12.11

The analysis of data in the table above denotes that the value of each of the indicators

presented in the table is greater by reporting under IFRS compared to the NAS (Tab. 9).

Table 9. The relative impact of applying IFRS in Moldova Agroindbank, 31.12.11

No. Indicators NAS IFRS Relative

impact, % 1 Total assets, thousand lei 9201531 9617713 4,52 2 Equity, thousand lei 1762337 1993309 13,11 3 Debts, thousand lei 7439194 7624404 2,49

4 Total liabilities, thousand lei 9201531 9617713 4,52

5 Net profit, thousand lei 282362 290802 2,99

6 Return on Equity, % (rd.5/rd.2) 16,02 14,59 -8,93

7 Solvency, coef. (rd.1/rd.3) 1,23 1,26 2,44

8 Global financial autonomy rate,

coef. (rd.2/rd.4) 0,19 0,21 10,53

9 The leverage,% (rd.3/rd.4) 80,85 79,27 -1,95

Therefore, reporting in accordance with international standards and requirements generated

at Moldova Agroindbank, an increase of 4.52% of total bank assets, of 2.49% of total liabilities and a significant increase in equity of 13.11 %. As a consequence, higher financial results are recorded, so the net profit grows up by 2.99% when reporting under IFRS and, the same time, it generates a higher taxation related to various taxes and fees payments. It also increases the coefficient of the solvency rate and global financial autonomy, which can be positively appreciated as it increases confidence in economic and financial stability of the institution as a whole. Simultaneously, return on equity decreased by 8.93% due to considerable increase equity value, and together with this, have increased capital cost of ownership, which led to a lower return on equity value. Another factor that can be positively appreciated is the decrease of the bank leverage of 1.95%.

As a conclusion, besides the fact that reporting under IFRS in Moldova Agroindbank tends to increase financial results and, at the same time, the income tax increases, there are also advantages of applying IFRS, such as that it creates a solid image of the bank on market, provides financial stability of the bank in the banking sector, and greater credibility to customers and business partners.


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5.4. The applicability of international financial reporting standards in Romania

In Romania, the changes in the accounting field in recent years have been profound, Romanian accounting system being the subject of an ample reform process in order to adapt it to the new economic, political, legal and social conditions. One of the objectives of the reform was to implement international accounting standards (Ristea, Jianu, Jianu, 2010, p.174).

The period 1990-1993 was an intermediate period in between practicing a Soviet-style accounting system and an accounting system of French inspiration. Since 1994, Romania has implemented a new accounting system based on French accounting model.

French accounting system introduced from 1 January 1994, was applied without too many changes until 1999. Since 2000, it was aimed to adopt a mixed accounting system, both of European and international influence. The practical application of these regulations was performed starting with 2000, experimentally, in 13 commercial societies and national companies. Also during this period, it can be noticed a partial implementation of IFRS (Ristea, Jianu, Jianu, 2010, p.175).

Order no. 94/2001 was issued to harmonize the Directive IV accounting rules of the European Economic Community and the International Accounting Standards. Initially, the subject of this order provisions included 197 legal entities, commercial societies listed on the Bucharest Stock Exchange, autonomous administrations, national companies and other national interest entities. These regulations became mandatory also for the rest of the large entities if they met at least two of the size criteria specified for the period 2001-2005 (see Tab. 10).

Table 10. Size criteria according to Order no. 94/2001

End of the financial year Turnover Total assets Number of

(Euro) (Euro) employees 31-dic-01 over 9 million over 4,5 million 250 31-dic-02 over 8 million over 4,0 million 200 31-dic-03 over 7 million over 3,5 million 150 31-dic-04 over 6 million over 3,0 million 100 31-dic-05 over 5 million over 2,5 million 50

The size criteria were applied until 31 December 2002 (Tab. 11). Subsequently it was issued

the Order no. 1827/2003 on amending and supplementing some provisions related to the accounting field, which amends 15 size criteria (Ristea, Jianu, Jianu, 2010, p.176).

Table 11. Size criteria according to Order no. 1.827/2003

End of the financial year Turnover Total assets Number of

(Euro) (Euro) employees

31-dic-03 over 7,3 million over 3,65 million 150

31-dic-04 over 7,3 million over 3,65 million 50

The use of the size criteria was not justified, because it obligated other entities that were not

listed on the stock exchange, to apply IFRS. By 2005 some 1,500 entities have prepared financial statements under IFRS provisions.

Although the result was not the expected one, in these years it was ensured a good level of familiarity with the provisions of IFRS. Since 2005, Romania has established a program of gradual accession to the international financial reporting standards, and since 2006, credit institutions were required to prepare consolidated financial statements, additionally to the financial statements already prepared, in accordance with EU directives. The rest of the public entities could prepare financial statements according to IFRS provisions. Since 2006, in Romania started a process of successive adoption of IFRS by several categories of entities.


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Since 2012, according to the regulations of the National Bank of Romania, all credit institutions and all the companies listed on the Bucharest Stock Exchange were obligated to prepare financial statements in accordance with IFRS provisions.

In the countries with strong investor protection, IFRS does not dominate the local standards in terms of the quality of information presented, while in countries with poor investor protection, IFRS are perceived as superior, for example - Romania or the Republic of Moldova. Conflicting results regarding the quality of the information presented under IFRS provisions compared to the national standards revealed that IFRS are serving more to foreign investors than to local shareholders. Nevertheless, the adoption of international financial reporting standards constituted an evolutionary process of development, extremely important in the context of the country's European integration.

5.5. Impact of IFRS implementation according to the international practice In international practice, we find many countries such as Belgium, France Ireland, Italy and

the UK where the transition to IFRS resulted in an increase of the net outcome recorded at the end of the reporting period.

For German entities, adopting IFRS resulted in a significant increase of the total assets and equity, and in Turkey, the transition to IFRS, had a major influence on liquidity and rotational speed of assets for the entities listed on the Istanbul Stock Exchange. A research on Finnish companies showed that, with the implementation of IFRS, due to fair value application, changes were produced, especially on rates of profitability. In the UK, it leads to the increase in debts, net outcome, leverage and return on equity, while the current assets, capital and solvency have decreased (Săcărin, 2014, pp. 46-54).

As a whole, the transition to IFRS has resulted in a significant increase in the outcome of companies in Ireland, Italy and the UK, and the equity has increased for the British and Irish companies and decreased for Italian companies.

6. CONCLUSIONS

The transition to IFRS is a very important step in the economic development of every country. Both in the Republic of Moldova and Romania, the process of adaptation and reforming the financial regulatory framework was a difficult and lengthy one. There existed and still persist problems of vocabulary, practical applicability because of the insufficient number of trained specialists, perception, and assimilation regarding the essence of the new standards. Nevertheless, the advantages of implementing international standards are much higher compared with the transition costs, because reporting according to the international standards will contribute to a substantial reduction in the cost of systematization, processing and presentation of information. As a result, there will be established a common language of financial reporting and will be harmonized the economic relations between states. This will increase the transparency, comparability of information between companies in the same field of activity, but on different markets, will increase the number of foreign investors and their confidence in national financial reporting quality. As a benefit of international standards implementation, may be that, on medium and long term, it ensures an increase in liquidity of all entities applying IFRS and, as a result, it reduces the risks related to every entity. Most entities have adopted IFRS because it prepared consolidated financial statements, the process being a very expensive and complex one, causing problems, problems that are substantially reduced by the use of IFRS. The intensification of globalization process is the main premise for the implementation of IFRS, and at the same time, the global adoption of uniform standards tends to reduce costs, increase efficiency and significantly increase investments in capital markets both on national and international level. The companies hope to increase their financial


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results through the implementation of IFRS. Therefore the transition to IFRS is the only way for an entity or a state to progress, development, economic ascension, transparency and safety.

“ACKNOWLEDGMENT: This paper has been financially supported within the project entitled „SOCERT. Knowledge society, dynamism through research”, contract number POSDRU/159/1.5/S/132406. This project is co-financed by European Social Fund through Sectoral Operational Programme for Human Resources Development 2007-2013. Investing in people!”

BIBLIOGRAPHY

1. Grigoroi, L., Bunget, O. (2012). Controverse privind politicile de evaluare a activelor, The International Cnference - Contabilitate: Provocări actuale şi aspiraţii pentru viitor, Edit. ASEM, 4 april, 132-137

2. Nederiţa, A. (2013). Aspecte generale privind tranziția la noile standarde naționale de contabilitate”, conferinţa ştiinţifică internaţională in Contabilitatea şi auditul în contextul integrării economice europene: progrese şi aşteptări, Ed. Chişinău, 13-16

3. Nederiţa, A.(2013). Aspecte generale privind conţinutul şi modul de implementare a noilor acte normative contabile, Monitorul fiscal al Republicii Moldova no.6 (16)

4. Ristea, M., Jianu, I., Jianu, I. (2010). Experienţa României în aplicarea Standardelor Internaţionale de Raportare Financiară şi a Standardelor Internaţionale de Contabilitate pentru Sectorul Public, Revista Transilvană de Ştiinţe Administrative 1(25)/2010, 169-192

5. Săcărin, M. (2014). Impactul adoptării pentru prima dată a IFRS de către societățile nefinanciare cotate la Bursa de Valori București, Audit Financiar, Year XII, no.109 – 1/2014, 46-54

6. Tabără, N., Nistor, C. (2013). Implicațiile adoptării IFRS asupra contabilității societăților comerciale din România, Internationa Conference - Contabilitatea şi auditul în contextul integrării economice europene: progrese şi aşteptări, Chişinău, 32-34

7. Mihai, M., Drăgan, C., Ciumag, A., Iota, A. (2011). Considerente privind capacitatea de implementare corespunzătoare a IFRS, Audit financiar, no. 8, 37-42

8. National Accounting Standard 14 - Presentation of Financial Statements Order regarding the approval of Methodological Recommendations on the Transition from National Accounting Standards to International Financial Reporting Standards no. 69 of 17.09.2009

9. Project on methodological recommendations on the transition from National Accounting Standards to International Financial Reporting Standards Report on the Observance of Standards and Codes, Accounting and Auditing, Moldova, June 2013

10. The financial statements Moldova Agroindbank for the year ended 31 December 2011, prepared in accordance with national accounting standards and in accordance with international financial reporting standards.

11. The development of the corporate sector accounting and auditing in the period 2009-2014, approved by Government Decision nr.1507 of December 31, 2008

12. Auditing in the corporate sector 2009-2011 13. Accounting Law no.113-XVI of 27.04.2007 14. Government Decision no. 1507 of 31.12.2008 on approval of the Development of

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The USV Annals

of Economics and


Volume 15,

Special Issue,

2015

163

ANALYSIS OF THE ACCOUNTING SYSTEMS FROM ROMANIA

AND MOLDOVA

AssistantPhDLuciaMOROSAN‐DĂNILĂ

AssistantPhDStudentClaudia‐ElenaGRIGORAȘ‐ICHIM“ŞtefancelMare”UniversityofSuceava,Romania

[email protected]@seap.usv.ro

Abstract: Over the centuries, different countries have met their accounting systems adjusted to the economic, social and

political. However, at the end of the twentieth century, it was possible to distinguish several “families” of accounting, without the researchers to reach agreement on a definitive classification of accounting systems practiced in the world. The diversity of national accounting systems put, obviously, some problems. It is, indeed, difficult to compare the financial statements of companies in different countries, which apply their national rules. With the interconnection of national economies and the growth of large financial markets at the end of the last century, these issues have gained greater acuity. It is necessary that investors can compare financial performance of firms of different nationalities. This article is trying to present and analyse the accounting systems of two neighbour countries, Romania and Moldova, in order to understand the possibility of a multinational investment.

