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What can public institutions do to promote development?

This article outlines a number of priorities which should be taken into consideration by public institutions in Romania, to encourage its sustainable growth and development. A particular focus will be placed on the need for investments in infrastructure.

Any development strategy has to start from a number of key premises:

  1. A significant role in a country’s development is played by a number of immovable factors, such as geography (Romania would be more developed if it were closer to Europe’s economic core) or path dependency;
  2.  Market forces are crucial in driving development and they should be encouraged whenever possible (Romania’s development after 2000 is to a large extent the result of the gradual integration into European markets);
  3. Public institutions play a vital role in the development process, but they should be strategic in how they play this role.

 

At its core, economic growth is a product of two factors: population growth (i.e. more people who produce and consume more) and individual productivity increases (i.e. with each person producing on average more). Since population growth or decline is harder to control (Romania has had a declining population for the past 25 years), economists have historically focused on how the increase in individual productivity could be encouraged. In fact, much of economic theory focuses exactly on this topic.


To encourage individual productivity growth, public institutions have a number of tools to their disposal. They can, for example, invest in education, they can foster a democratic system which enables people’s access to opportunities, or they can create an environment favorable to creativity and innovation. History teaches us that the places that most favor innovation are cities. In most developed countries, a large share of economic growth is engendered by a small number of large cities. When it comes to productivity, large urban agglomerations have a number of aces up their sleeves:

  1. Large urban agglomerations offer large markets for producers;
  2. Urban agglomerations enable the development of a more eclectic and more dynamic economic base (e.g. a tattoo artist may find it easier to identify a clientele in a big city than a small town);
  3. Big cities offer people access to more opportunities (universities, culture, a larger and more diverse number of available jobs);
  4. People are generally more productive in large urban centers because they are surrounded by a larger number of  experts (in their own field and in other fields) from whom they can learn.

 

Under optimal conditions, cities concentrate economic resources and human talent in a virtuous cycle of increasing  urbanization that generates a diverse range of opportunities, enabling people to find better-paying jobs, companies to recruit employees with the right set of skills, and capital and ideas to flow across space more efficiently. The benefits of  agglomeration kick in rapidly, increasing the attraction of cities as living and working spaces. As more resources concentrate  around certain centers, vibrant local economies emerge, and growing, denser cities pull the country’s economy forward with  more strength and resilience than ever before.

 

Consequently, to encourage the development of Romania, public institutions should encourage the development of urban  areas, better connecting them to markets inside and outside the country, better connecting them to surrounding labor pools (e.g. in the wider metropolitan area), and creating an attractive urban environment that will allow cities to attract and retain  people and firms. In this vein, four critical priorities are key for Romania in the short and medium-term: 1) good connective infrastructure, internally and with European/global economic centers; 2) stronger institutions in lagging areas (e.g., education, healthcare, land markets, water and sewage system, etc.); 3) measures targeted at marginalized communities throughout the country; and 4) quality of life nvestments in the most dynamic and competitive cities. These priorities are summarized in Figure 1 based on geographic reach and the development level of different areas in Romania.

 

 

 

A number of immediate priorities that should be considered by public authorities is provided below, with the important caveat that the priorities mentioned are not meant as a prescriptive list of recommended investments, but as examples of a potential path to achieve Romania’s sustainable and inclusive development.

 

INTERNATIONAL LEVEL – shorten the distance to large markets globally by improving infrastructure and encouraging cross-border flows of people, capital and ideas.


Given that 70% of Romania’s exports go to Western Europe, it is critical to improve links to the West. An increasing share of Romania’s trade is dependent on road infrastructure, yet the country still has one of the least developed road networks in  Europe. Most importantly, in 2013, a highway connection to the Western border was yet to be established.

 

The gravity models in Figure 2 were developed to assess which infrastructure links are most needed, looking at synergies between different cities, taking the existent infrastructure into consideration (left map) and the road network proposed from the National Spatial Plan (right map). In short, a gravity model follows the principle of physics which says that the attraction  between two bodies is greater, the greater their mass is and the shorter the distance between them. When applied to cities, the attraction between two urban areas is greater (e.g. economic attraction or demographic attraction) the larger they are and the shorter the travel distance between them. In this line, a Priority 0 can be inferred from Figure 2.

