Peba2016

PROCEDI A of Economi cs and Busi nessAdmi ni st r at i on I SSN:2392-8166 I SSNL:2392-8166

BUCHAREST ,2016

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

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Procedia of Economics and Business Administration Editor in Chief: Manuela EPURE Guest Editor: Claudia BAICU Editing: Rocsana BUCEA-MANEA ȚONIȘ, Ana-Maria MIHALI, Raluca CRETOIU Graphics: Raluca NICULAE

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Table of Content Foreword: EPURE Manuela – Rethinking the Global Economy…………………………………………………………... 5

Invited presentations ZAMAN Gheorghe – Some Aspects Regarding Romanian Exports Competitiveness, in the Period 2001-2014………………………….………………………….…………………………..……………………………I-XVI

Chapter I: Sustainable Economy and Emerging Markets (in partnership with International Conference of Economic Sciences - CCEDEP) 1.

BAICU Claudia Gabriela - Models of Social Responsibility under the Impact of the Global Financial Crisis. Case Study: the Romanian Banking System…………………………………….……..….7

2.

EPURE Manuela, BONDREA A. Aurelian - Doing Business in Emerging Market: Successful Strategies…………………………………………………………………………………………………………………………15

3.

GURAN - NICA Liliana, RUSU Marioara - Sustainable Forestry in EU; Romania, United Kingdom and Sweden Case Studies………………………………………………………………………………….21

4.

MARIN Cornelia, GURAN - NICA Liliana - Renewable Energy and the Environment……..……29

5.

SARISAKALOGLU Gazi, BILGIN Mustafa - Analyzing the Impact of Restructuring on the State-Owned Banks …………….…………….…………….………….…………………………………….…………….37

6.

SZÁVAI Ferenc - Growth, Development and Progression Crisis after Crisis?....................................................................................................................................43

7.

YENIDOGAN Alp, GURCAYLILAR-YENIDOGAN Tugba, TETIK Nilufer - Sustainability Reporting in the Hospitality Industry: A Research Model Proposal on Sustainability Performance……52

Chapter II: Contemporary Business Issues 8.

GHINĂRARU Cătălin, MLADEN Luise - Quantifying Atypical Employment in Romania – The Social Dimension…………….…………….…………….…………….………………………..…………….…………….60

9.

GURAN - NICA Liliana, SOFER Michael, BISTRICEANU PANTELIMON Corina - From Urbanization to Metropolization; A Case Study of Romania…………….….…………….…………….70

10. MIHĂLCIOIU Raluca-Marilena - Labour Market Integration of Refugee Women in

Germany…………….…………….…………….…………….……….…………….…………….…………….…………..…78

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11. MIHĂLCIOIU

Raluca-Marilena - Consequences of Refugee Crises on German Economy…………….…………….…………….…………….…………….…………….……….……………...……………83

12. NITTAYAGASETWAT Aekkachai, BURANASIRI Jiroj

- Performance Comparison Between Real Estate Securities and Real Estate Investment Using Stochastic Dominance and MeanVariance Analysis…………….…………….…………….…………….…………….…………….…………….…………87

13. PAȘNICU Daniela, TUDOSE Gabriela - Social Business Models in the Context of Romanian

Rural Environment…………….…………….…………….………….…………….…………….………….…………….99 14. PISTOL Luminița , BUCEA-MANEA-ȚONIȘ Radu - Lambda Calculus Expressions Reduced with

REGEX…………….…………….…………….…………….…………….……………….……….…………….…………….108 15. PISTOL Luminița, EPURE Manuela, ȚONIȘ (BUCEA-MANEA) Rocsana - WEB-Marketing

Strategy for SMEs…………….…………….…………….…………….…………….…………….…………….……...113 16. SĂNDULEASA Bertha - The Romanian Health and Social Care System - Funding

Arrangements and Approach to Social and Medical Care Delivery…………….…………….….…123 17. ZORZOLIU Raluca, GURGU Elena - Economic and Social Analysis of Economic Gaps,

between 1990 – 2014 and the Influence Factors……………………………………………………………131 18. ZORZOLIU Raluca - Evolution of Active and Inactive Population in Romania…………….…….140

Chapter III: New Trends for Banking and Finance 19. DASCĂLU Elena Doina, UNGUREANU Dragoș Mihai - Assignment of Tax Receivables – a

Possible Solution to Increase the Public Budgets Revenues and to Counteract the Growth of Tax Arrears? …………….…………….…………….…………….…………….…………….…………….……….…148 20. GURGU Elena, COCIUBAN Aristide - Global Financial Cycle and International Production

Networks. International Investment Position of Romania through its Main Ingredients…159 21. GURGU Elena, ZORZOLIU Raluca - Romania's Role in the Current International Economic

Context through Domestic Macroeconomic Developments…………………………………………...160 22. IONESCU Cicilia, IONESCU Cornel - Frauds and errors in the audit of Financial

Statements…………….…………….…………….…………….…………….…………….…………….…………….….161 23. IONESCU

Luminița - The Role of the Professional Accountants in Business Administration…………….…………….…………….…………….…………….…………….………….…………….170

24. KORKMAZ Özge, BASCI Eşref Savaş, KARACA Süleyman Serdar - Macroeconomic Variables

Affecting Bist30 Index Value in Turkey…………….…………….…………….…………….…………….……175 25. UNGUREANU Dragoș Mihai, DASCĂLU Elena Doina -Reforming the European Monetary

Policy, a Necessary Action? …………….…………….…………….………….…………….……………...………182 26. AL ALAWI Ghazi Nasser, MISHRA Atul - Developing Factors within an Industries Cluster in

Oman as a Regional Development…………………………………………………………………………………193

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Foreword – Rethinking the Global Economy

It is time to join efforts to transform our world and to rethink the global economy in a sustainable way. Countries are determined to take the bold and transformative steps which are urgently needed to shift the world onto a sustainable and resilient path.

Protecting our planet, and still looking for prosperity seems to be possible only by fostering peaceful, just and inclusive societies free from fear and violence as a consequence of a Global Partnership for Sustainable Development. One would argue that sustainable development goals are too ambitious in an unstable and vulnerable world: poverty is still hurting many countries, climate change concern is constantly growing but the fast economic growth of BRICs countries reveals the fact that there are many who do not seem to care about it.

The message at the end of the summit was clear: it is vital to revitalize the Global Partnership for Sustainable Development, based on a spirit of strengthened global solidarity, focused in particular on the needs of the poorest and most vulnerable and with the participation of all countries, all stakeholders and all people.

The recently released 2015 Human Development Report tries to make sense of our changing world. It is essentially about finding ways to improve the wellbeing of people from all over the world. Development is about enlarging people's choices-focusing broadly on the richness of human lives rather than narrowly on the richness of economies.

Looking at The Human Development Index calculated based on components such as: a long and healthy life, knowledge and a decent standard of living- reveals that world inequalities still affect a significant percentage of people. From Norway with a HDI index of 0.944 being first on the list of Very High Human Development (49 countries included) to the Romanian HDI index of 0.793 included in the group of High Human Development (55 countries) and these differences have engendered inequalities which urges a rethinking of the global economy.

In a globalised world, work is a major foundation for both the richness of economies and the richness of human lives, but it has a tendency to be conceptualized in economic terms rather than in human development terms. Considerable challenges remain, from persistent poverty and grinding inequalities to climate change and environmental 5

sustainability in general, and to conflict and instability. Globalization has generated gains for some and losses for others.

The world is meeting at a time of immense challenges to sustainable development, the world of work, driven by globalization and technological revolution, is undergoing rapid changes. Today's people are living longer and they are active longer in their elderly years and at the same time the workforce productivity has increased, driven by the digital revolution. Therefore, work is a fundamental dynamic driver for enhancing human development and generates wellbeing for the individual, families and society as a whole.

Globalization as a phenomenon implies an interconnected world across environments, societies and economies. Globalization is a fact of life even more so due to its dynamic and multifaceted nature. Multiplicity, diversity, interdependence, and flows of influence are common themes associated with globalization.

From an environmental perspective, globalization produces both negative and positive pressures on governance. Economic globalization tremendously impacts environmental processes at the local, regional, national and global level. By integrating far-flung markets, globalization may intensify the use and depletion of natural resources, increase waste production, and lead to a "race to the bottom" as capital moves globally to countries and locations that have less stringent environmental standards. Global economic development, urbanization, our changing lifestyles and a technology-driven society have resulted in new environmental challenges.

Doing business in a globalized world means more than looking for profit, entrepreneurs must enhance creativity and invest in innovative technologies and products, while competitiveness is driven to a whole other level. Only flexible and highly adaptive companies are still "sailing" on a tumultuous sea - the global economy.

Rethinking global economy is more than a desire; it should be a set of coherent and global measures able to generate a radical transformation.

Questions such as: What are the global challenges and how can they be addressed? How can sustainable development be achieved? What does doing business mean in today's globalized economy? Who are the winners and losers in the race for a better life? What are the drivers of Human Development and why is the Global Partnership for Development important in order to make it work? To what extent can academia step out of its "ivory tower" to play a supportive role in assisting policy makers design effective strategies for the future, so as to create a better life for us?