Key words: Accounting system, investment, IAS/IFRS, national standards

JEL classification: M41

1. INTRODUCTION The accounting system consists of various subsystems (regulation subsystem, professional

organizations subsystem, of the enterprise, of accounting practices) arising from the accounting system.

Some authors limit the accounting systems to financial reporting practices of all enterprises in a particular country or the financial reporting practices of listed companies in the country or even a group of countries. Roberts (1995) shows that it is possible for a country to have more accounting systems: one for listed companies, one for unlisted companies. Expanding the use of IFRS is an argument to the accounting system of listed companies in the EU.

The accounting must respond to the changing needs of the society and reflect the economic, legal, cultural, social or political where they work.

In such conditions, it was agreed the proximity of accounting practices in different countries, without their national referential to disappear tomorrow.

2. ACCOUNTING HARMONIZATION Europe in transformation, specifically the European Economic Community, was the first to

perceive this need of approach and was released, in 1970, based on accounting harmonization of the states that compose it. It was not about standardizing practices, but to bring them closer. The harmonization was achieved through “directives”. A “directive” is applicable in a state when introduces its content into their system of accounting law, within a period fixed by the “Directive” itself.

Two “directives” had a strong impact on the regulation and accounting practices of Member States: “Directive IV” and “Directive VII”.

Published in 1978, Directive IV aimed to develop the content and presentation of the annual accounts of capital companies.


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Published in 1983, Directive VII regulated the issues of consolidation, especially for listed companies, which requires the consolidation from 1990.

In order to simplify the reporting requirements for SMEs, the European Commission launched a review process of the European Accounting Directives (Directive IV and Directive VII) in order to adopt a new Directive in order to replace them.

Harmonization by “directives” has given significant results, contributing to the modernization of European businesses’ accounting and to an approximation of their practices.

According to the arguments set out by the European Commission in the preamble of the proposal [1], the main objectives were to reduce administrative costs for reporting, especially for SMEs, to increase the comparability of financial statements of entities that carry out international activities and have a larger number of external users, to protection of investor’ interests by withholding essential information for them, and to increase transparency on payments made to government entities, active in the extractive industry or the logging of primary forests. New Accounting Directive must be transposed into national legislation of Romania until 20 July 2015.

3. NORMALIZATION PROCESS AND PECULIARITIES OF ACCOUNTING

SYSTEMS IN VARIOUS COUNTRIES In Romania, the accounting reform has materialised, after 1989, in several stages. The first

step is to adopt a set of accounting rules came into force on 01.01.1994. It is the first version of the Accounting Law no. 82/1991 and GD 704/1993 for approving the Regulation for its application. This initial set of rules adapted the situation of Romania to the European Directive IV, on a French branch.

In 1994, the French accounting system was introduced based on the Chart of Accounts. This phase lasted until 1999, obviously with many changes, especially regarding tax

matters. Specifically, the Romanian accounting referential resulted, in this stage, in “accounting system of companies”.

Phase II - Romanian accounting harmonization with international accounting standards: IAS / IFR developed by the IASB and the European Directive IV.

In 2001, the Ministry of Finance issues Order no. 94/2001 for the approval of accounting regulations harmonized with Directive IV of the European Economic Community and the International Accounting Standards published in the Official Gazette no. 85 / 20.02.2001.

Subsequently, according to Order no. 907/2005, since fiscal year 2006, legal entities referred to in art. 1 para. (1) of the Accounting Law no. 2005 82/1991, apply accounting regulations compliant with European directives. We believe that phase III begins with this act.

Currently, Order no. 1802/2014 is the basic regulation for all firms. Current accounting system of the Republic of Moldova entered into force on 1 January 1998

in accordance with the Government's decision on the accounting reform. Currently, Moldova is ahead of other CIS countries in the development of accounting. The

activities of the Association of Professional Accountants and Auditors of the Republic of Moldova, it became the first country-associative member of the International Federation of Accountants (IFAC), located in New York. This system is based on International Standards of Accounting (IAS) and reflects on all economic operators (including foreign companies) operating in the country, regardless of their field of activity, type of ownership and organizational form.

Practical implementation in Moldova of the System of National Accounts, based on the methodology of System of National Accounts of the United Nations, version 1993 (SNA, UN-1993), was produced in 1995 with their calculations in retrospect since 1993. [2]

National Accounting Standards (NAS) were developed based on International Accounting Standards (IAS), mostly in the period 1996-1998, but they are mostly incomplete and outdated compared to IFRS (incorporating itself and IAS). Accordingly, it requires streamlining the standards development process, to allow the prompt adoption of the numerous existing IAS that are


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not yet reflected in NAS. National Auditing Standards have been developed recently and reflect IAS.

Annually, the System of National Accounts presented by accounts of: goods and services, manufacturing, mining, primary, secondary distribution and use of income, redistribution of income in kind, available disposable income and adjusted capital. Accounts are elaborated totally on economy, economic activities and institutional sectors.

National Accounting Standards (NAS) are still in transition to the International Financial Reporting Standards (IFRS). They have not been updated since 1998 and do not incorporate 15 of the current IFRS / IAS standards and, therefore, the information in the NAS tends to be incomplete, if not inaccurate.

Table 1. Legal framework regarding accounting

In Romania, both sources of law arise from the rules and regulations of normalizing bodies, also the regulations of professional nature issued by professional organizations in the field of accounting and auditing. In Moldova, however, the influence of professional bodies are less conspicuous, the state is the one that governs the accounting system through the Ministry of Finance (accounting law, the general conceptual framework of accounting, NAS, charts of accounts).

Table 2. Regulatory bodies regarding accounting

ROMANIA REPUBLIC OF MOLDOVA At national level, accounting regulations form national accounting law that include: • Laws issued by Parliament (ex. The Companies Law no.31 / 1990, republished, Accounting Law no. 82/1991, republished); • Judgments and orders issued by the Government; • Orders of the Minister of Finance, the central bank governor and other central institutions on financial and accounting; • Regulations of professional character issued by CECCAR and CAFR (Chamber of Financial Auditors in Romania). We add to this the accounting doctrine represented by courts’ judgment (in Romania are not considered sources of law) and the opinions expressed by various authors in literature.

Legislative and regulatory framework of the current accounting system includes the following main components: • Accounting Law from 2007, as amended; • The conceptual framework for the preparation and presentation of financial statements, approved by Minister of Finance no. 174 from 25 December 1997; • International Financial Reporting Standards (IFRS) as issued by the IASB and approved by Minister of Finance no. 109 from 19 December 2008; • National Accounting Standards (NAS) issued by the Ministry of Finance, modified; • Comments regarding NAS application, issued by the Ministry of Finance, as amended; • Chart of Accounts issued by the Ministry of Finance and the National Bank of Moldova; • Regulations, provisions, instructions and other documents approved by the bodies responsible for regulating the accounting sector.

ROMANIA REPUBLIC OF MOLDOVA Accounting normalization is in the responsibility of the Directorate of Accounting Regulations of the Ministry of Finance. In 1992, was established the Consultative Accounting College (CCC) in order to mitigate the public nature of normalization. In 2004, the most important task allotted to the College was to develop and monitor the implementation of the Action Plan in the country in accounting and auditing, based on the Report regarding Observance of Standards and Norms (ROSC) drawn up in May 2003 by the World Bank. In 2005, according to GD no. 401/2005 was decided, the establishment of the Council of Accounting and Financial Reporting (CCRF) by reorganizing the Consultative College of Accounting. CCRF is an independent body without legal

Currently, the regulation and monitoring of financial reporting and auditing is the State’s competence. Ministry of Finance is the main regulatory body authorized to issue the accounting and audit methodology, National Accounting Standards, plans of accounts, National Auditing Standards, standardized forms for books and financial reports and methodological forms on their implementation. Moldovan Government, in turn, makes decisions on the application of certain regulations (eg. decisions on documents of special status to apply IFRS etc.). Consultative Methodology Council, under the aegis of the Ministry of Finance, was established in order to discuss current issues related to accounting and auditing and to forward appropriate proposals in this area. Moldovan government approves goals


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In Moldova, regulation and supervision of financial reporting and auditing is governed by

the State (Ministry of Finance, the Supervisory Board and the Audit Consultative Council operating under its aegis), Licensing Chamber, the National Bank of Moldova (with additional requirements for financial institutions), the National Commission of Financial Market (additional requirements for professional participants of financial markets) and Information Service of Financial Statements attached to the National Bureau of Statistics. Thus, we see that in Moldova are normalizing public bodies compared with those of Romania.

Table 3. The accounting profession

The accountancy profession in Romania is supported by CECCAR, the landmark accounting

institution; the accounting profession is called to take part more actively in carrying out economic reforms in Romania, through regulations issued by professional nature. Instead, the accounting profession in Moldova is less cooperative because there are three associations that share its objectives, but cooperates very little: the Association of Professional Accountants and Auditors (ACAP), Association of Auditors and Audit Firms in Moldova (AFAM) and Auditors and Management Consultants Association (EcoFin-Consult). This fragmentation tends to weaken the image of the profession and ability to articulate clear positions to the general public and policy makers face. The accountancy profession cannot start with a dialogue with the Ministry of Finance and regulatory agencies. The profession could benefit in the case of unification efforts and ensure a higher level of cooperation in solving the challenges that face the profession, including those faced by auditors, to the Government, regulatory bodies and other stakeholders. Merging professional associations into a single powerful organ could be considered a medium and long-term goal.

personality that works besides MPF, whose purpose is “to ensure supervision convergence of national rules and practices in financial accounting and auditing regulations applicable in the European Union [...] and increase users' confidence regarding information in financial reporting and corporate governance. [3] What is interesting to note, is that the CCRF is managed by a superior board consisting of one representative of the main institutions with regulatory powers in accounting and financial auditing involved in implementing the Action Plan on improving the quality of financial reporting in the country (MPF, NBR, NSC, CAFR, CECCAR, Insurance Supervisory Commission, Ministry of Justice) and one representative from academia and business.

and the composition of this Council. National Bank of Moldova develops banking regulations related to banking industry, not specifically related to accounting but influencing financial statements (requirements the quality of capital, restrictions on loans, etc.). National Commission of Financial Market (NCFM) establishes requirements in addition to generally accepted principles (NAS) and IFRS standards for listed companies and professional participants in financial markets, such as investment funds and insurance companies. These conditions include, for example, specialized reporting rules. National Bureau of Statistics and the Ministry of Finance develops and approves all legal documents and methods for their implementation.

ROMANIA REPUBLIC OF MOLDOVA As regards the accounting profession in Romania, in 1994, was established the Body of Chartered and Certified Accountants (CECCAR) with the motto “science, independence, morality”.

In Moldova, there are three associations that share its objectives, but cooperate very low: the Association of Professional Accountants and Auditors (ACAP), Association of Auditors and Audit Firms in Moldova (AFAM), and Association of Auditors and Management Consultants (EcoFin-Consult). ACAP's mission is to develop the most powerful accounting profession, able to serve the public interest. The main objectives of the Association are to introduce IFAC standards (International Federation of Accountants) and IASB (International Accounting Standards Board) on accounting and auditing and accounting profession development based on international standards, in particular on education, ethics and quality. All three associations are funded by rates paid by members and participants at training courses. Associations are not based on state funding, either from development agencies.


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Table 4. The general accounting framework

4. CONCLUSIONS

The developed analysis of accounting systems of the two countries Romania and Moldova,

we can draw certain conclusions about their specific characteristics and the influence of several important factors such as economic development, the history social and political peculiarities.

From the conducted comparative analysis, we found differences between the accounting systems from Romania and Moldova, deriving from the application of IAS/IFRS (in the case of Romania) and relative compliance with some EU Directives (in the case of Moldova).

