Lionello F. Punzo (Faculty of Economics, University of Siena and CIRJE, University of Tokyo)
Abstract
A transition path is expected to lead, eventually, to economic performance and sectoral structure typical of market economies. This twofold result would issue from a complex resource re-allocation process, almost automatically igniting a new mechanism of accumulation and growth. Romania's experience of persistent fluctuations around a descending trend, however, seems to contradict such notion of the one-way, self-fuelling path. It causes us to rethink some of the analytical tools and theories economists are using everyday. In this paper, I will offer the reflections of an academician together with, hopefully, some more practical suggestions. My main point is that an analysis focusing solely upon resource re-allocation mechanisms cannot fully account for Romania's erratic transition because it tends to miss the link with the dual processes of accumulation and creation of new resources. I will, therefore, reconstruct the "other side" of Romania's story by looking at its dynamic structure, described by the distribution of the economy's sectoral paths. The evolution over time of such distribution is the key to understanding the two issues of macroeconomic vulnerability and the non-sustainability of the country's current situation. Thus, the dynamics of Romania's economy is treated as a specimen of an independent variety of transition. It is one that not only proves unable to initialise and then sustain long-term growth; it seems to actually absorb and destroy more resources than it creates, in this way generating a slow agony from time to time interrupted sudden bursts of activity. The term dynamic trap is meant to describe such a repeating pattern of wild fluctuations around a contracting trend. Due partly to the short time horizon and data availability, the conclusions of the foregoing analysis can only be tentative. Still, they clearly point out the need to re-consider policy for Romania and similar countries. In particular, measures are required to put in place and to enhance mechanisms of technology transfers, to re-orient sectoral composition that generates trade specialization, and generally to create conditions for an accelerated process of accumulation of physical as well as human capital assets. The economic environment in such countries seems unable to process macroeconomic policies in the expected way.
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number
CIRJE-F-142.
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