Prof. Manuela Epure, PHD Conference Chair

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Some Aspects Regarding Romanian Exports Competitiveness, in the Period 2001-2014 Phd. Gheorghe ZAMAN, MCA Research Asist. Alexandra Cristiana TUDOR Institute of National Economy, Romanian Academy, 050711, Bucharest, Romania Phone/fax.0021- 318 24 67, gheorghezaman@ien.ro, cristianaalexandra.tudor@gmail.com Abstract: The paper presents another metrics of Romania’s export competitiveness, based on the evolution of international export rankings (positions) of our country, in the period 2001-2014, according to SITC (2 digits).We consider that increasing or decreasing number of won or lost positions in the world positions rankings by Romanian exports in the world hierarchy can indicate respectively an increase or decrease in competitiveness. The change of Romania's position in the hierarchy world’s exports by countries in 2006, 2010 and 2014, as compared to 2001, constitutes a sui generis indicator of its export competitiveness, according to the number of positions (ranks) won/lost in the framework of export world ranking. If Romania climbs in the world export hierarchy we consider an improvement of export competitiveness. Conversely, a loss of positions in the hierarchy means a diminishing in the competitive strength of exports. This indicator provides a new means to assess the investment of a country, for a specific category of exported goods in the world market, has improved/worsened its competitive position, surpassing or, on the contrary, remaining behind some other competitors. The main conclusion is that the number of win ranks in the analysed period was much higher than that of lost positions in Romania, respectively 68 positions gained as compared with 28 lost positions. This conclusion is corroborated with the economic, social, environmental, technological importance and share of each SITC export group.

Keywords: exports competitiveness; ranking; SITC; international specialization.

JEL classification: D40; F02; F10; F15.

The post-accession period 2007-2014 has represented for the Romanian exports a new stage and evolution of competitiveness on the international markets. In order to detect the main trends of the Romanian exports’ competitiveness on the SITC two digits categories, we have taken into account the primary UNCTAD data regarding their value in the international comparative context, where at least three important direct factors are interfering quality, quantity and prices of exports.

We came to the conclusion that the change of the Romanian’s position in the international hierarchy of each country’s exports during 2006, 2010 and 2014 compared to 2001 represents a genuine indicator for the exports’ competitiveness, based on the number of positions gained/lost in the international nomenclature. Thus, the more Romania ascends its place or position in the international hierarchy, the more its competitiveness capacity is growing and vice versa. The more Romania loses positions in the respective hierarchy, the more its competitiveness power diminishes for the respective exports group. This competitiveness indicator calculated for the period 2001-2014 offers the possibility to assess the evolution of Romania’s competitiveness in the pre and post-accession periods, as well as the impact of international financial crisis on Romania’s exports competitiveness.

1. Theoretical Approaches of Exports Competitiveness 1.1. The concept of competitiveness In the current conjuncture of global economy, the competition is a genuine generator of economic performance for economic entities - a key factor for success in the competitiveness race.

The competitiveness represents a complex economic category where are interfering a lot of relevant factors of influence such as: productivity, profitability, the trade balance, economic growth, etc.

One of the definitions considers that competitiveness consists in the ability to sell goods and services on time, place and form appropriate to foreign buyers at prices equal to or lower than those offered by other potential providers earning at least the opportunity cost of the resources used (Sharples et Milham, 1990).

Competitiveness, which often is identified with financial indicators as profitability or productivity, reflects the the real or potential ability characterized by a relative advantage over other competitors in the same market. Some specialists however hold that profitability and productivity are only partial measures of competitiveness (PriceWaterhouseCoopers Développement, 2001), although they are extremely important.

In European Union, competitiveness concept is the ability that an economy has to sustain high growth rates of productivity.

The competitiveness in the EU vision is to excel in terms of research and innovation, information technologies and communication, entrepreneurship, competition, education and training, and depends on the capacity, outlook and "conduct" of economic activities of European countries to achieve structural adjustment towards obtaining performances in these areas.

II

In the context of free market economy, the competitiveness is defined as the business capacity to maintain or improve its national or international position. At micro-level of individual firms it involves entrepreneurial quality and quality of managers, goods and services level of innovation, connection with the markets, access to the production factors (land, labour and capital, efficiency of production process).

At country level, competitiveness is manifested in more aggregated forms and comprises: the level of enterprises culture; the size of comparative advantages; resource endowments; research and innovation; skills availability; functional financing markets.

Competitiveness is a relative concept, considering an economic entity capacity, compared with other entities.

Competitiveness indicator is not a static concept, but a dynamic one, involving a potential time format. The economic, technological performance, of an entity at a certain time, it is not necessarily related to competitiveness. But, maintaining or increasing the respective performance over time, meaning long-term success in the competitive process, can be a proof of the competitiveness of this unit; which indicates the health of the entity and includes several indicators in compliance or responding to a critical system of a competitive position on the market.

The competitiveness of a country represents "level that a country in the free market produces goods and services that meet the tastes of the international market, which simultaneously maintains and improves population real incomes in the long term” (H.H. Chartrand, 2002) and “competitiveness in the international trade represents the ability or inability measure of a country to sells its products on international markets” (OECD Glossary of statistical terms).

At micro level competitiveness, is a firm’s ability to produce goods and/or services with higher quality and at a lower price than its internal or external competitors, while international competitiveness is the capacity of a country, in free market conditions and of fair competition, to design, produce and market goods and services that are of higher quality or at a price below the products and services of other countries (L.C. Dragomir, L.L. Vochiţa - MIBES International Conference, 2007).

The competitiveness of a firm is related to its safety, efficiency, quality, high productivity, adaptability, successful, modern management, superior products, optimal costs which requires a rigorous examination of both that company, and business environment of its activity.

Competitiveness at the macro level is defined as "a set of institutions, policies and factors that determine the country’s level of productivity. Productivity, in turn, sets a sustainable level of prosperity that can be earned by an economy. In other words, more competitive economies may have the capacity to produce a higher level of income for citizens "(The Global Competitiveness Report 2009-2010), and increase the national wealth.

From the literature review we concluded that there are two approaches, nation's competitiveness and companies' competitiveness (Porter, 1990, Krugman and Venables, 1990).

III

Krugman states that the role of macroeconomic policies must be flexible enough to allow companies to face international competition. The nation is the one that can sustain or not a favourable environment for their activity, and firms, in turn, are the ones that create value and offers the nation the strength to face domestic and international competition.

“The true nature of capitalist competition is not price competition but technological competition, that leads to" new products, new technologies, new sources of supply, new forms of organization (...) competition that determines the decisive advantages of cost or quality and that breaks not only the boundaries of profit and the output of existing firms, but their fundamentals and life itself” (Schumpeter, J.A. 1943).

When talking about the competitiveness of a sector or economy, it deals with the concept in connection to foreign competitors, i.e. considering its performance in foreign trade, or, in other words, the industry’s ability (businesses they represent) to penetrate foreign markets (increasing exports and foreign direct investments) and to face competition. Increasing exports and FDI could have a direct impact on productivity growth. Increasing exports depends on factors related directly to the internal environment of enterprises, which are specific to each entity and also on nationwide factors such as: natural resources, highly skilled workforce, well-developed infrastructure, effective state policies (Global Competitiveness Indicator), national values, culture, history, etc.

The competitiveness of a country does not mean export success in every industry, or even in most industries. Obviously, no country can provide a trade surplus in every sector of the economy. In certain sectors specialisation automatically implies lower performance than in others. Even the most developed countries can’t ensure success on the international market for all industrial sectors. That is why, national authorities targeting an increase in national competitiveness should focus selectively on domains that present a comparative, competitive advantage against competing industries abroad, or have a reliable growth potential. "Trying to explain" competitiveness "at national level, you need to understand the determinants of productivity levels and growth rate. First and foremost we should focus not on the economy as a whole, but on specific industries and segments of industry” (Porter, 1990).

Scientists did not yet reached a consensus on the competitiveness definition. Often when they are talking about insuring country competitiveness, it is envisaged targeting efforts and resources for increasing high real income for the population, the productivity factors and foreign trade performance, focusing on product export with high added value.

1.2. Foreign trade indicator of national competitiveness Being a complex concept, different studies provide a variety of factors and indicators that determine national competitiveness. It is perceived as an expression indicating the possibility of a country to create added value and an increased real income for its citizens as well as its ability to maintain a high market share in world exports (which reflects the country's performance on foreign markets), right as measuring indicators of competitiveness in literature review very often is used the analysis total factors productivity or review exports performances.

Porter supports the idea that, despite the globalization of production and trade, competitive advantages are created within a national framework, through their institutional, natural, IV

cultural, economic characteristics which determine ultimately the development of certain economic activities.

Based on afore mentioned definitions, from both theoretical and practical viewpoints, export competitiveness has a relevant component determined by the country’s positions in the world exports of different groups of goods and services.

This indicator within a static and dynamic analysis reflects a large combination of quantitative and qualitative factors of influence among which level of economic, technological and social development has an outstanding role.

Although this indicator apparently seems to be simple, it expresses through the place or rank in the hierarchy, and reflects in a sui generis synthetic manner the potential of competitiveness increase as a result of quantity and quality of exports and their diversification (specialisation), internal and external prices, efficiency at large of foreign trade of the respective country.

In order to identify the main trends of Romanian’s export competitiveness on the two digits SITC categories, we used UNCTAD data concerning their export value of Romania on international comparative context.

We payed a special attention to the evolution of positions won / lost, especially at Romania's export goods that have significant shares in the total volume of Romanian exports; this doesn’t mean that the other commodities with lower shares must be ignored.

The change of Romania's position in the hierarchy world’s exports by countries in 2006, 2010 and 2014, as compared to 2001, constitutes a sui generis indicator of export competitiveness, depending on the number of positions (ranks) won/lost in the framework of export world ranking. In other words, if Romania gets a better position in the world hierarchy we consider that export competitiveness improved. Conversely, a loss of positions in the hierarchy means a diminishing in the competitive strength of exports. The indicator regarding the number of positions won/lost by Romania's exports in the world ranking, in certain periods of time, provides a simple but significant tool to evaluate the country’s export competitiveness for a certain period and group of merchandise.