 

 

Priority 0: Completion of the A1 highway (Corridor IV) and the A3 highway (the Transylvania highway and the Comarnic- Brasov highway)

 

As the map on the right shows, there are two West corridors that seem to be for a highest-ranking priority – the A1 and A3 highways. Of the two, the A3 highway would make more sense from an economic efficiency point of view, as it connects some of Romania’s most dynamic urban centers – Bucharest, Ploiesti, Brasov, Targu Mures, Cluj-Napoca, and Oradea (i.e. 3 of the 7 growth poles and 2 of the 13 urban development poles in Romania) – with each other and to the West. From a financial efficiency point of view, however, it is the A1 highway that makes the most sense, as it is part of the TEN-T network and is eligible for EU funding.

 

REGIONAL LEVEL - Improve connections between leading and lagging areas within Romania to enable efficient concentration of resources and spillover effects.

 

A second priority should be the development of connective infrastructure to the most dynamic areas in Romania – i.e. the growth poles. On the one hand, improved accessibility to the growth poles will enable firms that invest there to leverage a larger, stronger labor market.


On the other hand, better connections to these cities will offer a larger pool of people better access to the opportunities that these dynamic centers offer (e.g. jobs, education, healthcare, culture, entertainment, airports, etc.).

 

Priority 1: Complete the Bucharest Ring Road

 

The second most developed area after Bucharest is Ilfov County, which surrounds the capital. To enable better connections between the communities in Ilfov and those in Bucharest, and to facilitate a full traffic bypass around the capital, it is critical to complete Bucharest’s Ring Road. The ring road would allow better access to the capital to the additional 2 million people that live within a one hour drive.


Priority 2: Extend Bucharest’s Public Transport System to the wider metropolitan area

 

Because the cost of living and land prices have been growing continuously in Bucharest, many people and companies have moved to the outskirts of the capital city, in Ilfov County. Ilfov is in fact one of the fastest growing areas (both in demographic and in economic terms) in Romania, and having better links in and with this area is critical. This could entail, for example, an extension of the metro network (which has recently become eligible for EU funding) and an extension of the bus, tramway, and trolleybus networks from Bucharest to the metropolitan area. The same argument could hold for other major cities, depending on their density profiles, flows of people/firms, etc. In addition, investments in bicycle and pedestrian paths would ensure the development of sustainable transport options in wider metropolitan areas.

 

In addition to better connections to the areas immediately surrounding Bucharest, it is critical to also improve connections between the functional area of the capital and some of the lagging areas in Romania.

 

Such connections would enable people in those lagging areas an easier access to the key opportunities that Bucharest offers (jobs, education, healthcare, transport hubs, culture, entertainment, etc.). Obviously, connective infrastructure investments  should be prioritized based on the number of people who would get connected.

 

The demographic gravitational maps in Figure 3 indicate the areas where the proposed highway and expressway network in the National Spatial Plan would enable the most significant synergies. It becomes immediately obvious that one of the areas that would benefit most from improved road networks is the North-East Region.

 

 

Priority 3: Consider building the Moldova highway

 

The North-East Region is one of the least developed regions in Romania, and also one of the regions with the highest population densities in the country.

 

Developing a highway, or maybe an expressway in a first phase, between Bucharest and Suceava-Botosani , would not only enable people in the North-EastRegion better access to the opportunitiesin the capital, but also function as a vehicle for the urbanization of the region. Although the North-East Region is one of the most densely populated in Romania, it is also one of the poorest and least urbanized. A potential Moldova Highway could enable key cities in the area (e.g., Iasi, Bacau, Vaslui,  Piatra Neamt, Suceava, Botosani, Roman) to gain demographic mass through improved connections to the rural hinterland.

 

Priority 4: Consider building the Craiova- Pitesti highway

 

Two other regions that are more poorly developed compared to the rest are the South and South-West. The Bucharest-  Constanta highway, which was recently completed, provides a transport backbone for a number of key areas in the South Region. The Bucharest-Pitesti highway  provides another important link in the region, and it could be continued with a connection to Craiova. There are around 1 million people living within a one-hour drive of Craiova, and they stand to benefit  greatly from improved connections to the capital.