An investor located in one of these countries, in order to multiply its investment in the neighbour country, has to make additional efforts regarding the understanding of the financial information, because the reports are different. It may be noted at this level, the Accounting Law from Moldova is compatible, generally, with EU directives and IFRS. Meanwhile, the 2007 Accounting Law contains only general methodological provisions for accounting and financial reporting. The specific procedure for accounting and financial reporting stipulated by the NAS and other regulations. However, the NAS is based on IAS from 1996-1998, they no longer reflect current IFRS and require an update.

National Accounting Standards (NAS) provide guidance on accounting and financial reporting for all economic entities, including those with foreign capital, meaning the majority of reporting entities.

Currently, there are in force 31 NAS and 14 NAS Comments SNC. NAS is based on key International Accounting Standards (IAS) and IFRS. They derive mainly from the editions of period

ROMANIA REPUBLIC OF MOLDOVA In Romania's preparation and presentation of financial statements are covered by both the Order no. 1802/2014 for Accounting Regulations compliant with European Directives and the International Accounting Standard IAS 1 - Presentation of Financial Statements. IAS 1 sets out general requirements for the form and content of financial statements, but leaves the possibility of legal frameworks that influence their economic activity. The objective of this standard is to prescribe the basis for presentation of annual financial statements, to ensure comparability both with the financial statements of the economic entity for previous periods and with the financial statements of other entities. Differences between the two referential financial statements relate to the policies of recognition, measurement, de-recognition and presentation of data in financial statements and information to be disclosed compulsory or voluntary.

Accounting Law from 2007 sets the legal framework and regulatory mechanism of accounting and financial reporting in Moldova. Accounting Law from 2007 establishes the fundamental regulations in financial accounting and auditing. The law applies to companies registered under any organizational and legal form, and public and private sector entities. Its main elements are: 1. Detailed accounting requirements (Regulations) for all private entities, individuals and public institutions. 2. Financial reporting for private sector entities dealing with preparation and publication of consolidated and individual financial statements / aggregates. 3. Accounting and Financial Statements of the Treasury and public institutions. 4. Roles and responsibilities of competent authorities responsible for regulation of accounting and financial reports. 5. Requirements set for corporate management (in terms of responsibilities for accounting, financial reporting, internal control and internal audit). Accounting Law presents relatively detailed financial reporting requirements, along with the development of NAS (in accordance with IFRS and relevant EU Directives); development and implementation of National Accounting Standards for Public Sector (SNCSP), based on International Accounting Standards for Public Sector (IPSAS); admission of IFRS in Moldova; DGs regulation of accounting and regulatory authorities; responsibility and entities in terms of accounting; General rules for accounting and accounting elements of the accounting period; requirements related notes and management reports. The law also sets out the requirements concerning the disclosure of financial reports and presenting them at users’ demand.


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1993-1998, but subsequent updates. Therefore, they are technically obsolete and to avoid discrepancy between the standards, they must be updated in order to incorporate the relevant developments in IFRS from the date of the last revision.

ENDNOTES

[1] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0684:FIN:EN:PDF [2] Brittain G., Şelaru M., Legislația și politicile contabilității și auditului, Set of Instructions for harmonization of

sectoral legislation, Chisinau, 2010 [3] Vlad M., Boghean F., The Risk of Fraud Without Implementation of the Pillars of Corporate Governance at

the Level of Credit Institutions in Romania, in Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2013, p. 350 REFERENCES

1. Brittain G., Şelaru M., Legislația și politicile contabilității și auditului, Set of Instructions for harmonization of sectoral legislation, Chisinau, 2010 2. Pătruț V., Contabilitate și diagnostic financiar, Editura Sedcom Libris, Iasi, 2010 3. Ristea M., Contabilitatea în managementul întreprinderii, Editura Tribuna Economică, Bucharest, 2005 4. Tulvinschi M., Contabilitatea –știință și tehnică de gestiune, Editura Sedcomlibris, Iasi, 2009 5. Vlad M., Boghean F., The Risk of Fraud Without Implementation of the Pillars of Corporate Governance at the Level of Credit Institutions in Romania, in Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Issue 1/2013 6. Order no. 1802 of 29 December 2014 approval of accounting regulations on the annual individual and consolidated financial statements 7. http://eur-lex.europa.eu

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SECTION 4

STATISTICS, ECONOMIC INFORMATICS

AND MATHEMATICS

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EMPIRICAL WEIGHTED MODELLING ON INTER-COUNTY

INEQUALITIES EVOLUTION AND TO TEST ECONOMICAL

CONVERGENCE IN ROMANIA

PhDStudentNataliaMOROIANU‐DUMITRESCUAcademyofEconomicStudies,Bucharest,Romania

[email protected]

ProfessorPhDDanielaLuminițaCONSTANTINAcademyofEconomicStudies,Bucharest,Romania

DepartmentofAdministrationandPublicManagementdanielaconstantin_2005@yahoo.com

AssociateProfessorPhDClaudiuHERTELIU

AcademyofEconomicStudies,Bucharest,RomaniaDepartmentofStatisticsandEconometrics

[email protected]

PhDAncaNOVACInstituteofAtomicPhysics,Bucharest,Romania

[email protected]

Abstract: During the last decades, the regional convergence process in Europe has attracted a considerable interest as a

highly significant issue, especially after EU enlargement with the New Member States from Central and Eastern Europe. The most usual empirical approaches are using the β- and σ-convergence, originally developed by a series of neo-classical models. Up-to-date, the EU integration process was proven to be accompanied by an increase of the regional inequalities. In order to determine the existence of a similar increase of the inequalities between the administrative counties (NUTS3) included in the NUTS2 and NUTS1 regions of Romania, this paper provides an empirical modelling of economic convergence allowing to evaluate the level and evolution of the inter-regional inequalities over more than a decade period lasting from 1995 up to 2011. The paper presents the results of a large cross-sectional study of σ-convergence and weighted coefficient of variation, using GDP and population data obtained from the National Institute of Statistics of Romania. Both graphical representation including non-linear regression and the associated tables summarizing numerical values of the main statistical tests are demonstrating the impact of pre-accession policy on the economic development of all Romanian NUTS types. The clearly emphasised convergence in the middle time subinterval can be correlated with the pre-accession drastic changes on economic, political and social level, and with the opening of the Schengen borders for Romanian labor force in 2002.

Key words: inequalities level and evolution, regional convergence, intra-national analysis, weighted coefficient, non-linear regression, statistical tests.

JEL classification: C01, C52, O11, R11

1. INTRODUCTION The regional convergence arose considerable interest on exploring the economical phenomena during the last decades, augmented after EU extension by the 2004 enlargement by the "A10" countries. Eight of these were part of the former Eastern Bloc (together sometimes referred to as the "A8" countries), characterized by planned economy and closed market system. Part of the same wave of enlargement was the accesion of Romania and Bulgaria in 2007, who were unable to join in 2004, but, according to the EU Commission, constitute part of the fifth enlargement. According to the general opinion, the mere access to the free market specific mechanisms couldn’t by itself adjust the economies of the New Member States (NMS) and much less couldn’t reduce the great, sometimes huge subsistent inequalities. There were necessary even drastic measures imposed by the risk of post-accession growing disparities, considered totally incompatible with the balanced and


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profitable free market that EU envisaged on its establishment. Therefore, on the basis of worldwide economic research results, besides establishment of a common national statistical monitoring of each country, the EU has been involved in supporting the economic integration process of NMS by the Structural Funds Programme, too. The effective economic cohesion policy aimed at reducing distances in development levels in Europe through the EU Structural Funds for disadvantaged countries and regions is based on the regional convergence studies. Economic phenomenon complexity, socio-cultural specificity, but especially the presure of finding a solution appropriate to the domestic and international events impact have triggered a series of scientific debate on both theoretical and empirical level in order to understand, define, and assess the regional convergence/ divergence process. Regional convergence can be evaluated quantitatively and qualitatively through two concepts widely recognized in the literature: β-convergence [1] and σ-convergence [2][3]. While the first type, according to neo-classical theory defines the economic catching trend, due to the fact that approaching the "steady-state" economic level leads to lower development rate of the regional economy measured by GDP / capita, the second type of convergence emphasizes the temporal evolution of the disparities between the different lower level NUTS regions belonging to a given higher level NUTS region[4]. Romania's EU accession decision started a long process of integration, whose first effects we detected through the convergence analysis at different NUTS level. Using the most recent definitive statistical data provided by the National Statistics Institute for 1995-2011 period, we present an empirical convergence analysis of economic trend, covering three subperiods, namely before the pre-accession 1995-2002, pre-accession 2002-2006, and finally, the post-accession until 2011. This paper presents the results of a cross-sectional comparative study of different statistical quantities temporal behaviour reflecting the economic convergent/divergent trend based on the statistical analysis of weighted and unweighted standard deviation, and double weighted coefficient of variation using the population percentage and GDP/capita calculated values in order to identify the economic development of and disparities trend between the different NUTS regions of Romania. The Romanian research concerning economic convergence is only at the beginning [5][6][7]. The present paper is one of the first empirical studies and our conclusions are based on the comparison of the unweighted and weigthed statistical quantities time dependence and, meanwhile, of the statistical parameters numerical values listed in the tabels.

2. STATISTIC INSTRUMENTS AND METHODS In statistics and theory of probabilitties, the variance measures the scattering degree of the numbers from a given group and it is equal with the mean value of the dispersion. A zero value variance is showing that all the numbers are identical, a low value is showing that scaterring of the points is small, in other words the numbers are closed to their mean value, but when the dispersion value is great it means that the points are quite scattered. The variance can have only positive values. One important statistical quantity is the square root of the variance, called the standard deviation σst, and another one is a standardized measure of the dispersion of a probability distribution or frequency distribution, named coefficient of variation and defined as the ratio of the standard deviation to the mean. The coefficient of variation is sometimes prefered to standard deviation because the last one does not make sense unless given the mean value of the data set, while the coefficient of variation has the advantage of a direct interpretation. Furthermore, for a given value of standard deviation, the coefficient of variation (in %) indicates the degree of variability in relation to the mean. In this study we chose to compare the population weighting influence on the behaviour of coefficient of variation, which, in order to avoid any confusion, we noted by

KPP = σst /µ,

where µ is the mean of the considered set of numerical data, and σst is the standard deviation.


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As noted in the literature [8], σ-convergence is one of the defining parameters of economic development, this amount reflecting the temporal behaviour of statistical disparities between the administrative units, namely European units NUTS. The choice of the NUTS units level and the availability of data are closely related issues. Clearly, there is a trade-off between the degree of regional disaggregation and the quantity of published statistical information. Generally speaking, NUTS1 are too large to capture truly regional growth processes. In our regional concept we put priority on the formation of economically sensible regions, namely NUTS3 for a more appropriate definition of functionally integrated units of observation. In this respect, our first step approach is similar to the concept of Functional Urban Regions [8] but, unlike the latter, it is not restricted to urban areas. Most analyses on regional growth in Europe use NUTS1 or NUTS2 units or a mixture of both concepts, as applied in this paper at the second level of our statistical analysis. On the other hand, we decided to make a cross-sectional analysis considering the population as weighting parameter, and the mean value of the natural logarithm of the GDP/capita denoted by y. For a more accurate assessment of the impact of various NUTS3 regions (counties) on economic behaviour of the larger NUTS unit, we decided to apply a non-linear regression onto the weighted and non-weighted statistical quantities, for each of the clearly delimited time subintervals. As both the factors in the coefficient of variation formula can provide a specific estimate, after a logical analysis considering all possible combinations, we decided to restrict our data processing on the following four combinations between the weighting factor applied to each NUTS3 and the logarithmic mean used at levels NUTS2, NUTS1 (grouped) and on the country level: A – weighted by population percentage at the country level, the mean ln y calculated on the country level, too, and the coefficient of variation noted as KRoRo ; B – weighted by population percentage at the Western/Eastern half country level (each including 2 NUTS1 regions), the mean ln y calculated on the corresponding half country (NUTS1), too, and the coefficient of variation noted as KWW , respectively KEE ; C – weighted by population percentage at the NUTS2 level, the mean ln y calculated on the corresponding NUTS2, too, and the coefficient of variation noted as KDD ; D – special case chose to investigate a possible greater impact of the relative number of inhabitants of a NUTS2 – weighted by population percentage at the NUTS2 level, the mean ln y calculated on the country level, and the coefficient of variation noted as KRoD .