2. Number of Gained Positions by Romanian Exports in the International Ranking The pre-association (1990-1995), the association (1995-2000) and pre-accession (20012006) periods have been characterized for the Romanian exports by a sensitive reduction of the export list and loss of important traditional external markets caused by negative impact of recession, high transition costs and custom duties diminishing as a result of adoption of EU acquis communautaire and other commercial rules and regulation.

In our analysis we prefer to study especially the pre and post-accession period.

Table 1: Positions won/lost by Romania within world exports hierarchy by SITC groups (two digits) in 2006, 2010 and 2014 as compared to 2001

Years 2006

2010 V

2014

won positions

64

65

68

lost positions

32

31

28

Source: Own estimates based on the International trade in goods - Exports data 2001 - 2014 ITC (www. intracen.org)

From the evaluation for 96 groups of goods exported by Romania during 2006, 2010 and 2014 (table 1) results the following main conclusions: -

the total number of positions won by Romania in the international exports hierarchy by countries and groups of products has more than doubled in comparison with the number of the positions lost (68 positions won against 26 positions lost in 2014 as compared to 2006), meaning a favourable trend in the evolution of the Romanian exports competitiveness according to the used indicator (the number of positions won/lost) during the post-accession period. However this favourable trend registered by Romanian exports in the world competition has to be related to the economic importance of export goods better ranking in 2014 in comparison with 2001.

-

the number of positions (places) lost by Romania in the international exports hierarchy during 2014 as compared to 2006, has diminished from 32 to 28 which shows a favourable tendency for the increase of the competitiveness capacity for the Romanian exports in comparison with the previous periods when it has been recorded a decrease of export competitiveness.

In order get a more in-depth analysis of the evolution of the export goods competitiveness degrees in Romania, we have delimitated the number of positions won during 2014 compared to 2001 in the categories I-IV in a decreasing order of the positions won number, which reflect different competitiveness degrees(table 2).

The 1st Category of High level of competitiveness (HLC, 68-33 gained positions) for a total number of 8 export groups which generally are referring to exports activity with low level of processing (manufacturing) and show a sensible competitiveness progress with a relative small weight (3.89 % from the total Romanian exports) and refers to the exports for the majority of the raw materials.

The 2nd Category with competitiveness potential (CP) (29-15 positions) there are 28 export groups which are included food products and some industrial manufacturing exports from electrical, electronic equipment, textile industry have a percentage share in Romania’s total export of 45.54%. In fact a good part of these exports represent an important segment of manufacturing industries with potential competitiveness related especially to the medium technological level.

The 3rd Category with a medium competitiveness potential (MCP) (14-8 positions)- the percentage share in Romania’s total export is 17.04% with a number of 12 export groups.

There are several export products from metal, plastics, iron and steel and machinery activities.

The 4th Category includes exports groups with poor competitiveness potential (PCP) with a share of 17.05% and a total number of 20 export groups. This group is represented by VI

Beverages, spirits and vinegar; Ships, boats and other floating structures; Aircraft, spacecraft, and parts thereof; Lead and articles thereof; miscellaneous chemical products; Copper and articles thereof; iron and steel; Articles of leather, animal gut, harness, travel goods. The PCP group of exports shows a reduced competitiveness potential for the time being, their progress in the international competition being relatively modest.

Table 2: The hierarchy of the export products groups, according to the intervals of the number of positions won

by Romania on the international market during 2014 compared to 2001

Categories of goods Name of the export goods groups, gaining positions in 2014(figures in exported, by the number brackets are indicating the percentage share in total Romania’s exports of gained positions on the and the number of positions won in 2014 compared to 2001) world market Tobacco and manufactured tobacco substitutes (1.36 %, +68); Pharmaceutical products (1.63 %, +44); Cocoa and cocoa preparations ( 0.09 %, +43); Tin and articles thereof (0.004 %, +40); Miscellaneous Category I high level of edible preparations (0.23 %, +37); Sugars and sugar confectionery (0.17 competitiveness (HLC) %, +36); Bird skin, feathers, artificial flowers, human hair (0.01 %, +35); 68 – 33 positions Meat and edible meat offal (0.40 %, +33); Percentage share in Romania’s total export : 3.89%; Total number of export groups: 8 Cotton (0.09 %, +29); Wool, animal hair, horsehair yarn and fabric thereof (0.24 %, +29); Essential oils, perfumes, cosmetics, toiletries (0.54 %, +28); Rubber and articles thereof (3.59 %, +26); Meat, fish and seafood food preparations nes. (0.22 %, +25); Albuminoids, modified starches, glues, enzymes (0.03 %, +24); Soaps, lubricants, waxes, candles, modelling pastes (0.30 %, +23); Coffee, tea, mate and spices (0.04 %, +23); Explosives, pyrotechnics, matches, pyrotechnics, etc.

(0.01 %, +23); Vehicles other than railway, tramway (14.17 %, +22); Impregnated, coated or laminated textile fabric (0.16 %, +22); Milling products, malt, starches, inulin, wheat gluten (0.02 %, +22); Cereals (3.78 %, +21); Oil seed, oleagic fruits, grain, seed, fruit, etc., nes. (1.62 Category II %, +20); Cereal, flour, starch, milk preparations and products (0.23 %, competitiveness potential +19); Miscellaneous manufactured articles (0.14 %, +19); Commodities (CP) not elsewhere specified (0.90 %, +17); Miscellaneous articles of base 29 – 15 positions metal (0.58 %, +17); Optical, photo, technical, medical, etc. apparatus (1.43 %, +16); Animal, vegetable fats and oils, cleavage products, etc.

(0.41 %, +16); Residues, wastes of food industry, animal fodder (0.37 %, +16); Printed books, newspapers, pictures etc. (0.14 %, +16); Knitted or crocheted fabric (0.05 %, +16); Silk (0.15 %, +16); Electrical, electronic equipment (15.53 %, +15); Other made textile articles, sets, worn clothing etc. (0.64 %, +15); Photographic or cinematographic goods (0.01 %, +15); Special woven or tufted fabric, lace, tapestry etc. (0.08 %, +15); Products of animal origin, nes (0.07 %, +15); Percentage share in Romania’s total export: 45.54%; Total number of export groups: 28 Category III medium Other base metals, cermets, articles thereof (0.02 %, +14); Tanning, competitiveness potential dyeing extracts, tannins, derives, pigments etc. (0.09 %, +13); Manmade (MCP) filaments (0.24 %, +13); Tools, implements, cutlery, etc. of base metal VII

Categories of goods Name of the export goods groups, gaining positions in 2014(figures in exported, by the number brackets are indicating the percentage share in total Romania’s exports of gained positions on the and the number of positions won in 2014 compared to 2001) world market (0.17 %, +11); Machinery, nuclear reactors, boilers, etc. (10.47 %, +9); 14 – 8 positions Plastics and articles thereof (2.03 %, +8); Articles of iron or steel (3.05 %, +8); Fish, crustaceans, molluscs, aquatic invertebrates nes. (0.03 %, +8); Dairy products, eggs, honey, edible animal product nes. (0.32 %, +8); Manmade staple fibres (0.41 %, +8); Raw hides and skins (other than furskins) and leather (0.20 %, +8); Live trees, plants, bulbs, roots, cut flowers etc. (0.01 %, +8); Percentage share in Romania’s total export: 17.04%; Total number of export groups: 12 Furniture, lighting, signs, prefabricated buildings (3.87 %, +7); Aluminium and articles thereof (1.66 %, +7); Wood and articles of wood, wood charcoal (3.56 %, +7); Vegetable, fruit, nut, etc. food preparations (0.07 %, +7); Clocks and watches and parts thereof (0.01 %, +7); Stone, plaster, cement, asbestos, mica, etc. articles (0.09 %, +7); Paper and paperboard, articles of pulp, paper and board (0.49 %, +5); Beverages, spirits and vinegar (0.21 %, +5); Headgear and parts thereof Category IV with poor (0.04 %, +5); Ships, boats and other floating structures (1.44 %, (+4); competitiveness potential Aircraft, spacecraft, and parts thereof (0.40 %, +3); Lead and articles (PCP) thereof (0.09 %, +3); Railway, tramway locomotives, rolling stock, equipment (0.42 %, +2); Wadding, felt, nonwovens, yarns, twine, 7 – 0 positions cordage, etc. (0.07 %, +2); Live animals (0.60 %, +2); Miscellaneous chemical products (0.25 %, +1); Copper and articles thereof (0.44 %, +1); Pearls, precious stones, metals, coins, etc. (0%, 0); Iron and steel (2.92 %, 0); Articles of leather, animal gut, harness, travel goods (0.42 %, 0); Percentage share in Romania’s total export: 17.05%; Total number of export groups: 20 Source: Own calculation based on the International trade in goods - Exports data 2001 - 2014 ITC (www.intracen.org)

For each category of exports competitiveness it is necessary to apply different and appropriate strategic approaches which suppose a complex combined of several factors of influence, besides the percentage share (importance) of the export group, such as value added size, prices, technological level, potential competitors etc.

3. Lost Positions by Romanian Export SITC Groups in the Year 2014 against the Year 2001 Concerning the lost positions of the Romanian exports on the international market in 2014, compared to 2001 (Table 3) we have identified four categories in an increasing order, of the number of lost positions: -

category I with a less significant loss (LSL), with 1-3 positions lost; VIII

-

category II with a medium loss (ML), with 4-6 positions lost;

-

category III with a significant loss (SL), with 10-19 positions lost;

-

category IV with a very high loss (VHL), with 28-57 positions lost.