 

Priority 5: Improve connective infrastructure to Cluj-Napoca and Timisoara

 

Outside Bucharest, there are two cities that have set themselves apart in terms of their positive growth trajectories - Cluj- Napoca and Timisoara. The former is the only large city in Romania that has registered a growing population (albeit slightly) and it has the largest economic mass within a 20-minute access area. Timisoara forms, together with Arad, the second-largest economic zone in Romania (after Bucharest). What would be most needed in these areas should ideally be decided locally. Current dynamics, as highlighted by the gravity models in Figure 3, point to a number of potential sub-priorities:

 

Priority 5.1: Build a highway connection between Cluj-Napoca and Sebes

Cluj-Napoca has strong connections to Targu Mures in the east and to Alba Iulia and Sebes in the south. The completion of the Transylvania highway (covered under Priority 0) would significantly improve access times between Cluj-Napoca and Targu Mures. The Cluj-Napoca – Sebes highway would improve connections to a number of dynamic economic areas in Alba County and would also provide a link between the proposed A1 and A3 motorways.

 

Priority 5.2: Develop a high-speed rail between Timisoara and Arad

Timisoara and Arad form the largest economic zone outside Bucharest-Ilfov.
The two cities are already connected by a highway and it would make sense to improve public transport connections – e.g. through a high-speed rail.

 

LOCAL LEVEL

  • Foster good institutions in lagging areas (basic services infrastructure, education, health, land markets, etc.);
  • Improve connective infrastructure between cities and their surrounding areas to expand their economic mass;
  • Design and implement targeted measures for marginalized and minority groups to support their participation as active parts of the economy;
  • Promote quality-of-life investments in leading areas to help attract and retain people.

 

Large scale, large impact investments need to be doubled by local projects that aim to enable people’s access to basic living standards and opportunities in their area. Particularly in lagging areas, it is critical to provide good institutions that provide the same start in life to all people in the country. While economic activity may not be spread evenly across space (it is usually concentrated in a number of dynamic urban centers), it is critical that everybody has access to basic services such as good quality education, good basic healthcare, functioning land, markets, water and sewage, etc., regardless of location.

 

The map in Figure 4 provides an indication of the location of the more developed and less developed areas in Romania. The East and the South tend to be less developed, with a higher incidence of poor and very poor localities. As public services data indicates, these areas tend to also have a lower share of people with access to water, sewage, electricity or central heating. They also tend to have an educational and health infrastructure that is in need of maintenance and upgrade – usually because localities in lagging areas have fewer resources at their disposal for investments in the maintenance and less  upkeep of the infrastructure they manage.

 

 

 

Priority 6: Achieve basic life standards in lagging areas

 

Ensuring that all people have access to quality public services is a critical way of creating the premises for a more productive workforce. If people do not have to spend additional time getting clean water, accessing healthcare, or getting to school, they  have more time to dedicate to realizing their full productive potential. It is therefore critical to invest in educational and healthcare infrastructure, as well as in basic public services such as water, sewage and sanitation.

 

Priority 7: Improve the definition and administration of functional urban areas

 

For cities to play a developing and polarizing role they need to be understood as dynamic functional areas. Cities, especially the most dynamic ones, are not self-contained. Cities, especially the more dynamic ones, need to be seen as being art of larger functional urban areas. As Figure 5 highlights, the areas with the fastest population growth are situated around dynamic urban areas.

 

 

Failing to define functional urban areas can undermine even the best local strategies and can ultimately lead to suboptimal development outcomes. For example, a city may have a very good General Urban Plan focusing on sustainable growth patterns with the aid of clear planning regulations. However, if surrounding localities do not also have the same planning regulations in place, the effects will be suboptimal, as development around the center city will continue in an unregulated manner. Similarly, the fact that most suburban areas continue to be defined as rural areas can lead to the wrong policy solutions.

 

 

Priority 8: Enable dynamic cities to enlarge their demographic and economic mass


To work as economic engines at the regional level, dynamic functional urban areas should be helped to expand their economic and demographic mass. If a company decides to invest in an urban center but does not have access to a large enough labor market, it is important to enable easy access to the regional labor pool. At the same time, easier access to  these center cities also means that a larger number of people have access to the opportunities that these cities offer (e.g. jobs, education, healthcare, culture, entertainment, etc.).