3. DATA PROCESSING

In order to study the evolution of disparities between Romanian counties, representing European NUTS3 administrative units, and to test the existence of an economic convergence, we conducted a cross-sectional statistical analysis after the population parameter. Meanwhile, in order to emphasize the influence of population weighting, we conducted a comparative study between temporal variation of the standard deviation σst, its weighted value time-dependence, and the temporal behaviour of the double-weighted coefficient of variation, KPP , for the period 1995-2011, the cross-sectional values being calculated refering the NUTS3 administrative regions population to the NUTS2, NUTS1 groups (W/E) [9], and the entire country population. Furthermore, the mean value of the natural logarithm of the GDP/capita was calculated on every NUTS level, and on the country level, too. The type of the temporal behaviour convergence/divergence was highlighted by non-linear regression including the ANOVA statistical test application in MS Office Excel program.

4. REZULTS OBTAINED BY COMPARATIVE ANALYSIS

In the notation used in this paper, the first index denotes the cross-section level, meaning the NUTS area used to calculate the population weighting parameter (in percent), and the second index shows the specific NUTS region for which we calculated the mean logarithm of GDP/capita.


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In the followings, we present briefly our results grouped in adjoining plots, and the numerical statistical specific indicators summarized in tables. For the sake of logical presentation, we start with the last particular case of weighting combination.

4.1. The double weighting RoD

The cross-section analysis aimed the revealing of the country cross-section as the population percentage was calculated by refering every NUTS3 population to the population of the entire country. Meanwhile, the average value of the logarithms of GDP/capita was calculated for each of the 8 NUTS2 regions of Romania. The results are shown in the Figures 1-3 and Table 1. In three of the NUTS2 regions the time dependence reveals a well defined convergence subinterval (see Fig. 1 a,b,c), which for the Western NUTS2 regions is including 3 years (2002-2004), and for the BI NUTS2 region (including the Capital) from the Eastern half of the country is spread on 5 years (2000-2004).

Fig. 1 a,b – Non-linear regression applied on the time dependence of the unweighted and weighted standard deviation σst for three of the NUTS2 showing the same distinct subperiods.

Fig. 1 c – Non-linear regression applied on the time dependence of the cross-sectional coefficient of variation for three of the NUTS2 regions is emphasizing the same three distinct

subperiods with convergence in the middle subperiod as for the standard deviation.


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Fig. 2 a,b – Non-linear regression applied on the time dependence of the weighted and non-weighted standard deviation σst for three of the Estern NUTS2 showing the same distinct

subperiods.

For all other 5 NUTS2 regions, the time dependence is showing only two subperiods. For the rest of 3 NUTS2 Eastern regions (see Fig. 2 a,b,c), the behaviour change year is 2005, and the first subperiod shows a divergence changing abruptly into convergence in the second subperiod. For the other two Western NUTS2 regions, as shown in Fig. 3 a,b,c, the change is in 2002, the final subinterval being divergent for both of them.

Fig. 2 c – Non-linear regression applied on the time dependence of the cross-sectional coefficient of variation for three of the Estern NUTS2 regions is emphasizing the same two distinct subperiods as the standard deviation, 2005 being the same year of the behaviour

changing.


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Fig. 3 a,b – Non-linear regression applied on the time dependence showing the same distinct subperiods for the weighted and non-weighted standard deviation σst of the other two

Western NUTS2.

Fig. 3 c – Non-linear regression applied on the time dependence of the cross-sectional coefficient of variation for two Western NUTS2 regions is emphasizing the same two distinct subperiods as for σst, with the same year of the changing, but with different behaviour in the

final subperiod. One of the remarkable resulting characteristics is the great similarity between the time dependencies of all the three statistical values, weighted and non-weighted, the subperiod limiting years being identical, and the behaviour type the same, excepting the NUTS2 region M1-NV, for which the weighting by the country level population percent applied on the standard deviation σst_RoD modifies the convergent behaviour into a divergent one in the first subperiod, as can be noted in figures 3a and 3b.

4.2. The double weighting DD

In this second case (C-case), the cross-section analysis aimed the revealing of the population cross-section as the percentage was calculated by referring every NUTS3 population to the population of the corresponding NUTS2 region. Meanwhile, the mean value of the logarithms of GDP/capita was calculated for each of the 8 NUTS2 regions. The results are presented only in Table 1. In three of the NUTS2 regions the time dependence revealed the same well defined convergence behaviour in the middle subinterval, which for the Western NUTS2 is including 3 years (2002-2004), but for the Eastern half BI NUTS2 area (including the Capital) is spread on, 5 years (2000-2004). All the other temporal dependencies are


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revealing both the time limits and the convergent/divergent behaviour in every subperiod as can be seen in figures 1-3. The remarkable observation is that all the results are quite similar for both the series: the first one obtained by weighting with the population percentage calculated for the entire country and the second population percentage series calculated by refering to the corresponding NUTS2 region. Even the exceptional behavioural changing generated by weighting the standard deviation calculated for the Western NUTS2 region M1-NV, from convergence into divergence in the first subperiod is present, too. Therefore, from the statistical analysis conducted at the NUTS 3 territorial units, it is coming off a first important conclusion: the weighting applied with the population percentage calculated by referring to the population of the entire country and the weighting applied with the population percentage calculated by referring to NUTS2 territorial unit for each of the NUTS 3 European unit (Romanian counties) lead to the same type of time behaviour both for the standard deviation and for the derived statistical quantity – the double weighted coefficient of variation.

4.3. Double weighting WW / EE

Fig. 4 a,b – Non-linear regression applied on the time dependence of the weighted and non-weighted standard deviation σst for the Western NUTS1 (M1 & M4) show the well-known

three distinct subperiods, with the middle 2002-2004. For the Eastern NUTS1 the behaviour is changed by weighting.

Fig. 4 c – Non-linear regression applied on the time dependence of the weighted coefficient of variance show the well-known three distinct subperiods, with the middle clear convergence in

2002-2004.


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As shown in the Figure 4, for both pairs of territorial units NUTS1, the time dependencies are emphasizing the same three subintervals, but with different behavioural characteristics. Thus, it can be noted that for the two WESTERN territorial units NUTS1 the single or double weighting leaves unchanged the divergent or convergent behaviour, while for the two EASTERN territorial units NUTS1, the simple weighting of the standard deviation is changing the behaviour in the central subinterval 2002-2004 (see Fig. 4 a,b), and the coefficient of variation is showing a double behavioural change – in both the middle (2002-2004) and the final subinterval (2005-2011), as shown in the Figure 4 c.

4.4. Double weighting RoRo

Finally, in the case A, the cross sectional analysis aimed to reveal the impact of the country cross-section as the population percentage was calculated by referring every NUTS3 population to the population of the entire country. Meanwhile, the average value of the logarithms of GDP/capita was calculated for the entire country of Romania. The remarkable observation is that for all three studied statistical quantities the temporal dependencies are similar to the previous case of the cross-sectional analysis in the Western and Eastern country halves formed by pairs of the NUTS1 units, both regarding the limits of the subintervals and the divergent/convergent behaviour in every delimited subinterval distinctly emphasized by the non-linear regression applied.

4.5. NUMERICAL RESULTS SUMMARIZING TABLES

Table 1 a,b – Non-linear regression numerical values for the slope standard error and F-

significance for every subperiod delimited in the temporal dependence of the unweighted and weighted

statistical quantities for the cases noted as RoD and DD


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Table 2 a,b – Non-linear regression numerical values for the slope standard error and F-significance for every subperiod delimited in the temporal dependence of the unweighted and

weighted statistical quantities for the cases noted as WW / EE and RoRo for the Western, respectively Eastern NUTS1

5. CONCLUSIONS

1. Our exhaustive study demonstrate without any doubt that in the case of Romania, the population percentage weighting does not succeed to highlight any special contribution of one of European territorial units NUTS3, regardless of the percentage weighting factor reference, excepting the EE weighting combination.

2. Our study confirms the validity of using the standard deviation σst in the statistical analysis of economic convergence/divergence, instead using the coefficient of variation according to the opinion advanced in some recent papers [10,11], as evidenced by the large series of temporal plots, and in conjunction with the observation that for the vast majority [except for a few isolated cases] the non-linear regression shows much higher values of the slope [multiplication factors ranging between 5 and 300], accompanied by much lower values for the slope error and F-significance – as


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emphasized in the tables 1a,b and 2a,b summarizing the numerical characteristic values of all the applied regressions.

3. The present statistical analysis emphasizes the predominance of a first divergent subinterval [excepting one single NUTS2 region, the M4-SV], followed in most cases by a narrow subperiod of convergence between 2002 and 2004 observed both at NUTS1&country levels (as seen on Fig. 4) and at lower territorial level NUTS2, independent of the weighting procedure.

4. One reason for the central subinterval of convergence could be preparatory drastic measures in the pre-adheration period – because Romania intended to join the first wave of EU enlargement. Another cause could be the more than 4% contribution to the state budget made by the massive wave of labor migration [*] triggered by the official opening of the Schengen borders allowing the free movement of the Romanian labor in the EU, following the decision of EU Council of Ministers of Justice and Home Affairs (JHA) in December 2001. As a matter of fact, only in 2002 there were registered over 600,000 Romanian migrants [**]. Our thoroughgoing empirical statistical study remains a subject opened to discussions and completion, challenging forward studies concerning identification of all different elements which influenced the economy, society, and technology of Romania during the 1995-2011 period.

6. ACKNOWLEDGEMENT This paper was co-financed from the European Social Fund, through the Sectorial Operational Programme Human Resources Development 2007-2013, Project number POSDRU/159/1.5/S/138907 "Excellence in scientific interdisciplinary research, doctoral and postdoctoral, in the economic, social and medical fields – EXCELIS", coordinator: The Bucharest University of Economic Studies.

REFERENCES [1] Solow, R.M. – A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70 (1), pp.65-94 (1956). [2] Barro, R. and Sala–i-Martin, X. – Convergence, Journal of Political Economy, 100(2): pp.223-251 (1992). [3] Sala-i-Martin X. – The Clasical Approach to Convergence Analysis, The economic jurnal, 106 (437), pp.1019-1036 (1996). [4] Antonescu, D. – Measuring Regional Convergence – An Application To The European Union And Romania, New Theoretical and Methodological Approaches on Regional Development Policies (2011), www.ince.ro [5] Iancu, A. – Economic Convergence Matter in Problems of Economic Integration, http://oeconomica.org.ro/files/pdf/93.pdf [6] Goschin, Z., Constantin, D.L. – The Geography of the Financial Crisis and Policy Response in Romania. In: Financial Crisis in Central and Eastern Europe – From Similarity to Diversity, Wydawnictwo Naukowe, Scholar Publishing House, Editors: G. Gorzelak and Ch. Goh, Poland, pp. 161-191 (2010). [7] Monfort, Ph. – Convergence of EU regions. Measures and Evolution./ In: Regional Policy, nr.01 (2008). [8] Cheshire, P., Carbonaro, G. – Urban Economic Growth in Europe: Testing Theory and Policy Prescriptions, Urban Studies 33 (7), pp.1111-1128 (1996). [9] Cornett, A.P., Sørensen, N.K. – International vs. Intra-national Convergence in Europe – an Assessment of Causes and Evidence. In: Investigaciones Regionales, 13, pp.35-56 (2008). [10] Artelaris, P., Kalioras, D., Petrakos, G. – Regional Inequalities and Convergence Clubs in the European Union New Members-States. In: Eastern Journal of European Studies, 1(1), pp.113-133 (2010).