Table 3: Classification of the groups of export products, according to the number of positions lost in the international market, during 2014 against 2001

Categories of goods exported, by intervals, Name of the export goods groups, ( in brackets are indicated the of lost positions percentage share in total world exports and number of lost positions number on the world in 2014 compared to 2001) market Ceramic products (0.23 %, -1); Vegetable textile fibres nes, paper yarn, woven fabric (0.004 %, -1); Umbrellas, walking-sticks, seat-sticks, whips, etc. (0.003 %, -1); Articles of apparel, accessories, not knit or Category I less crochet (3.85 %, -2); Articles of apparel, accessories, knit or crochet significant loss (LSL) (1.39 %, -3); Footwear, gaiters and the like, parts thereof (2.69 %, -3); 1 – 3 (lost positions) Musical instruments, parts and accessories (0.02 %, -3); Percentage share in Romania’s total export: 8.19%; Total number of export groups: 7 Mineral fuels, oils, distillation products, etc. (6.01 %, -4); Edible fruit, nuts, peel of citrus fruit, melons (0.18 %, -4); Edible vegetables and certain roots and tubers (0.17 %, -4); Nickel and articles thereof (0.01 Category II medium %, -4); Furskins and artificial fur, manufactures thereof (0.01 %, -4); Toys, games, sports requisites (0.22 %, -5); Glass and glassware (0.24 loss (ML) %, -5); Pulp of wood, fibrous cellulosic material, waste etc.

4 – 6 (lost positions) (0.03 %, -6); Percentage share in Romania’s total export: 6.87%; Total number of export groups: 8 Organic chemicals (0.23 %, -10); fertilizer (0.59 %, -11); Carpets and other textile floor coverings (0.02 %, -12); Inorganic chemicals, Category III significant precious metal compound, isotopes (0.35 %, -16); Lac, gums, resins, loss (SL) vegetable saps and extracts nes. (0.002 %, -17); Salt, sulphur, earth, 10 – 19 (lost stone, plaster, lime and cement (0.11 %, -19); positions) Percentage share in Romania’s total export: 1.3%; Total number of export groups: 6 Ores, slag and ash (0.11 %, -28); Zinc and articles thereof (0.01 %, -29); Category IV very high Cork and articles of cork (0.0001 %, -36); Manufactures of plaiting loss (VHL) material, basketwork, etc. (0.0002 %, -57); 28 – 57 (lost positions)

Percentage share in Romania’s total export: 0.12%; Total number of export groups: 4

Source: Own calculations based on the International trade in goods - Exports data 2001 - 2014 ITC (www.intracen.org)

The 1st category (LSL) with the smallest number of lost positions (1-3) includes 7 groups of export goods, with a total weight of 8.19%, out of which the most important are: IX

manufactures and ready-made clothes, not mercerized or crocheted accessories (3.85%); footwear (2,69%); suits, crocheted accessories and items (1.39%).

It is worth mentioning that the so called export based on the „lohn” production consists of components with the biggest weight of lost position for this category of products (textiles, ready-made clothes, footwear).

The 2nd category (ML), with a loss between 4 and 6 positions in the international export classification list, includes a number of groups which represent a weight in the total exports of the country of 6.87%, out of which 6.01% is represented by the mineral fuels, oils and distilled products.

The 3rd category (SL), with an important number of lost positions between 9 and 19 positions, includes 6 groups of exports with a total weight of 1.30%, each group counting under 1.0% of the total Romanian exports.

The 4th category (VHL), with the most lost positions between 28 and 57, includes 4 groups of goods with a total weight of 0.12%.

Romania has recorded the biggest loss in competitiveness at the category “other products” export, which had a relatively small weight in the total exports of the country, meaning that Romania’s export diversification is a very slow process.

Tables 4 and 5 present the total number of competitors in Central and Eastern Europe with upper and lower rank, against Romania, in 2014 in the world’s exports.

For the determination of the Romanian Export Competitiveness we selected for comparison the EU New member Countries (Bulgaria, Czech Republic, Greece, Hungary, Poland, Slovakia, Slovenia ) which were positioned upward and downward Romania, within each group of exports by the following three categories (weak, medium and high potential of competitiveness) Table 4: Total number of competitors (outperformers) in Central and Eastern Europe with higher ranks, than Romania, in 2014 in the world's exports Intervals on the number of competitors with higher rank than Romania

Category I with competitiveness 10-7 outperformers

weak

potential

of

Name of the export goods groups and position (rank) outperforming Romania Cork and articles of cork (10); Beverages, spirits and vinegar (9); Stone, plaster, cement, asbestos, mica, etc articles (9); Dairy products, eggs, honey, edible animal product nes. (8); Live trees, plants, bulbs, roots, cut flowers etc (8); Milling products, malt, starches, inulin, wheat gluten (8); Vegetable, fruit, nut, etc food preparations (8); Salt, sulphur, earth, stone, plaster, lime and cement (8); Tanning, dyeing extracts, tannins, derives, pigments etc (8); Albuminoids, modified starches, glues, enzymes (8); Manufactures of plaiting material, basketwork, etc. (8); Pulp of wood, fibrous cellulosic material, waste etc (8); Zinc and articles thereof (8); Clocks and watches and parts thereof (8); Fish, crustaceans, molluscs, aquatic invertebrates nes.

(7); Edible fruit, nuts, peel of citrus fruit, melons (7); Lac, gums, resins, vegetable saps and extracts nes. (7);

X

Intervals on the number of competitors with higher rank than Romania

Category II with competitiveness

medium

potential

of

6-4 outperformers

Category III competitiveness 3-0 outperformers

with

high-potential

of

Name of the export goods groups and position (rank) outperforming Romania Animal, vegetable fats and oils, cleavage products, etc (7); Cocoa and cocoa preparations (7); Cereal, flour, starch, milk preparations and products (7); Miscellaneous edible preparations (7); Miscellaneous chemical products (7); Paper and paperboard, articles of pulp, paper and board (7); Wadding, felt, nonwovens, yarns, twine, cordage, etc (7); Carpets and other textile floor coverings (7); Knitted or crocheted fabric (7); Umbrellas, walking-sticks, seat-sticks, whips, etc (7); Other base metals, cermets, articles thereof (7); Toys, games, sports requisites (7); Edible vegetables and certain roots and tubers (6); Coffee, tea, mate and spices (6); Sugars and sugar confectionery (6); Inorganic chemicals, precious metal compound, isotopes (6); Organic chemicals (6); Essential oils, perfumes, cosmetics, toiletries (6); Photographic or cinematographic goods (6); Furskins and artificial fur, manufactures thereof (6); Printed books, newspapers, pictures etc (6); Ceramic products (6); Glass and glassware (6); Copper and articles thereof (6); Nickel and articles thereof (6); Tools, implements, cutlery, etc of base metal (6); Miscellaneous manufactured articles (6); Meat and edible meat offal (5); Vegetable plaiting materials, vegetable products nes. (5); Residues, wastes of food industry, animal fodder (5); Ores, slag and ash (5); Pharmaceutical products (5); Explosives, pyrotechnics, matches, pyrotechnics, etc (5); Plastics and articles thereof (5); Iron and steel (5); Aluminium and articles thereof (5); Miscellaneous articles of base metal (5); Machinery, nuclear reactors, boilers, etc (5); Railway, tramway locomotives, rolling stock, equipment (5); Vehicles other than railway, tramway (5);Products of animal origin, nes. (4); Mineral fuels, oils, distillation products, etc (4); Soaps, lubricants, waxes, candles, modelling pastes (4); Rubber and articles thereof (4); Articles of leather, animal gut, harness, travel goods (4); Cotton (4); Vegetable textile fibres nes, paper yarn, woven fabric (4); Manmade filaments (4); Impregnated, coated or laminated textile fabric (4); Tin and articles thereof (4); Electrical, electronic equipment (4); Meat, fish and seafood food preparations nes. (3); Other made textile articles, sets, worn clothing etc. (3); Headgear and parts thereof (3); Articles of iron or steel (3); Lead and articles thereof (3); Optical, photo, technical, medical, etc. apparatus(3); Aircraft, spacecraft, and parts thereof (3); Furniture, lighting, signs, prefabricated buildings (3); Tobacco and manufactured tobacco substitutes (2); Fertilizers (2); Raw hides and skins (other than furskins) and leather (2); Wool, animal hair, horsehair yarn and fabric

XI

Intervals on the number of competitors with higher rank than Romania

Name of the export goods groups and position (rank) outperforming Romania thereof (2); Special woven or tufted fabric, lace, tapestry etc. (2); Articles of apparel, accessories, knit or crochet (2); Ships, boats and other floating structures (2); Musical instruments, parts and accessories (2); Cereals (1); Oil seed, oleagic fruits, grain, seed, fruit, etc., nes. (1); Wood and articles of wood, wood charcoal (1); Manmade staple fibres (1); Articles of apparel, accessories, not knit or crochet (1); Bird skin, feathers, artificial flowers, human hair(1); Commodities not elsewhere specified (1); Live animals (0); Silk (0); Footwear, gaiters and the like, parts thereof (0);

Source: Own calculations based on International trade in goods - Exports data 2001-2015 SITC (www.intracen.org)

In the category of Central and Eastern Europe countries with high rank potential of competitiveness, Romania: -

1st place in "live animals", "silk", "shoes", 2nd in "cereals”, “Oil seed, oleagic fruits, grain, seed, fruit, etc. "," articles of apparel, accessories, not knit or crochet”, and 3rd place in “tobacco and manufactured tobacco substitutes"," fertilizers”, “special woven or tufted fabric, lace, tapestry etc.”;

-

regarding medium potential of competitiveness, Romania ranks 6th in " aluminium and articles thereof", "plastics and articles thereof", " ores, slag and ash" and 7 in „edible vegetables and certain roots and tubers '',” Inorganic chemicals, precious metal compound, isotopes ", " glass and glassware "etc.;

-

other Romanian exports fill weaker rank namely: 10th place "Stone, plaster, cement, asbestos, mica, etc. articles”, 9th at “Dairy products, eggs, honey, edible animal product nes.", " Live trees, plants, bulbs, roots, cut flowers ", etc.