 

Growth poles in Romania have had positive economic dynamics with a significant share of new investments being located in  periurban areas. For these cities it will be important to expand metropolitan public transport systems (ideally to areas with a high enough population density and with strong commuter flows), to invest in the development of new connective infrastructure (e.g. new roads and rail connections), and to invest in the upgrade (e.g. transforming a normal road in an expressway) and proper maintenance of existing infrastructure. Such investments should be prioritized based on careful analysis of local and regional trends, and prioritized according to a set of clear criteria (e.g. the availability of resources to maintain and operate the new or upgraded infrastructure).

 

Priority 9: Target dedicated measures at marginalized and minority groups


Economic growth essentially results from connecting people to opportunities and enabling them to realize their full potential. But everywhere around the world, and Romania makes no exception, there are people who face special challenges in sharing the benefits of development. They are marginalized, disenfranchised, and often overlooked by policies that are meant to  promote growth. Interestingly, marginalization is not always proportional to distance from economic mass: indeed, many poor communities reside in the proximity of large cities and sometimes right in the downtown areas (e.g. historical centers).

 

Still, despite this fact, they remain unable to access educational and professional opportunities that would allow them to  break the vicious cycle of poverty and reap the benefits of truly inclusive, sustainable growth. Moreover, these marginalized  groups often represent a significant share of the total population and enabling them proper access to opportunities would not  only make social  sense, but it would also make economic sense given their potential contribution to local, regional, and national development.

 

To address the challenges faced by marginalized groups and integrate them into the larger Romanian economic system, it is  important to go beyond investments in hard infrastructure (e.g. roads, public transportation, schools, hospitals, social  housing). Soft measures (e.g. anti-discrimination approaches, education, public media campaigns, etc.) have to complement  infrastructure investments to ensure that marginalized groups share the benefits of prosperity and ultimately shed the aura of  marginalization.

 

In addition, even for hard investments, it is critical to involve marginalized groups in the process of designing and    implementing projects in order to strengthen their sense of ownership and empowerment.

 

Priority 10: Promote quality of life investments in leading areas


Innovation jobs have a significant role not only in driving local and regional growth, but also in spurring in the development of other economic sectors (i.e. they have a high multiplier effect). As such, local authorities throughout the world undertake quality of life investments to attract firms and skilled people that do innovation work. Usually, a larger pool of innovating firms  and people goes hand in hand with a more developed local economy.

 

However, quality of life investments do not only have economic benefits (such as attracting and retaining qualified people and innovative firms), but can also have social and environmental benefits. For example, investments in pedestrian areas, energy efficiency, bike paths, and public transport networks can help discourage the use of private cars (thus decreasing greenhouse gas emissions from transport) and can enable easier access to opportunities for poor and marginalized groups. That said, it is important to place investments in quality of life within a clear list of priorities. When a significant part of a city’s or a  metropolitan area’s population still does not have access to running water and sewage, one would have to think twice about  having as a top priority the development of, say, an integrated network of bike paths.

 

Instead of a conclusion

Without a doubt, a new vision for Romania’s development should take the country’s economic geography into consideration. The essence of the summary outlined above is that the development of Romania requires the mobilization all wheels of an engine with 20 million components. Simply put, every Romanian should be offered the opportunity to achieve their dreams.  The observations, models and recommendations proposed above do not provide the key to all the challenges faced by Romania today, and neither are they a full blue-print for the country’s development. However, they can offer a step in that direction, and at a minimum can start a healthy dialogue about solutions for the sustainable growth of Romania’s economy. The sine qua non condition for such an endeavor is to have a strategic vision assumed collectively by the population, to  provide Romania with a future we all can be proud of.

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This article is a synthesis of the report ‘Competitive Cities: Reshaping the Economic Geography of Romania’, prepared by the World Bank for the Ministry of Regional Development and Public Administration. The opinions expressed by the authors are personal and do not reflect the official position of the institutions mentioned above. For the full version of the report, please access: http://documents.worldbank.org/curated/en/2013/12/19060303/romania-competitive-cities-reshaping-economic-geography-romania-vol-1-2-full-report.