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[11] Artelaris, P., Kalioras, D., Karaganis, A., Petrakos, G. – Detecting Convergence and Divergence Sub-Clubs: An llustrative Analysis for Greek Regions, Empirical Economics Letters, 11(8), pp.821-828 (2012). [**] http://www.infotravelromania.ro/schengen.html – accessed on 27.02.2015 [*] Raportul Naţional al Dezvoltării Umane România, 2007, http://muncainstrainatate.anofm.ro/ – accessed on 27.02.2015

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SECTION 5

LAW AND PUBLIC ADMINISTRATION

The USV Annals

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Volume 15,

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SEVEN KEY INSTITUTIONS OF THE EUROPEAN UNION-

VALIDATED BY THE LISBON TREATY

ProfessorPhDElenaIFTIME


Abstract: The seven institutions of the EU, which the title of this articles announces, structure the institutional basis of

the Common European Home, considered to be the emblem of the most dynamic and complex, the most institutionalized and discussed (even controversial) regional integration process.

Building the Community Europe has began by the establishment of the Communities having 3 political institutions which represented in the evolution of the integration process, the triangle that ensured the coherence and the continuity of the Community actions: Council of Ministers, European Commission and the Assembly to which was added the Court and from 1974 the European Council as an indicative body. The five main institutions have formed the Community institutional system which over time had mainly guidance competences, of decision and direction (Council of Ministers, the Commission and the European Council) or control skills ( the European Parliament and the Court of Justice). Since 1975, the institutional structure was strengthened through the creation of a Court of Auditors with general competences of checking accounts and discharge in Community activities. Maastricht Treaty 1992 (1993) raises this body to the rank of Community institution, without substantially altering its powers. The 6 Community institutions were supplemented by validating the status of Community institution of the ECB by the Lisbon Treaty 2007 (2009). ECB together with the national central banks of the Member States whose currency is the euro make up the Eurosystem.

Through the Lisbon Treaty, the institutional structure was subjected to a process of improvement and strengthening of the EU which functions currently through the 7 institutions, interdependent, which are in a complementary relationship determined by the common goals which they pursue in Europe and in relations with other parts of the world.

Key words: institutions, European Union, EU legislation

JEL classification: K 10 INTRODUCTION

THE EUROPEAN IDEA IN SLOW OR ALERT PACE.

Today, 28 European states are united in a form of European Community life which bears the emblem of European Union, starting with the Maastricht Treaty in 1992 (1993). Six European states: France, Germany, Belgium, Netherlands, Luxemburg, Italia have started on this way in a traumatized Europe which faces numerous political, economical, social, industrial problems and bringing together the countries of the continent is presented as a lifesaving procedure to regulate the difficulties and the impasse created by two world wars. It was the time when the federalist movements were flourishing, with different motivations. Even during the war there was an idea of United Europe circulating in various forms and in the most varied environments. The unleashed energies were directed toward setting up the “ Western Union [1]” (17 March 1948), the Council of Europe (5 May 1949), the first organization of political cooperation in Europe and of the North Atlantic Treaty Organization (NATO)4 April 1949 with military vocation. These war the first attempts of European cooperation, economic and military, strongly marked by the intergovernmental approach of the Europe’s unification which in essence is expressed by the people’s wish to keep entirely the state sovereignty. This form of cooperation excludes the transfer of powers, the states involved will concentrate their efforts to achieve some common objectives in the political, military and economic plan.


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The second half of the past century has enshrined the launch of the upward trend of the same ideas of European unity, but towards European integration, a form and an historical model superior in unity compared to the previous unit. Based on shared norms and values, the European states agreed on some types of connections, political or economic in long term. The 6 states mentioned above “the Europe of 6” started from the “common market” going to “Europe of 9” and then to the “Europe of 12”, with various names: ECSC, EEC, EAEC. These defined the European process, which since its debut has constantly pursued as an objective the European Union, process which had some steps, with stages and distinct features. Through the Treaties of Rome 1957 (1858), “the 6” aim to “establish the foundations of an Union without precedent and bond even closer between the European peoples”. “The 12” who signed the Maastricht Treaty of 1992 (1993) seem to have lost momentum from the beginning because presents the Treaty as a legal basis of a new “phase in the creation of a Union1 without ceasing and closer between European nations.” An Union “sui generis” with three structures: European Community, CFSP (Common Foreign and Security Policy) and JHA (Justice and Home Affairs). A Union which “ was always part of the European lexicon, but was never defined rigorously.” The Maastricht Treaty was supplemented and developed in many of its points by the Treaties of Amsterdam 1997, Nice 2001, to ensure a common framework for the European Community on one hand and for the second pillar (CFSP) and the third pillar (JHA) on the other hand. Then came the Treaty on the EU Constitution signed on October 29, 2004 which triggered a veritable constitutional crisis because an important number of states have ratified the Constitution but France and Netherlands rejected it in a referendum. So the ratification was blocked in the summer of 2005, which generated the institutional crisis which required a period of reflection, searching, probing to pull the EU from the political impasse. The relaunch of the negotiations on EU institutional reform took place on the European Council held in Brussels (June 2007). On this occasion was realized an agreement regarding the negotiating of an Reform Treaty which to replace the Constitutional Treaty to allow overcoming the crisis. It was decided to convene the Intergovernmental Conference which will draft based on a detailed mandate and a timetable till the end of 2007. In general, the timeline was respected so that at 13 December 2007 the Treaty was signed by the leaders of the 27th Member States. It entered into force on 1st December 2009, occasion with which the President of the European Council announced that “Europe was out of the institutional crisis being willing to face the future challenges”. In this way, the political project institutionalized at Maastricht gave life to those stated in the Single European Act and double the economic objective of the Treaty establishing the European Community (TEC) becomes reality. A large part o the reforms are taken from the Constitutional Treaty which as shown, crashed in its application. It refers mainly to the functioning of the EU institutions and the conditions of its extend and the integration process. This time the Union [6] shall replace the EC si succeed to this, acquiring legal personality. The Lisbon Treaty amends both the Treaty on European Union (TEU) and the Treaty on European Community(TEC) which leads to the appearance of two separate treaties TEU obtained by modifying the former TEU and the TFEU obtained by the modifying of the former TEC. Lisbon Treaty 2007 (2009) has set therefore as an fundamental objective the completing and perfecting of the institutional reform process started by the Amsterdam Treaty, continued with Nice Treaty and tried by the Constitutional Treaty which was abandoned after the failure of its ratification by every Member States. The main mission of this Treaty is to ensure the functioning of the decision-making mechanisms in terms of accession of the new Member States. So the continuation of the project building the European Community depends by the clarification of the relations between the EU and the Member States, and the clear and precise competences for fulfilling its objectives and policies established by the Treaties. To this is added the recognition of the legal force of the Charter of Fundamental Rights of the EU, which through a set of fundamental


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values and rights enshrined and guaranteed by the EU will approach the European citizen by the European ideals. I. Creation of the European Union by the Treaty of Maastricht in 1992 (1993) and then its consolidation by subsequent treaties, particularly the Treaty of Lisbon (under which acquires legal personality) does not necessarily means the edification of a new institutional structure. The institutional reinforcement built since the foundation of Communities survived, being adapted step by step with the new requirements of building a united Europe. Therefore, the Treaty of Lisbon amends the EU institutions, giving them new skills and legal configuration designed to cope with the unprecedented rise of the EU. We insist on these issues below. According to the article 13 of TEU, the European Community has in its institutional structure seven institutions:

The European Parliament has an enhanced role because does not represent as claimed “the peoples of the States brought together in the Community” but “the citizens of the Union” in other words, a European identity conferred by the membership of the Europeans to the Union through the political-legal relationship. Also, the European Parliament is vested with legislative and budgetary powers along with the Council. The composition of the Parliament is established unanimously by the Council, at the initiative and with the approval of the institution. The maximum number of its members is 750 and the president, and the number of seats allocated to each nation cannot be less than 6 and more than 96.

The enhanced role of the European Parliament is expressed by the fact that being directly chosen by the European citizens, its powers are considerably increased in areas such as legislation, the budget and the international agreements concluded by the EU. And the fact that under the new Treaty , the use of co-decision is more frequent in adopting European policies, puts the Parliament almost on a par with the EU Council (representing the member states), in adoption of the most EU legislation. However the European Parliament remains in the background in the lawmaking process.

The enhanced role of the Parliament must be put in correlation with a greater involvement of the national parliaments in EU activities. Based on the principle of subsidiary, the EU can only intervene when can be achieved better results at the Community level. The new article 5 al.3 of TEU states that “The Union shall exercise its powers only if and to extent in which the Member States cannot achieve certain envisaged objectives neither at a central level nor at regional and local level and the action envisaged action can be achieved better at EU level, in terms of scale and the effects that it causes[6]”.

The European Council which till the Lisbon Treaty did not have the legal status of EU institution becomes aware of this status. Consists of Heads of State or Government from the Member States, its President and the Chairman of the Committee. At the works of the European Council participates also the High Representative of the Union for Foreign Affairs and Security Policy.

Treaty of Lisbon reiterates the mission of the European Council to boost the development of the EU and to establish the political guidelines necessary for such development. Are added also to the listed ones, the responsibilities for establishing the general priorities without recognizing its legislative functions (in this field or any other). The other objectives of the European Council concern: the ordinary management review process and simplified revision of the establishing and functioning EU treaties; appointment with a qualified majority of the EU High Representative; proposal to the European Parliament of a candidate for being the President of the Commission; appointment of EU Commission based on the Parliament’s approval (by qualified majority); identification of the EU strategic interests, finding serious and persistent breaches of the enshrined breaches in the TEU; appointment of the President, Vice-President and the other members of the Executive Board of European Central Bank.

Some provisions of the Lisbon Treaty refers only to the activity of the President of European Council which runs and impels the institution’s works, ensuring the continuity of the activities, facilitates cohesion and consensus within this body. He is obliged to present to the European Parliament a report after each European Council meeting (four times a year). In matters


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of foreign policy and common security ensures an appropriate representation of the Union without prejudice the powers of the High Representative. In line with the efforts to deepen and accelerate the activities of the EU is also the legislative consecration vote in the European Council in a significant number of fields such as: President’s election of the European Council for a term of two and a half years which is renewable, the appointment of the High Representative of the Union; EU Commission appointment based on the approval of the Parliament. When voting by qualified majority, this is defined in the same terms as in the Council of Ministers. In some areas the European Council decides by simple majority such as the adoption of Supplementary Regulations of procedure or procedural matters.

European Council President and the President of the Commission do not vote, fact which could be interpreted as a diminution of their prerogatives.

Finally, as another novelty element, can be retained the extend jurisdiction of the current Court of Justice and upon the acts adopted by the European Council. In this regard, the Court’s jurisdiction is limited when appealing an act of the European Council through which is stated the existence of a serious and persistent breach of the EU principles by a Member State.

COUNCIL OF THE EUROPEAN UNION ( ALSO KNOWN AS THE COUNCIL OF

MINISTERS). In the regard of the Council, Lisbon Treaty reiterates the traditional competences in

legislative and budgetary matter that is performed along with the European Parliament, to which he adds the function of defining and coordinating of policies, in accordance with the terms of their treaties.

The Council is composed from a representative at ministerial level of each Member State, authorized to represent the government [2] of the Member State and to exercise the right to vote. Usually the Member States designate as representatives foreign ministers who currently hold the position in the government. Is practiced however to send a state secretary instead of ministers or even of representatives which don’t belong to the government.