Table 5: Total number of competitors (underperformers) in Central and Eastern Europe with lower rank, against Romania, in 2014 in the world's exports

Intervals on the number of Name of the export goods groups and position (rank) competitors with lower rank than underperforming Romania Romania Fish, crustaceans, molluscs, aquatic invertebrates nes.

(3); Edible fruit, nuts, peel of citrus fruit, melons (3); Lac, gums, resins, vegetable saps and extracts nes. (3); Animal, vegetable fats and oils, cleavage products, etc (3); Cocoa and cocoa preparations (3); Cereal, flour, Category I with weak potential of starch, milk preparations and products (3); competitiveness Miscellaneous edible preparations (3); Miscellaneous chemical products (3); Paper and paperboard, articles of 0-3 underperformers pulp, paper and board (3); Wadding, felt, nonwovens, yarns, twine, cordage, etc. (3); Carpets and other textile floor coverings (3); Knitted or crocheted fabric (3); Umbrellas, walking-sticks, seat-sticks, whips, etc. (3); Other base metals, cermets, articles thereof (3); Toys, XII

Intervals on the number of Name of the export goods groups and position (rank) competitors with lower rank than underperforming Romania Romania games, sports requisites (3); Dairy products, eggs, honey, edible animal product nes. (2); Live trees, plants, bulbs, roots, cut flowers etc (2); Milling products, malt, starches, inulin, wheat gluten (2); Vegetable, fruit, nut, etc. food preparations (2); Salt, sulphur, earth, stone, plaster, lime and cement (2); Tanning, dyeing extracts, tannins, derives, pigments etc. (2); Albuminoids, modified starches, glues, enzymes (2); Manufactures of plaiting material, basketwork, etc. (2); Pulp of wood, fibrous cellulosic material, waste etc. (2); Zinc and articles thereof (2); Clocks and watches and parts thereof (2); Beverages, spirits and vinegar (1); Stone, plaster, cement, asbestos, mica, etc. articles (1); Cork and articles of cork (0); Products of animal origin, nes. (6); Mineral fuels, oils, distillation products, etc. (6); Soaps, lubricants, waxes, candles, modelling pastes (6); Rubber and articles thereof (6); Articles of leather, animal gut, harness, travel goods (6); Cotton (6); Vegetable textile fibres nes., paper yarn, woven fabric (6); Manmade filaments (6); Impregnated, coated or laminated textile fabric (6); Electrical, electronic equipment (6); Meat and edible meat offal (5); Vegetable plaiting materials, vegetable products nes. (5); Residues, wastes of food industry, animal fodder (5); Ores, slag and ash (5); Pharmaceutical products (5); Plastics and articles thereof (5); Iron and steel (5); Aluminium and articles thereof (5); Tin and Category II with medium potential of articles thereof (5); Miscellaneous articles of base metal competitiveness (5); Machinery, nuclear reactors, boilers, etc. (5); Railway, tramway locomotives, rolling stock, equipment 4-6 underperformers (5); Vehicles other than railway, tramway (5); Edible vegetables and certain roots and tubers (4); Coffee, tea, mate and spices (4); Sugars and sugar confectionery (4); Inorganic chemicals, precious metal compound, isotopes (4); Organic chemicals (4); Essential oils, perfumes, cosmetics, toiletries (4); Explosives, pyrotechnics, matches, pyrotechnics, etc. (4); Photographic or cinematographic goods (4); Furskins and artificial fur, manufactures thereof (4); Printed books, newspapers, pictures etc. (4); Ceramic products (4); Glass and glassware (4); Copper and articles thereof (4); Nickel and articles thereof (4); Tools, implements, cutlery, etc. of base metal (4); Miscellaneous manufactured articles (4); Live animals (10); Silk (10); Footwear, gaiters and the Category III with high-potential of like, parts thereof (10); Cereals (9); Oil seed, oleagic competitiveness fruits, grain, seed, fruit, etc., nes. (9); Wood and articles XIII

Intervals on the number of Name of the export goods groups and position (rank) competitors with lower rank than underperforming Romania Romania of wood, wood charcoal (9); Manmade staple fibres (9); 7-10 underperformers Articles of apparel, accessories, not knit or crochet (9); Bird skin, feathers, artificial flowers, human hair (9); Commodities not elsewhere specified (9); Tobacco and manufactured tobacco substitutes (8); Fertilizers (8); Raw hides and skins (other than furskins) and leather (8); Wool, animal hair, horsehair yarn and fabric thereof (8); Special woven or tufted fabric, lace, tapestry etc. (8); Articles of apparel, accessories, knit or crochet (8); Ships, boats and other floating structures (8); Musical instruments, parts and accessories (8); Meat, fish and seafood food preparations nes. (7); Other made textile articles, sets, worn clothing etc. (7); Headgear and parts thereof (7); Articles of iron or steel (7); Lead and articles thereof (7); Aircraft, spacecraft, and parts thereof (7); Optical, photo, technical, medical, etc. apparatus (7); Furniture, lighting, signs, prefabricated buildings (7); Source: Own calculations based on International trade in goods - Exports data 2001-2015 SITC (www.intracen.org)

Number of Central and Eastern Europe countries with lower rank potential of competitiveness, Romania frontloads: In the category with highly competitive potential, we have 10 countries at "live animals", " footwear, gaiters and the like, parts thereof ", 9 countries to "cereals", " articles of apparel, accessories, not knit or crochet", 8 countries at "fertilizers", " tobacco and manufactured tobacco substitutes ", etc.; the category with medium potential of competitiveness, 6 countries at ” Mineral fuels, oils, distillation products, etc.", "cotton ", "electrical and electronic equipment ", etc., 5 countries at " iron and steel”," plastics and articles thereof ", "pharmaceutical products" and 4 countries at “coffee, tea, mate and spices”, “inorganic chemicals, precious metal compound, isotopes", " glass and glassware ", etc.; the category with of weak potential of competitiveness, no country at “cork and articles of cork”, 1 country " stone, plaster, cement, asbestos, mica, etc. articles " , two countries " vegetable textile fibres nes, paper yarn, woven fabric ", "zinc and articles thereof", " salt, sulphur, earth, stone, plaster, lime and cement " , etc.

Some Conclusions and Final Remarks According to experts that have participated in drafting of the National Export Strategy for 2014-2020, in terms of competitiveness criteria, perspective, resilience and vulnerability, we can distinguish the following categories of export for Romania: exports, as relatively strong points for Romania, with a share of over 70% in the total export value volume, have been identified during 2007-2013 for the following groups of the CAEN code: manufacture of the motor vehicles for road transport, trailers and semi-trailers; XIV

manufacture of machinery and equipment; manufacture of electric equipment; metallurgic industry; computers, electronic and optic products; agriculture, hunting and the connected services; production of rubber and plastic products, manufacture of chemicals and chemical products; wood processing ,wood and cork manufacture except furniture; straw articles and vegetal wickerwork; manufacture of furniture. sectors with significant export perspectives and opportunities (over 8.5% share in total exports) are: industry for metallic constructions and metal products, exclusively machinery, tools and installations; food industry; manufacture of basic pharmaceutical products and pharmaceutical substances; manufacture of other non-metallic minerals products; neuter sectors with a still unclear outlook (over 6,60% share in total exports) targeting: manufacture of other means of conveyance; goods not elsewhere classified; manufacture of tobacco products; sectors with potential vulnerabilities and relative weak points (representing over 11% of the total exports) referring to: manufacture of wearing apparel; cok and refined products obtained from petroleum processing; tanning and finishing of leather; manufacture of clothes and leather articles, harness and footwear; dressing and dyeing of fur; manufacture of textile articles; other industrial activities; manufacture of paper and paper products; manufacture of beverages; production and supply of the electric and thermal energy such as: gas, hot water and air conditioning.

The evolution of Romanian export competitiveness in the post-accession period shows a sign of competitiveness betterment supported by a larger member of won positions on the international markets in 2014 against the year 2001.

Of course the progress so far recorded in the field of competitiveness represents a necessary but not sufficient convergence required by sustainable development challenges.

For a series of export products from the processing industry field, Romania has an important potential which can be used to get a better position on the competitiveness scale, deepening the inter and intra-branches specialisation (Gheorghe Zaman, Valentina Vasile, 2012).

The different degree of competitiveness of the Romanian exports is conducive to the necessity of promoting smart specialization policies for certain products, semi-products and components, trying to find the so called „niches� which may offer comparative and competitive advantages mainly based on innovation, international cooperation within value chains and networking.

Due to the reduction of the export products nomenclature over the period 1990-2015, the promotion of more diversified and highly qualitative exports in Romania, including knowledge based industrialization represent a challenging milestone for both foreign direct investment companies headquartered in Romania and national firms.