Important provisions of the Lisbon Treaty concern the procedure for qualified majority voting which is extended in other areas that the previous ones, and to ensure a much more efficiency and dynamic of the decision-making process. It is mentioned the date November 1st 2014 the one from which the calculation of qualified majority is based on the system of double majority of Member states and population. A double majority is attained when a decision is adopted by a vote of 55% of Member States representing at least 65% of its population.

The qualified majority represent the procedure to pass the decisions of common law. The art. 16, al. 3 of the TEU states that, the Council shall decide with a qualified majority except where the Treaties provide otherwise. Lisbon Treaty redefines this procedure, keeping the criteria set of the Nice Treaty. In special cases, expressly provided, the decisions can be taken by a simple majority, case in which must be ensured the majority of the members [4]. Also, must be recalled the situations stated by Lisbon Treaty in which the decisions are taken by unanimity. In the latter case each state has one vote.

Unanimity procedure is applied in matters of significant importance for the Community, such as accepting new Member States, triggering a common policy, amending the Treaties. It is about areas in which can occur certain political sensitivities. The Council deliberates and votes the draft normative acts publicly.

The functioning of the EU Council brings into question three issues: ensuring the Presidency; decisions making and the role of subsidiary bodies. Since we referred to how decision-making takes place, we will focus on the other two issues.

The presidency is ensured on a period of six months starting with 1st January 2007, in turn by each Member State in the order fixed by the Council, based on a program of coordination, the state which holds the presidency being supported by so called “troika” which is formed to ensure the continuity of President’s activity, meeting the old, current and future presidency[5].


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From 1st January 2009, the Council Presidency rotates between groups of 3 Member States, predetermined by an equal system which takes into account the diversity of states but also the need for a geographical balance. The country which assures the presidency exercises its attributes in all Council formations except foreign business formation. The other two states shall assist the Presidency in achieving goals in a common program.

The President in Office provides: training sessions; preparation of agenda; communication agenda with 14 days before the meeting; preparation of a work program for the Council which could help the state of whose membership is. As for the Foreign Affair formation, this prepares the external program of the Union on the basis of strategic guidelines, established by the European Council and not by the President of the Council.

The Council works in several configurations, with different tasks, their list being determined by the TFEU. There is a General Affairs Council which ensure the consistency of the works and of the different formations of the Council and the special Councils that bring together Ministers of the Member States on certain areas such as finance and economics, justice and foreign affairs, labor market, social policy, health, consumer protection, competiveness, domestic industry and health, communication and energy, agriculture and fisheries, environmental protection, education, youth and culture.

The auxiliary bodies are established for a good development of Council activities, from which is more important the Committee of Permanent Representatives (COREPER). This body is made up from delegates of the Member States (senior officials with the rank of ambassador), each of these providing a bridge between his state and the Community, because the dialogue between the Member States “starts in this Committee, giving the opportunity to know beforehand the points of agreement and disagreement, possibly solutions that are foreseen[1].”

The European Commission is the executive body of the Community or “the Union government”, which fulfills multiple and complex functions, according to the additions made by the Treaty of Lisbon. The Commission promotes the general interest of the Union and takes appropriate initiatives to that end; ensures application of the Treaties and of the adopted measures by the institutions; oversees the application of Union law under the control of the Court of Justice of EU; implements the budgets and manages the programs; exercises coordinating, executive and management functions, as foreseen in the Treaties, adopts the Union’s annual and multiannual programming initiatives to conclude institutional arrangement; ensures the external representation of the Union except foreign and security policy.

Judged by these powers, the Commission has the legal physiognomy of a genuine European “government”. Through its political-administrative nature is different by the EU General Secretariat or the General Secretariat of an international organization, since “it is not only the manager of the common actions, but through its competences and missions that it has, it is the piston of European integration process” [1].

As it is profiled, “the Commission is the executive body of the Union which provides Union’s own identity highlighting the Community objectives and tasks beyond the interests of Member States.”

As a supranational institution and guardian of the Treaties, the Commission is made of commissioners chosen on the basis of their general competences and their commitment to the European idea, among persons of indisputable independence. The requirement of European commitment is introduced by the Lisbon Treaty, in addition to the conditions previously imposed.

Commission’s mandate is 5 years. As a structure, consists of: a College (consisting of 28 Commissioners); Offices formed around each Commissioner and General Directorates headed by Commission members, similar Ministers from classical governments. Among the attributions of the Commission, Lisbon Treaty focuses on its legislative initiative monopoly. Article 17, al.2 of TEU states that: “Union legislative acts can be adopted on a Commission proposal, except the case in which the Treaties provide otherwise. The other acts are adopted at the Commission’s proposal where the Treaties provide so.


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In certain cases provided by the law, through an legislative act, the Commission can be empowered to adopt non-legislative acts and with vocation of general application, through which is completed or modified certain non-essential elements of the legislative act.

There is the so-called “legislative” competence by delegation which involves establishment of specific and precise objectives, of content, of field of application and length of delegation.

Also, when necessary, the Commission exercises “legislative” powers of execution under Art. 291 TFEU.

Besides legislative powers, the EU Commission fulfills important administrative attributions of control, representation, development of an annual or long-term strategy regarding its activity, editing of EU Bulletin.

Commission President acquires through the power of Lisbon Treaty powers which confers him the status of a genuine European prime minister.

According to the Treaties, he decides on the internal organization of the Commission to ensure the coherence, effectiveness and collegiality of its actions. He has the competence to modify whenever is necessary the Commission’s structure. By setting the political agenda, the President defines the guidelines within which the Commission exercises its mission.

In short, he is called to defend the general European interest. Through his responsibilities falls also the one to appoint vice-presidents (others than the High Representative), among the Commission members. Juncker Commission comprises 6 Vice-Presidents and the High Representative of the Union for Foreign Affairs and Security Policy, who is also Vice-President. One of them serves as first vice president and handles of a better enactment, of inter-institutional relations, the rule of law and the Charter of Fundamental Rights.

Court of Justice of the European Union is the main EU institution which ensures uniform application and interpretation of law union, considered to be the binder of European integration. The European construction is based on institutive treaties and the treaties that have followed (the latter being the Treaty of Lisbon), on rules and procedures to which all those involved in building them must obey.

The originality of European Community law prints an original character to the Court of Justice. It is a specialized court to which can address both the states and the individuals, legal or natural persons from EU states (directly). Through this feature, the Court differs from the International Court of Justice (The Hague) which is accessible only for states, not for natural or legal persons. On the other hand, the Court of Justice of EU doesn’t have any international vocation such as the International Court of Justice, being an internal justice of the Community, conceived by the model of state jurisdiction. Finally, as long as the competence of the Court of Justice of the European Union is mandatory, the competence of the International Court of Justice is optional “states not being subjected to this jurisdiction in case of a dispute, only to the extent in which they agreed to it”.

The Court of Justice of the European Union has a system of courts, each having its specific competences. Under this system, the Supreme Court till the Lisbon Treaty was the Court of Justice of the European Communities, supplemented by the Court of First Instance and the by specialized courts.

Like in the case of other institutions, the Lisbon Treaty advances in the transfer of sovereignty from Member States of the EU on union justice. The judicial union system remains unchanged as structure, but the names and skills bear some changes. As a name, the Court of Justice of the EU includes: the Court of Justice, the Court and the specialized Courts. Its mission is still the same, to assure the respect for law in interpretation and the application of the treaties. In general, the Court must ensure the respect for law in the interpretation and application of the Treaties watching over: the balance between the delegated powers of the EU and that remained of the states; of an accurate and coherent interpretation of union law; protecting the states, legal or natural persons in case of abuses during the integration process.

In this regard, the Lisbon Treaty recognizes to the Member States the right to determine the necessary remedies to ensure an effective legal protection in the areas covered by EU law. As a


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genuine union jurisdiction, CJEU ensures a uniform interpretation of the Union law across the EU territory, having a mandatory competence. The originality of Union jurisdictional system is supported by the fact that, for the first time, the Court has as a complementary body (but subordinated) a legal Structure of first instance but also specialized courts. Also, the entire judicial system combines the valences of an international jurisdiction body with those of a national court. To the extent in which the addressed action of the Court come from the states, institutions or natural and legal persons is confirmed both the valences of an international court (having as litigants states) and the characters of a national court (with the litigants of a natural or legal persons). To these are added the likeness of the Court with a supreme court in the sense of national law, in the extent in which its decisions are final, and cannot be contested by ordinary means of appeal. Combining the features of the two legal establishments (national and international), CJEU “is an instance (sui generis) being the judicial authority of an independent legal system, unprecedented in the state or public international law2”. In the light of those said, the supranational character of the CJEU is better shaped. Its broad powers gives it in the same time the following attributes of: classical international court, Constitutional Court; administrative court, Court of Appeal or Supreme Court, civil or employment court. Compared to the previous regulations, the Lisbon Treaty completes the institution’s profile through a more appropriate allocation of the judicial functions and by creating specialized courts in specific areas of activity. The “strength” of the reform under the Lisbon Treaty, in regard of this institutions aims the extend of legal capacity of the Court in the exercise of the judicial review over the exercise of powers by the EU. The reform involves either adding some areas in which the Court’s competence was excluded or the adaptation of its powers to the new operating conditions of EU. To all these is added the Court’s competence to settle disputes in which will be invoked the breach of fundamental rights enshrined and protected by the Charter of Fundamental Rights (2007) or the European Convention of Human Rights to which EU acceded. But recognition of binding the legal force of the Charter and the accession to Convention could bring into question some possible conflicts of jurisdiction between the CJEU and ECHR.. To avoid such a dilemma, the Lisbon Treaty brings precious explanations for the situations in which the Charter enshrines rights that are found in the European Convention of Human Rights, the meaning and the scope being the same as those stated in the Convention. On the other hand, the Lisbon Treaty and the EU Charter of Fundamental Rights have been careful not to extend the jurisdiction of the Court of Justice in areas that are the exclusive competence of ECHR. The Lisbon Treaty reiterates the provisions of Nice Treaty regarding the presence in its structures of a judge from every state, mentioning that the judges and general advocates of the Justice Court, and the Court’s judges are chosen among the personalities who present all the conditions of independence and who accomplish the terms provided by TFEU. They are appointed by common accord by the governments of the Member States for six years. The judges and Advocates General who end their mandate can be reappointed (art. 254 (2) TFEU. During their mandate, the judges and advocates don’t receive and accept instructions from any government or other states sending bodies[2].

COURT OF AUDITORS Compared to the other institutional structures, ECA has a history more recent. After the

Merger Treaty (1965) was created a common accounting structure of the three Communities which replaced the ECA (by the Treaty of Brussels in 1977) having competences in auditing and discharge of the Community activity. The Court of Auditors in not what the name seems to suggest, namely a Community jurisdiction. By the Treaty of Maastricht 1992 (1993) it acted as an complementary body having a technical character, the mentioned Treaty raising it to the rank of Community institution without substantially altering its powers. The latter Treaties gave it more powers such as the enlargement of the procedural capacity before CJEU (by the Treaty of Amsterdam 1997 (1999)) or the possibility to hold two Chambers at this Court, which functioned


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only in plenary as a collegial body (through Nice Treaty 2001 (2003)). The status of EU institution is confirmed by the Treaty of Lisbon which acknowledges the increased powers in matter of supervision and investigation of the way in which are the revenues and expenditures are made, the financial resources of EU. It is appreciated to be “the financial conscience of the EU” or the “watchdog” of its assets. Each Member State is represented by a person with experience and professionalism which presents every guarantee of independence and fidelity towards the Union’s values. As in the case of the judges which compose the Court of Justice of the EU, the members of the Court of Auditors don’t receive or accept instructions from any government or other bodies.