Romanian exports competitiveness analysis (SITC two digits), based on the positions won/lost in the world hierarchy exports reveals that Romania fills relatively significant positions (among the top 15-20 exporters), particularly in products with relatively low processing level, in general being on foreign markets a "price-taker" rather than a "pricemaker"; in 2014, as compared to 2001, Romania has won positions in the world's exports at XV

68 commodity groups and lost positions only at 28 groups, suggesting a favourable trend of increasing Romanian foreign trade competitiveness extremely necessary, but still insufficient to bridge the gap that separates us from the developed countries.

Romania is a country with an emerging economy, which is characterized by a structure of export of goods marked notably by a relatively low share of high-tech groups of approx. 8% (Financial Stability Report, 2015 BNR).

If 70% of total exports in Romania are controlled by companies with foreign capital participation, it is assumed that there are premises for increasing competitiveness given the relatively high level of productivity and profitability of the subsidiaries of mother companies producing in Romania. For example, in the top 100 exporters of goods from Romania, only 4 firms have Romanian capital, the rest belong to foreign capital.

Romania’s competitiveness increase in the future has the opportunity to better use the advantages of a higher EU structural funds accession in parallel with a greater contribution of a private economic sector.

The vagueness and complex character of the notion raises a lot of problems in the domain of competitiveness metrics especially if we take into consideration the heterogeneity of enterprises, at least from their size standpoint.

References [1] Chartrand, H.H. ( aprilie 2002) The Competitiveness of Nations in a Global Knowledge-Based Economy.

[2] Dragomir, L.C., Vochiţa L.L. (2006), „Competition and competitiveness under the circumstances of globalization”.

[3] Krugman, P. and Venables, A.J. (1995), “Globalization and inequality of Nations”, The Quarterly Journal of Economics, Oxford University Press., vol. 110.

[4] Porter, M. (1990), The competitive Advantage of Nations, Free Press, Mc MüIlan, New York.

[5]PricewaterhouseCoopers Développement pour le compte du Ministère de l'Economie, des Finances et de l'Industrie (2001), Les facteurs et indicateurs de la compétitivité des entreprises de services rendus à 'l'industrie, Paris.

[6] Schumpeter, J.A. (1943), Capitalism, Socialism and Democracy, London: Allen and Unwin (originally published in the USA in 1942; reprinted by Routledge, London in 1994).

[7]Sharples, J. et Milham, N. (1990), “Long run competitiveness of Australian agriculture”, USDA Economic Research Services, Foreign Agricultural Economics Report 243.

[8] Zaman, Gh. and Vasile, V. (2012) ‘Comparative Advantages Metrics of Romania’s exports in the period 2007-2014’,Romanian Journal of Economics, no. 1, vol.34, pp.5-23.

[9] OECD, Glossary of statistical terms.

[10] Global Competitiveness Report (2015-2016), World Economic Forum.

XVI

Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Models of Social Responsibility under the Impact of the Global Financial Crisis. Case Study: the Romanian Banking System 1

Claudia Gabriela BAICU Spiru Haret University, Faculty of Economic Sciences, 46 G Fabricii Str., District 6, Bucharest, Romania, Tel: +40213169785, Email: baicuclaudia70@yahoo.ro Abstract: The Romanian banking system has begun development on modern bases only after 1990, with the passing from the monobank system to the two-tier system. Other important steps in modernizing the banking system were: privatization of large state banks and the European Union accession. These mutations have also marked the application of the concept of social responsibility in the Romanian banking system that is still in the early stages of development. The dominant presence of foreign banking capital and the European Union accession had a positive impact in the social responsibility area. Some banks in Romania have adopted the practice of non-financial reporting according to international standards in the field. The negative consequences of the global financial crisis determined banks to step up efforts to adopt new business models based on responsible practices and responsible financing. A post-crisis direction of action for improving the relationship between banks and customers and avoid possible problems in the payment of loans was the intensification of implementation by banks of financial education programs. However there are still a number of actions to be undertaken to strengthen the concept of social responsibility in the Romanian banking system.

Keywords: social responsibility; Romanian banking system; business models; responsible financing; financial education.

JEL classification: G21, M00

Introduction In recent decades, the Romanian banking system has undergone a number of changes under the impact of several factors, among which the political factor has had a decisive role. Currently, the Romanian banking system is dominated by foreign capital. Therefore it

benefits from the expertise of headquarters from home countries in all areas, including in terms of social responsibility.

In Romania, the concept of corporate social responsibility (CSR) is still in early stages of development. However, in the context of increasing competition, responsible business practices can become a marketing tool enabling them individualization in the community.

The concept of CSR in Romania was tackled by several publications. Among them the following works should be mentioned: Guvernul Romaniei, Strategia Romaniei de promovare a responsabilitatii sociale 2011-2016; Anca et al. [2011]; CSR Media, Ernest and Young [2015]; Crisan-Mitra, Borza [2015].

According to information provided by the largest banks in the system [for example, Raiffeisen Bank, 2015; BCR, 2011], the main areas covered by social responsibility activities undertaken by banks in Romania are: educational projects, promotion of the arts, volunteering and social solidarity, and environmental protection. Lentner et al. [2015] outline the role of CSR in central banks activity.

In this context, the paper was divided into two parts. The first part performs a synthetic description of the Romanian banking system, highlighting the main stages in the historical evolution. The second part presents the models of social responsibility developed by the major banks in the Romanian banking system. The banks presented were selected according to the market share. The emphasis was put on the impact of the economic and financial crisis on the evolution of responsible business practices in the Romanian banking system.

1. Stages in the Development of the Romanian Banking System The basics of the Romanian banking system were put in the second half of the nineteenth century, when the first bank that functioned in Romania - The National Bank of Moldova (1856), with majority foreign capital [Kiritescu, 1997] -, and the country's central bank the National Bank of Romania (1880) - were founded.

Subsequently, the banks number increased and the banking system evolved until after the Second World War when the monobank system was established, which operated until 1990.

Amid political change and establishment of the communist regime in 1948, most commercial banks were abolished and the central bank was nationalized. At that time, both the functions of central bank and functions of commercial banks were cumulated in a single institution - Banca de Stat (State Bank). In addition, there were some specialised banks serving the specific needs of some sectors: agriculture, foreign trade, investments.

Casa de Economii si Consemnatiuni was holding the monopoly in terms of household savings. Foreign capital was restricted. Only four banks with foreign capital or mixed capital (Romanian and foreign capital) were operating in Romania.

Since 1990, with the collapse of communism and the transition to the market economy, the Romanian banking system has begun to develop on modern basis, by establishing the two-tier banking system.

8

A decisive step in the process of modernization was the privatization of large state-owned banks, which allowed foreign banks to conduct large investments in the Romanian banking system.

In 2007, Romania joined the European Union (EU) and banking legislation was adapted to the EU legislation. The global financial and economic crisis affected the Romanian banking system and foreign banks present in Romania were an important vehicle for the transmission of the crisis.

At end-2015, the Romanian banking system was made up of 36 credit institutions, of which 29 credit institutions, Romanian legal entities and 7 credit institutions branches, foreign legal entities. It is important to note that there are only 2 fully or majority stateowned credit institutions and 4 credit institutions with majority domestic capital in the Romanian banking system (Table 1).

Table 1: The composition of the Romanian banking system by ownership number of banks, end of period

Credit institutions, Romanian legal entities, of which: Fully or majority state-owned credit institutions Majority private capital credit institutions, of which: - with majority domestic capital - with majority foreign capital Credit institutions branches, foreign legal entities Total credit institutions

2015 29 2 27 4 23 7 36

Source: BNR 2015, p. 95.

A feature of the Romanian banking system is the dominant market share held by the credit institutions with majority foreign capital - 90.4% of the aggregate net assets at end - 2015.

Regarding the origin of foreign capital, the credit institutions with majority Austrian capital hold the largest share (33.3%), followed by the credit institutions with majority French capital (13.5%) and the credit institutions with majority Greek capital (10.6%) [BNR, 2015].

According to the Annual Report 2015 issued by the central bank [BNR, 2015], at end-2015, the banks holding the largest market share are: 1. Banca Comerciala Romana - 15.8%; 2. BRD - Groupe Société Générale - 13 %; 3. Banca Transilvania - 12.6%; 4. Raiffeisen Bank - 8.4 %; 5. UniCredit Bank - 8.1%.

2. Social Responsibility in the Romanian Banking System In Romania, the concept of social responsibility is little known in society, being in early stages of development, according to the "National Strategy to Promote Social Responsibility 2011-2016”. Unlike small and medium sized enterprises, multinationals and 9

large Romanian companies know better the concept of CSR. Among the weaknesses highlighted by this strategy in the SWOT analysis on the development of CSR in Romania are highlighted: insufficient knowledge of consumer rights, corruption, and insufficient application of socially responsible investments. However, the advantages that social responsibility implied for organizations or the importance given to CSR at international level are opportunities for CSR development in Romania [Guvernul Romaniei, Strategia Romaniei de promovare a responsabilitatii sociale 2011-2016].

An important step in enhancing the implementation of responsible business practices in Romania started after joining the European Union, the headquarters of multinational companies being leader vectors of this process, by transferring their expertise from headquarters to local offices of Romania. Subsequently, the opportunities for accessing European funds were another factor which contributed to strengthening the implementation of responsible business practices in Romania [Anca et al., 2011].

The global financial and economic crisis has also had negative effects in the Romanian banking system, revealing a number of weaknesses in the credit policy promoted by banks and imposing reconsidering their business models. The aggressive promotion of credit amid the competition, easing conditions for granting credit, economic growth and wage increases in the pre-crisis period was one of the vulnerabilities of credit policy. As a result, currently one of the vulnerabilities of the Romanian banking system is represented by non-performing loans. For example, at end-2013, the non-performing loans ratio was of 21.9 percent [BNR, 2014].

However, it is important to emphasize that there were no "toxic" assets in the Romanian banks’ balance sheets.

In this context, after triggering the crisis, banks have reconsidered their business models and have begun to promote responsible finance, focusing on: raising funds locally and reducing reliance on external financing; reducing exposures to unhedged borrowers.

The actions taken by banks to solve the conversion of some loans in Swiss francs into other currencies could be considered as part of the social responsibility.

However, at the National Authority for Consumer Protection (NACP) there are several customer complaints on the possible unfair terms in credit agreements. See, for example, the press release of the NAPC of November 9, 2015 regarding the winning by the NAPC of the process on possible abusive clauses with Banca Romaneasca [ANPC, 2015].

The Romanian banking community has intensified efforts to improve the financial education of the public, considered a prerequisite in avoiding problems of accessing and repayment of debts, as well as in improving the relationship between banks and customers.

Lentner et al. [2015] outline the role of CSR in central banks activity. In this context, the authors consider that the central banks function of maintaining financial stability could be part of CSR. Financial literacy and education are among the most important areas of the central banks CSR. As part of its CSR activities, the National Bank of Romania (NBR) has developed several educational projects in order to allow the general public a better understanding of banking 10

and financial concepts. According to the NBR website [http://www.bnr.ro/EducationalProjects-5431.aspx], the most important educational projects promoted by the NBR are: the „NBR – Open Doors for Economics Students”, project meant to improve the economics students knowledge on history and functions of central banks; the „Let’s Talk about Money and Banks” project that targets high-school and secondary-school students, providing them the basic financial and banking concepts; the „Academica” educational project designed in partnership with some Romanian universities, meant to professors.

Other channel contributing to increase the financial education in Romania is the Romanian Banking Association (RBA). Amid the need of restoring confidence in the banking system, the main issues addressed by the RBA website dedicated to financial education [http://www.educatiefinanciara.info/] are: how to access credit; categories of loans provided by banks in Romania; the risks of lending; restructuring of loans; types of savings and bank deposits; bank cards; personal budget management; Internet banking payments and mobile phone payments.

In 2011, the Banca Comerciala Romana (BCR) has published its first corporate social responsibility report, which was prepared according to the guidelines of the international standard in this field Global Reporting Initiative (GRI). According to this report [BCR, 2011], the involvement of bank in the community has followed several directions: development of financial education programs; support access to education for children from disadvantaged families; implementing of entrepreneurship education projects; encouraging social entrepreneurship; social solidarity.

The BRD- Groupe Société Générale website dedicated to informing on the bank's corporate responsibility policy highlights the bank's activities developed in this area.

Among them, the following activities should be mentioned [https://www.brd.ro/desprebrd/responsabilitate-corporativa]: supporting contemporary art and music by: private collections of contemporary art in its possession, exhibitions they organize, events and musical talents they promote; 11

realization of responsible financings, which include "green financings" and financing of some activities such as renewable energy; concerning the environmental policy, the bank also launched a program to reduce carbon emissions related to the activities they carry out; other dimensions of the social responsibility policy promoted by the bank are the programs on investments in community, among which we can mention: actions to increase access to education and social solidarity actions; supporting sport in Romania; voluntary actions undertaken by the bank employees.

According to some news posted by Banca Transilvania on the bank's website https://www.bancatransilvania.ro/bt-social-media-newsroom/stiri/?cat/3, the following actions are among the bank's projects in terms of responsibility and social involvement: - the development of financial education programs; - green volunteering projects; - supporting of some cultural events; - events dedicated to supporting tourism development in Romania; - conducting of some campaigns to promote road safety.

A detailed view on corporate social responsibility of Raiffeisen Bank is supplied by CSR Annual Reports published by the bank since 2009 (see https://www.raiffeisen.ro/desprenoi/responsabilitate-corporativa/rapoarte-anuale-csr/ ). The latest report of corporate social responsibility complies with two reporting standards: the London Benchmarking Group (LBG) methodology and the Global Reporting Initiative (GRI) standard [Raiffeisen Bank, 2015]. The bank’s website dedicated to social responsibility https://www.raiffeisen.ro/despre-noi/responsabilitate-corporativa/ - outlines the strategic lines in this area: supporting Romanian art and culture; promoting financial education; responsibility toward environment; promoting a better lifestyle through sport; promoting social assistance.

For example, in 2015, Raiffeisen Bank has been partner of the international festival of classical music George Enescu.

The UniCredit Bank website https://www.unicredit.ro/ro/institutional.html#CSR, dedicated to social responsibility presents the bank's main lines of action in this area: - supporting projects in the field of music, literature and contemporary art; - involvement in projects to support education; 12

- promoting volunteerism; - supporting projects for environmental protection.

As mentioned above, some major banks in Romania have adopted the practice of non-financial reporting according to international standards in the field: the London Benchmarking Group (LBG) methodology and the Global Reporting Initiative (GRI) methodology. The transposing into the national legislation of the provisions of the Directive 2014/95/EU on non- financial reporting obligation by large companies could have an important impact on strengthening implementation of the concept of social responsibility in the Romanian banking system.

Conclusions In Romania, the concept of social responsibility is still in the initial stage of development.

Gradually, companies are becoming aware that the implementation of responsible business practices may be opportunities for differentiation from competitors and attracting of customers.

We believe that transposing into the national legislation of the provisions of the Directive 2014/95/EU on non- financial reporting obligation by large companies will have an important impact on strengthening implementation of the concept of social responsibility in the Romanian banking system.

With the privatization of large state banks, the foreign capital entered the territory of Romania, foreign banks owning overwhelmingly the Romanian banking system currently.

In addition to capital injections, one of the advantages of the foreign capital penetration in the Romanian banking system was the import of expertise and best practices from the parent bank. This import of expertise was also realized in the field of social responsibility.

The economic and financial crisis has led banks to adopt new business models based on responsible financing. In the same context of responsible business practices, banks have intensified efforts to fundraise locally and reduce dependence on external funding from parent banks. Another dimension of social responsibility is the conversion of loans in Swiss francs in other currency. However, at the National Authority for Consumer Protection (NACP) there are several customer complaints on the possible unfair terms in credit agreements.

Starting from the premises that an educated clientele in financial terms can prevent some problems in the relationship between bank and customers, after the triggering of the global financial and economic crisis, banks have stepped up efforts to increase the financial education of the general public.

Despite the progress realised, there are still a number of actions to be undertaken to strengthen the concept of social responsibility in the Romanian banking system.

References [1]

Anca, C. et al. (2011) (Corporate) Social Responsibility in Romania. Available at http://undp.ro/libraries/projects/CSR/deliverables/Analiza%20Situatiei%20RSC%20in%20Romania%20E NG.pdf.

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[2] ANPC (Autoritatea Nationala pentru Protectia Consumatorului) (2015) ANPC a castigat pe fond la Tribunalul Bucuresti procesul privind posibile clauze abuzive cu Banca Romaneasca. Available at http://www.anpc.gov.ro/articol/690/comunicat-de-presa--banca-romaneasca.

[3] BCR (Banca Comerciala Romana) (2011) Raport de responsabilitate sociala corporativa 2009/2010.

Available at https://www.bcr.ro/content/dam/ro/bcr/www_bcr_ro/CSR/Rapoarte/Raport_BCR_CSR_RO_2009_2010 .pdf.

[4] BNR (Banca Nationala a Romaniei) (2015) Raport anual 2015.

[5] BNR (Banca Nationala a Romaniei) (2014) Raport asupra Stabilitatii Financiare 2014.

[6] Crisan-Mitra, C., Borza, A. (2015) Approaching CSR in Romania: An Empirical Analysis, Procedia-Social and Behavioral Sciences, volume 207.

Available at http://www.sciencedirect.com/science/article/pii/S1877042815052581.

[7] CSR Media, Ernest and Young (2015) Tendinte si realitati CSR ĂŽn Romania, Editia 2015. Available at http://www.ey.com/Publication/vwLUAssets/CSR_Survey_15_May_15/$FILE/CSR%20Survey%202015_R O.pdf.

[8] Guvernul Romaniei. Strategia Romaniei de promovare a responsabilitatii sociale 2011-2016. Available at http://sgg.gov.ro/docs/File/UPP/doc/strategia_nationala_%20de_promovare_a_responsabilitatii_social e_2011_2016.pdf.

[9] Kiritescu, C. (1997) Sistemul banesc al leului si precursorii lui, vol. I, Bucuresti: Editura Enciclopedica.

[10] Lentner, C. et al. (2015) Corporate Social Responsibility in the Banking Sector, Public Finance Quarterly, vol. 60, issue 1, pages 95-103.

[11] Raiffeisen Bank (2015) Raport anual de responsabilitate corporativa 2015. Available at https://www.raiffeisen.ro/wps/wcm/connect/5dd8788d-b033-4d52-b1af31973bb75922/Raport+de+responsabilitate+corporativa+2015.pdf?MOD=AJPERES&CACHEID=ROOTWO RKSPACE-5dd8788d-b033-4d52-b1af-31973bb75922-l0tzAiS. [12] THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION (2014) DIRECTIVE 2014/95/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, Official Journal of the European Union, L 330/1, 15.11.2014.