Further, the ECA has Chambers and a General Secretariat. The 28 members which represent the EU states are appointed on a period of 6 years by the EU Council, after consulting the EU Parliament, decides unanimously. Among the members of the Court it is designed a President for a period of 3 years with the possibility of renewal.

The Court of Auditors functions under an internal regulation which states the functions,, most important being: those of control of the accounts of all Union revenues and expenditures; examination of the legality and regularity of the income and expenditure to ensure a good financial management; to draw up an annual report of each financial year; of presentation to the Parliament and the Council of a statement which certifies the reliability of the accounts, legality and regularity of the underlying transactions; the preparation of special reports covering any comments.

To all these is added the competence to issue opinions at the request of any EU institutions and to approve financial regulations, aiming the execution of union budget that is to be adopted by the EU Council.

EUROPEAN CENTRAL BANK Until the Lisbon Treaty, the definition and practical realization of monetary policy of EC

imposed a system of the central banks that had its legal basis in the article 105 of the consolidated EC Treaty. The mentioned article secures the main objective of the European System of Central Banks (ESCB) comprising the ECB and the national central banks, being driven by the decision making bodies of ECB (the governing Council and the Board).

Treaty of Lisbon brings some substantial modifications in the legal regime of the ECB. The Eurosystem is limited only to the national central banks that don’t have legal personality. The powers of this system are exercised in order to maintain price stability and supporting general economic policy of the EU, given that this support to be harmonized with the primary aim. Although belong to the Member States of EU, the members of ESCB have their own independence without acting on the basis of some provisions coming from the country to which they belong.

As for the ECB, this became a basic institution of the EU having as an primarily objective establishing and conducting the monetary policy of the EU. Together with the European central banks of the Member States whose currency is euro, ECB structures the Eurosystem.

In the light of the recent regulations, the main bodies of the ECB are: -The Directorate (consisting of director, deputy directors and specialists in monetary and

banking matters). -ECB Council (made of the members of the Executive and national bank governors of the

states participating in the euro). -The Enlarged Council of ECB (made of the President and Vice-President of ECB and the

governors of the national banks of each Members States). The competences of the three structures of establishment, management and coordination of

monetary policy are well defined. The Directorate takes necessary decisions for the daily functioning of the bank and addresses instructions to the national banks. The ECB Council decides monetary policy with strategic and union laws specific to this field. It is the most important decision-making body.


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The enlarged Board of ECB, given its composition is a consultative forum which grants assistance for the preparation of statistics, reports for the preparation and introduction of the euro in the new states.

Given the importance and the complexity of management, coordination and control of EU monetary policy, the ECB is equipped with a device built for the most extended part of the “directions”.

The tasks of the ECB have a very wide deployment on the field of monetary politics, covering: the development and management of the EU’s monetary policy: enforcement, conducting business in the field of payments used in international settlements replaced funds, management of the currency reserve of the states; approval of the euro currency issue, the optimal functioning of payment and settlement system; price stability; statistical data collection necessary for the operation of the bank; monitoring progress in the banking system.

The ECB has legal personality, being the only one authorized to issue the euro. In exercising the powers and the management of its finances, it has total independence so that institutions, bodies, offices and Union’s agencies and the governments of the Member States cannot influence in any way its duties. But the Council (unanimously), after consulting the Parliament and the ECB may entrust to this, specific missions relating the prudential supervision of credit institutions and other financial institutions. To these missions are excluded insurance companies.

It should be added that in the areas in which ECB has responsibilities is consulted on all proposed Union’s acts, also on every project of regulation on national level and can deliver opinions.

CONCLUSIONS Treaty of Lisbon does not change fundamentally the institutional structure of the EU which

will be based on the triangle: Parliament, Council, Commission to which is added the Court of Justice and the three institutions to which the new Treaty confers or validate the rank of EU institutions (European Council, the Court of Auditors and the European Central Bank). Ending a protracted crisis of the Constitutional Treaty (2004) and on the background of a complex negotiations, the Lisbon Treaty has the merit to redefine the existing institutional framework, contributing substantially to strengthening of the relationship between the principle of conferral powers of the EU and exerting their effective. Regarding the new institutional framework, the art 13 TEU states that this seeks to promote the values, pursuit of its objectives, of its citizens and of the member states and also the coherence, effectiveness and continuity policies of EU. In the stated purpose it is to note the inclusion of the EU’s basic institutions: Court of Auditors, ECB and the European Council. The latter is made of Heads of State and Government of the Member States and European Commission President and has an essential role in defining the guidelines and general policies of the Union although doesn’t have legislative powers.

On the line of redefining the institutional framework are also established a set o precise and clear rules, much more flexible in the decision-making process conducted by the EU institutions called upon to facilitate the achievement of the EU. These rules are subjected to the principle of representativeness in the European Parliament and the equality of Member States in the Council. Therefore, the co-decision procedure has been extended with a number of 50 new areas, turning them into ordinary legislative procedure. Under the new Treaty, European Parliament’s competences are enhanced, so that it complies with the Council and along this fulfills the legislative and budgetary position.

As for the Commission, the new article 17 TEU focuses on its function to promote the general interest of the Union and to take initiatives to monitoring the measures adopted and a fair and just application of Treaty’s provisions. Of course, the Commission oversees the application of the union law under the careful control of the Court of Justice. In the legislative process, the Commission has greater powers so that the legislative acts cannot be adopted until the Commission’s proposal (if the Treaties provide otherwise). Instead, non-legislative acts are adopted


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to the Commission’s approval only if the Treaties provide this. No less important is the Commission’s power to implement the budget and manage the execution of Community programs.

In case of a legal gap, on certain objectives set by the treaties, the Lisbon Treaty gives the Commission the competence to propose legal measures. In respect of this measure, the Council shall unanimously act only after Parliament’s approval. Of course, the adopted measures must presented to the national Parliaments in the procedure of subsidiary principle that the Commission must carry out. The Lisbon Treaty does not limit the areas covered by this procedure, thing which does not means it covers including objectives related to Pillar III (JHA) of EU, on which the Union has no specific skills or had a shared competence. In terms of foreign policy, a certain procedure could not be accepted.

The Court of the Auditors and ECB ennobled by the same Treaty (Lisbon) remain basic institutions of the EU, these stay in general in the frames of the previous missions, with some changes in structure and competences justified by the unprecedented deepening and broadening of the European integration process.

ENDNOTES

1. Through EU Maastricht Treaty it was not substituted to Communities nor has legal personality distinct from that of the Communities(P. FiSCHER, h. f. Körk, Europarecht. Das Recht der Eudes Europaratos und der wichtigsten anderen europäischen Organicationen, Ed. Hinde, Wien, 1995, p.253 citat de Gy. Fabién, Drept instituţional al Uniunii Europene, edit. Hamangiu, Bucureşti, 2012, p.100)

2. Regarding the legislative power, it should be noted that the Lisbon Treaty establishes two types of legislative procedures: ordinary and special procedures. The ordinary procedure is in esence co-decisional and involves the joint adoption by the Parliament and Coucil of the sources derived from union law at Commission’s proposal(art 289. Par 1 TFEU). Special procedures are all the other procedures covered by the Treaty and under in which the other legal acts are adopted. In this case, the Council decides unanimously after consulting the Parliament.

3. By that time it has the configuration of an intergovernmental conference of international law, working as an supreme forum for ultimate government of the EU. This forum is distinct from the intergovenmental conferences of the Member States ghatered and having as an objective the changing of the Treaties;

4. The EU Council differs from the Representatives of the Governments reunited in the Coucil, which represents a Ministerial Conference, which is established whenever primary law states this or when the Member States conside appropriate. This body has the status of an interstate meeting and it adopts specific acts of public international law. Also mustbe avoided the confusion between the EU Council and the European Council. For details see E. Iftime, Construcția comunitară europeană, Edit. Didactică şi Pedagogică, Bucureşti, 2003, p.92.

5. The Council also has an General Secretariat ( over 2700 officials) but also groups of experts, commitees in various fields (economic, visas, regionalization, currency, local development, etc).

6. COREPER operates in two configurations:- COREPER I (consisting of permanent deputies) it deals with technical problems in areas such as agriculture, fisheries, internal market, budget, research, environment, energy, education, health , social and cultural). COREPER II- (meets ambasadors) and deals with major political issues ((foreign economic policy, foreign policy and security, economy, justice and home affairs, EU enlargement).

7. The number of Commissioners has varied over time. By 1st May 2004, the Commission had in its componence 20 members to which were added 10 Commisisioners of the states which joined on 1st May 2004. On first January 2005 the number of Commissioners was fixed at 25 (one country one commissioner) and in 2007 widened with 2 members from Bulgaria and Romania. Currently the new Commission is established after the entry in the force of Lisbon Treaty, although as the Treaty states, from 1 November 2014 the Commission was to have a number corresponding to 2/3 of the Member States. The Commissioners are elected among nationals of Member States under a system of striclty equal rotation between the Member States, reflecting the geographical range of all Member States (art. 244 of TFEU) of the Lisbon Treaty.

8. According to this article, when is necessary to ensure uniform conditions for implementing legally binding acts in the Member States of the Union, these acts can confer the Commission executive competences under the strict control of the Member States.

9. The new European Commission under the presidency of Jean Claude Juncker is looming to be a strong team with a new style of work organized around project teams led by the vice-president, which includes more commissioners. In this way it creates opportunities for dynamic interaction of all members of the college to remove the obstacles and static structures.

10. The High Representative of the Union for Foreign Affairs and Security Policy is appointed by the European Council

11. Has its origins in the Court of Justice of ECSC (1952) consists of seven judges (without vocation) and then in the Court of Justice unique fot the three comunities (1958) formed of 7 judges and two advocates-general.


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12. After the entry into force of the Single European Act there was the need but also the possibility of creating an judicial body of first instance in specific, Court of First Instance (functional since October 1989) which after the accessions of 1995 (Austria, Finland, Sweden) was composed of 15 judges and 9 lawyers (since 2000 the number of Advocates General has returned to 8). After the Nice Treaty, the Court will have the same position and importance of the original Community law, as in the Court of Justice.

13. The creation of specialized courts in specific areas started after the entry into force of the Nice Treaty when in 2005 the EU Council decided to establish the Civil Service Tribunal.

14. Depending on the time of the accession and of the European and global realities, are in a continuous dynamic and resettlement (revaluation).

15. See the art. 28. Al. 1, second thesis of TFEU. Are part of the Eurosystem the 12 countries which have adopted the euro in 2002 and the other states that have adopted the euro introduction after In Romania the euro is postponed for 2017.

BIBLIOGRAPHY

[1] O.Bibere, Uniunea Europeană între real şi virtual, Edit.All Educaţional, Bucureşti, 1999; [2] E.Iftime, Construcţia Comunitară Europeană, Edit.Didactică şi Pedagogică, Bucureşti,2003; [3] Louis Cartou, L'Union Europeens, Traites de Paris, Roma, Maastricht, 2-eme edition, Ed. Dalloz, Paris, 1996 [4] D.Chalmers, European Union law, Ed. University Press Chambridge, Paris , 2010 [5] Gy Fabian, Drept instituţional al UE, Edit.Hamangiu, Bucureşti, 2012. [6] T. Savu, Obiectivele şi competenţele Uniunii Europene consecrate de Tratatul de la Lisabona ,în Revista Română de Drept Comunitar nr. 1/2008, p.35.


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INSTRUCŢIUNI UTILE PENTRU AUTORI /

AUTHOR GUIDELINES RO

Revista The USV Annals of Economics and Public Administration primeste articole, din

toate domeniile economice, pe cele 5 sectiuni: � Economie, comert, servicii � Management si administrarea afacerilor � Contabilitate-finante � Statistica, informatica si matematica economica � Drept si administratie publica Este recomandabil ca lucrarile sa fie bine structurate astfel încât sa asigure claritatea continutului precum si esenta temei tratate. Toate articolele trebuie sa prezinte cercetari originale care nu au mai fost publicate sau trimise spre publicare în alta parte. Lucrarile prezentate la conferinte sunt acceptate cu conditia ca ele sa nu fi fost publicate în întregime in volumul conferintei. Lucrarile vor fi redactate în întregime în limba engleza. Lucrarile vor fi recenzate in sistem blind review. Titlul lucrarii Se va scrie cu Times New Roman, caracter 14, bold, centrat în partea de sus a paginii, si se va scrie cu majuscule. Autorii lucrarii Numele lor se va scrie la un rând după titlul lucrării, centrat, precizându-se: titlul stiintific, universitatea/instituţia, localitatea, ţara si e-mailul. Se va folosi Times New Roman, caracter 10, cu litere mici. Numele si prenumele autorului/autorilor va fi scris cu litere bold, iar numele de familie va fi scris cu litere mari (caps). Rezumatul lucrarii Rezumatul se va scrie după autori, lăsând un rând liber înainte; trebuie sa cuprinda informatii suficiente pentru ca cititorii sa poata aprecia natura si semnificatia subiectului, caracterul adecvat al metodei de cercetare, rezultatele si concluziile lucrarii. Rezumatul nu este o introducere, acesta prezinta în sinteza rezultatele esentiale ale cercetarii. Rezumatul se va scrie cu Times New Roman, caracter 10, italic, justify. Este necesar ca el sa aiba un numar de 200-250 de cuvinte, spatiate la un rând. Cuvinte cheie Selectati 5-6 cuvinte cheie (cuvinte sau expresii) care surprind esenta lucrarii. Enumerati acesti termeni în ordinea descrescatoare a importantei lor. Acestia se vor scrie cu Times New Roman, caracter 10, la un rând liber după rezumat. Clasificare JEL Se va trece unul sau mai multe coduri JEL, in care lucrarea poate fi inclusa din perspectiva subiectului abordat. Lista cu coduri o gasiti la adresa: http://www.aeaweb.org/journal/jel_class_system.html Introducerea Pentru introducere, formulati scopul lucrarii, motivatia temei alese si explicati pe scurt modul de abordare si argumentele necesare. Înainte de introducere se lasă 2 rânduri libere. Continutul lucrarii Organizati corpul lucrarii utilizând titluri si subtitluri pentru a accentua atât continutul cât si claritatea acesteia. Titlurile şi subtitlurile se vor scrie cu litere mari, 12, bold, aliniate la stânga. Se va lăsa un rând liber înainte şi unul după. Trebuie avute în vedere urmatoarele:

terminologia recunoscuta a domeniului pentru a descrie orice subiecte sau proceduri experimentale folosite pentru colectarea si analiza datelor;

includerea metodelor detaliate, astfel încât cititorii sa poata urmari prezentarea materialului; formularea rezultatelor în mod clar si succint; evidentierea rezultatelor cercetarii si impactul acestora, atât global cât si specific.

Textul lucrarii se va scrie cu Times New Roman, caracter 12, spatiat la un rând. Tabelele si figurile sa fie dimensionate si plasate în corpul lucrarii asa cum doresc autorii sa apara în revista. Trebuie avut grija ca acestea sa se încadreze pe o singura pagina. Continutul lor se va scrie cu Times New Roman, caracter 10, iar titlul coloanelor tabelelor se va scrie cu Times New Roman, caracter 10, bold. Titlul si numarul tabelelor vor fi pozitionate deasupra acestora, iar titlul si numarul figurilor, sub acestea. Atunci când este cazul se va mentiona si sursa. Numarul tabelelor si figurilor va fi amplasat în corpul textului, într-o paranteza, acolo unde se fac referiri la ele, de exemplu: (figure no. 1); (table no. 1) Graficele trebuie sa fie clar executate astfel încât sa ofere copii alb-negru cât mai lizibile. Numerotati toate ecuatiile si formulele folosite plasând numerele lor în paranteze, în dreapta acestora. Explicati abrevierile si acronimele prima data când apar în corpul textului, chiar daca au fost definite în rezumat.


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Nu se vor folosi note de subsol, dar se poate opta pentru unul din urmatoarele moduri de citare: - sunt permise note la finalul lucrarii (endnotes), situate înaintea bibliografiei si introduse manual. Ele se vor scrie cu Times New Roman, caracter 10, italic. Trimiterile bibliografice din textul lucrarii se pot numerota cu cifre arabe [1], [2] etc. - trimiteri in text intr-o paranteza specificand numele autorului si anul aparitiei lucrarii: (Johnson, 2000), (Johnson and Jackson, 2001) - lucrare cu 2 autori, (Johnson et al., 2002) - acolo unde sunt mai multi autori, (Johnson, 2000; Peterson, 2001) - daca ideea se regaseste la mai multi autori, sau (Johnson, 2000a) si (Johnson, 2000b) - in cazul in care exista doua lucrari diferite ale aceluiasi autor aparute in acelasi an (a si b indicand ordinea in care apar la bibliografie). Se poate specifica si pagina in paranteza (Johnson, 2000, 250). Este obligatoriu ca autorii citati in text sa se regaseasca la bibliografie. Concluzii Concluziile pot recapitula punctele principale ale lucrarii, dar nu trebuie sa reproduca rezumatul. Ele pot cuprinde aspecte legate de importanta lucrarii sau pot oferi sugestii referitoare la aplicatii ale acesteia sau directii de extindere a cercetarilor. Bibliografie Lista bibliografica, de la sfârsitul lucrarii, se va scrie în ordine alfabetica, dupa numele autorului, numerotându-se. Când anumite studii, lucrari, articole sunt publicate în volum, atunci se va mentiona numarul acestuia si paginile. Titlul lucrarii va fi scris cu font italic. Precizari importante

Articolele trebuie sa aiba 6-10 pagini, pe formatul A4, marginile stanga, dreapta, sus, jos: 2 cm. Lucrarile trimise trebuie sa fie formatate în Word cu extensia doc. Articolele care nu respecta aceste instructiuni vor fi respinse inainte de a fi date la peer review.

Vă rugăm manifestaţi foarte mare grijă pentru corectitudinea traducerii în limba engleză. Vă rugăm să trimiteţi şi varianta în limba română a art icolului, necesară pentru controlul ştiinţific (intr-un document separat, incarcat ca fisier suplimentar). Veţi primi un răspuns în urma procesului de recenzare. Lucrarile se vor incarca on-line, astfel: pana pe 31 martie pt nr.1 si pana pe 30 septembrie pentru nr.2. In cazul in care se primesc foarte multe lucrari, ordinea publicarii este cea cronologica a datei in care au fost trimise. Pentru alte detalii sau noutăţi vă rugam urmăriţi site-ul revistei: www.annals.seap.usv.ro .

EN

The USV Annals of Economics and Public Administration welcomes theoretical and

empirical articles, from all economic fields, according to the 5 sections: � Economy, trade, services � Management and business administration � Accounting-finance � Statisitics, economic informatics and mathematics � Law and public administration It is expected that manuscripts will be organized in such a manner that maximize both the substance and clarity of the document. All articles should report original research that has not been published or submitted for publication elsewhere. Papers presented at conferences are accepted, provided that they have not been published in full in Conference Proceedings. The papers will be all written in English. The papers will be checked in blind review system. Paper Title Must be in 14-point bold type, Times New Roman, centered across the top of the page and will be writen in uppercase. Paper Authors Author’s names will be written under the paper title after a blank line, centered across the page, single spaced specifing: title, university/institution affiliation, country and e-mail address. It must be written in 10 point type, Times New Roman in lowercase. First name will be in caps and the whole author(s) names will be in bold. Paper Abstract It will be written after authors leaving a blank line before. The abstract must include sufficient information for readers to judge the nature and significance of the topic, the adequacy of the investigative strategy, the nature of the results and the conclusions. An abstract is not an introduction, it summarizes the substantive results of the work. The abstract will be written in 10 point type italic, Times New Roman, justify. It must have 200 to 250 words, single spaced type. Keywords Select 5 to 6 keywords (words or expresions) that capture the essence of your paper. List the words in decreasing order of importance. All the key terms must be translated in English and attached to your


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abstract. It will be written in 10 point type, Times New Roman, after abstract leaving a blank line before. JEL Classification Please put one or several JEL codes, according to the subject of your paper. The codes can be found here: http://www.aeaweb.org/journal/jel_class_system.html Introduction For introduction, state the purpose of the work, the motivation of the chosen theme and, briefly explain your approach and the necessary arguments.Before introduction please let 2 blank lines. Paper Content Organize the body of the paper using titles and subtitles to emphasize both content and clarity. The titles and subtitles will be written in caps, 12, bold, left aligned. Please let a blank line before and one after. Consider the following:

the accepted terminology of the field to describe any subjects or experimental procedures used to gather and analyze data;

include detailed methods, so readers could be able to follow the investigation; state the results clearly and succinctly; the implications of the findings and minutely discuss the impact of the results, both globally and

specifically. Typeface must be 12-point Times New Roman type single spaced. Tables and figures should be sized and placed in the body of the paper just as the authors want them printed in the journal. Care should be taken so that tables and figures could be on one page. The tables contents will be written in 10 point type, Times New Roman and the heading of the tables will be in 10 point type bold, Times New Roman. The titles and numbers will be positioned above the table and the title and number of the figures bellow. When it is needed, the source will be mentioned. The number of the tables and figures are to be positioned in the body of the text, in a paranthesis, wherever they are mentioned, for example: (figure no.1), (table no.1). The graphs must be executed clearly so as to give clear black and white copies. Number all the equations and formulas used positioning the numbers in paranthesis on their right side. Define abbreviations and acronyms the first time they are used in the text, even after they had already been defined in the abstract. Footnotes are not allowed, but you can choose one of the following citation ways: - endnotes at the end of the paper, situated before bibliography and introduced manually. They will be written in Times New Roman, size 10, italic. The bibliographic references in the text of the work will be numbered with [1], [2] etc. - citations in text in a parenthesis specifying the author name and the year of the work apparition: (Johnson, 2000), (Johnson and Jackson, 2001) – work with 2 authors, (Johnson et al., 2002) - work with several authors, (Johnson, 2000; Peterson, 2001) – if the idea is found at many authors, or (Johnson, 2000a) and (Johnson, 2000b) - in the case where there are 2 different works of the same author appeared in the same year (a and b indicating the order in which they appear at bibliography). It can be also specified the page in the parenthesis (Johnson, 2000, 250). Authors cited in the text must be found in the bibliography. Conclusions Conclusions may review the main points of the paper, do not replicate the abstract as the conclusion. A conclusion might elaborate on the importance of the work or suggest applications and extensions and extensions of the research. References Sources should be in alphabetical order by author’s last name, the list being numbered. When certain studies, research, articles are published in a volume, the volume numbers and pages will be specified. The title of the work will be written in italic. Important Specifications The articles must be at least 6 to 10 pages long in the style A4 sheet, margins left, right, top, bottom: 2

cm. Submitted documents must be in PC-formatted Word (.doc) file. The articles that don't respect specified guidelines will be rejected before they are sent to peer review.

The Romanian authors will also send the article in Romanian language (in another document, uploaded as a supplementary file), necessary for the scientific control. The journal appears twice a year (June and December). For the first number of the review (June), the manuscripts should be submitted on-line until 31 March and for the second issue until 30 September. In the case that a lot of articles are received, the publication order is settled chronologically by the date when they were submissed to us. For other details or news, please check our site: www.annals.seap.usv.ro .

Pentru comenzi va rugam sa ne contactati pe adresa de e-mail a revistei: [email protected] . For commands, please contact us by e-mail at the address: [email protected] .

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