[13] http://www.bnr.ro [14] http://www.arb.ro/ [15] http://www.bnr.ro/Educational-Projects-5431.aspx [16] https://www.brd.ro/despre-brd/responsabilitate-corporativa [17] https://www.bancatransilvania.ro/bt-social-media-newsroom/stiri/?cat/3 [18] https://www.unicredit.ro/ro/institutional.html#CSR [19] https://www.raiffeisen.ro/despre-noi/responsabilitate-corporativa/rapoarte-anuale-csr/ [20] https://www.raiffeisen.ro/despre-noi/responsabilitate-corporativa [21] http://www.educatiefinanciara.info/].

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Doing Business in Emerging Market: Successful Strategies Manuela EPURE1, Aurelian A. BONDREA2 Spiru Haret University, 13 Ion Ghica Street, Bucharest, 030045, Romania Tel: +40213169115, Fax: + 40213169115, Email: mepure.mk@spiruharet.ro 1

Abstract: Doing business today become a very challenging endeavour, drivers such as globalization, technological changes, economic crisis, just mention a few are changing the competitive game. Successful firms, appear to be those that demonstrate a real capacity to compete “differently� and especially to innovate in their business models. Emerging markets are seen now as a unique environment which requires a systematic approach, in developing novel business models and strategies. Going global is one thing but targeting emerging economies is quite a different story. It is a real need to develop strategies for doing business in emerging markets that are completely different from those used in their home country. The successful companies customize their strategy implementation to fit the nation’s institutional context. Adapting constantly their strategies seems to be the best way to cope with unexpected market developments.

Keywords: emerging markets, business strategy, business model, globalization, competitiveness.

JEL classification: M16, M31, F61

Introduction Going global is important for any firm wishing to expand her operations and to generate significant profits. But the decision is not a simple one, managers should carefully consider which markets to be targeted, to chose between the developed countries markets, well know by them or the emerging countries markets, more rewarding in term of profits but equally challenging and hard to predict. Their current business model becomes unappropriate and requires a series of innovations, mainly at strategic level. The paper is tackling thebusiness model innovation process, especially how the business cycle is

1

Spiru Haret University, 13 Ion Ghica street, , Bucharest, 030045, Romania, Tel: +40213169115, Fax: + 40213169115, Email: mepure.mk@spiruharet.ro

running in those special conditions ofan emerging market. Innovating the business models firstly means to analyse carefully the business enviroment, to understand it and to apply smart solution to coope with the specific challenges.

1. Generic Strategies Targeting Emerging Markets The opening of the large economies (e.g. China, Brazil, India etc)to global capital, technology, and talent over the past two decades has fundamentally changed their economic and business environments. As a result, the GDP growth rates of the emerging markets countries have dramatically outpaced those of more developed economies, lifting millions out of poverty and creating new middle classes—and vast new markets for consumer products and services. Large, low-cost, and increasingly educated labour pools, meanwhile, give these markets tremendous competitive advantage in production, and information technology is enabling companies to exploit labour in these markets in unique ways[Blinder, 2006]. According to International Financial Corporation, a member of World Bank Group, an emerging market is „a market which is growing both in size and in sophistication degree, as opposed to a small market – which is inactive and doesn’t seem to change”. Intuitively, managers know that operating a business in an emerging market is different from doing so in a developedcountry [Khanna &Palepu, 2010].

A new market entry requires a new approach in strategy mainly because of a wide range of problems need to be solved. Some of these problems are: - The need of a consistent analysis of different markets e.g. the product/service market, the financial market, the labour market; - The relationship with the emerging and reformed formal institutions that might affect business; - Identifying and addressing the influences from the emerging mixes of traditional local culture and modern global culture - Building a strategy that can applied in different sections of the transforming society; - The need to build a trust relationship with authorities play such an important role for business; - Positioning towards social and natural environmental problems in these countries that are represented by emerging social groups (stakeholders) e.g. various nongovernmental organizations (NGOs) [Jansson, 2007].

Solving these problems turned to be much difficult then one can imagine, therefore a strategic approach is needed. International business strategy built for mature markets are less applicable and a constant need for adjustment is necessary. Meyer [Meyer, 2004] concludes after overview of international business research on transition economies that the distinctiveness of business system in CEE limits the transferability of western business strategies and organizational concepts: strategies observed in emerging economies differ from those in developed economies. Other experts reveal the fact that strategies applied successfully in one country may fail in another. Corporate strategies in the emerging economies can thus be explained only by incorporating the specific institutional context in the analysis [Meyer, 2004].

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The decision to enter an emerging market is not based solely on the opportunities that can be easily identified, business executives usually analyse the macroeconomic indicators such as GDP, the growth of per capita income, the exchange rates and purchasing power parity indices. To complete the picture, managers consider the nation’s standing on the World Economic Forum’s Global Competitiveness Index, the World Bank’s governance indicators, and Transparency International’s corruption ratings; its weight in emerging market funds investments; and, perhaps, forecasts of its next political transition.

From strategic point of view, executives may choose one of the following strategies: to adapt their own successful strategies, to change the contexts in which they run the regular operations or simply stay away for a while and keep under observations the emerging market [Khanna& Palepu, 2005].

Business Cycle seems to be quite different in an emerging market; the main characteristics are consumption volatility that exceeds income volatility and “unexpected stops" in capital inflows. These features are not specific to small open economies and highlight the uniqueness of emerging markets. A second approach in the literature relies on market imperfections to explain countercyclical current accounts. An important early paper [Atkeson, 1991] examines the ways in which capital markets are subject to an asymmetry of information. Another interesting paper [Neumeyer et al. 2007] also refers to the business cycles in emerging markets, emphasizing the movements in interest rate and investments preferences. A real question is whether a standard real business cycle model can qualitatively and quantitatively explain business cycle features of both emerging and developed small open economies (SOE). Emerging market economies on average have a business cycle two times as volatile as their developed counterparts [Aguiar&Gopinath, 2005].

All these discussions demonstrate the critical importance of knowing about the environment of emerging country markets, also to be able to understand, analyse and execute business operations in this international context. The main issue of adaptation of local conditions implies, for example, how much a multinational company should adapt operations to the different international environment or build global competitiveness from local sources. Analysing this specific environment constitutes the basis of international business strategy, and also is creating a foundation for business operations in emerging country markets. Basically, analysts try to answer to the following questions [Jassons, 2007]: - What the markets look like?

- How to compare them?

- How to analyse their development\how to compete and gain sustainable competitive advantages?

2. Inovative Business Models The capacity of a firm (or nation) to capture value will be deeply compromised unless the capacity exists to create new business models [Teece, 2010]. CEO’s seeking and considering improvements to their company’s business models are engage in doing improvements that add value for customers at all times, but that it can be difficult to achieve. Changing the company’s business model means to reformulate the paradigm by 17

which it goes to market, but internal inertia can be really considerable. Nevertheless, it is preferable for the company to initiate such a change itself, rather than have it dictated by external events [Teece, 2010].

Further, it will be examined why innovation is important for the business model, what are the possibilities to innovate in the existing business model, how is responsible to understand when is needed a major change and how can it be possible to implement the change knowing that most of the time companies are reluctant to major changes, especially when the company’ positioning is favoruable on the market.

Usually, a business model juxtaposes two systems: a system of activities and a system of relationships.

Businesses executives should examine the social context in which internal and external transactions occur in order appreciate the critical dynamics of organizational change that must accompany the business model innovation [Santos et al. 2009].

Innovation is considered important in supporting the company’s performances and profitability; therefore it is normal executives to be interested in innovation and not only at technological level. It is completely wrong to see technological innovation as the only way to change company’s performance. Innovation at the level of the business model means much more, it is about strategy renewal and furthermore is about identifying the knowledge existing inside the company and used as valuable asset – we are talking about the intellectual capital.

Business model innovation offers new opportunities for value creation but the true cost of value creation is the cost of organizational change. The real challenge for BMI exists especially for the incumbent firms; the resistance to change should be overcome .

Therefore, Business Model Innovation can be define [Santos et al.2009] as a reconfiguration of activities in the existing business model of a firm that is new to the product/service market in which firm competes. Quite often, business model innovation refers at importing a business model from one product/service market into another, not all the time functioning with the expected results.

Analysing closely, what really define a business model innovation; one can understand the reconfiguration of the activities based on the following approach: - Relinking – the organizational units in a different manner to give them new chances to perform not only as separate units but also as a system interconnected - Repartitioning – an alteration on cultural and physical institutional boundaries of the units that are currently performing activities - Relocating- the distance between organizational units is reconfigured - Reactivating – modification of the current set off activities that compose the existing business model.

Innovation of the business model doesn’t mean a simultaneous adoption of all four above decisions, sometime innovation means to due small changes in order to reinvent the 18

business with significant improvements in profit generation. The strategy should changed also, mainly because interfere in innovation of the business model; a new strategic positioning seems to be necessary.

Strategic positioning is usually employed to achieve sustainable competitive advantage by preserving what is distinctive about a company. It means performing different activities from rivals, or performing similar activities in different ways [Porter, 1996]. Positioning— once the core of strategy—become inadequate being considered too static for today’s dynamic markets and changes occurred at technological level. According to the new studies, competitors can rapidly copy any market position, and competitive advantage is, at best, temporary.

Innovate the business model also means to improve company’s competitiveness. Today, a competitive strategy concentrates to make the company’s offer really different than rivals.It means deliberately choosing a different set of activities to deliver a unique mix of value. „A company can outperform rivals only if it can establish a difference that it can prezerve”, says Michael Porter. Business succees today is related, in a greater extent, to the firm’s capacity to differentiate itself from the main competitiors, to offer value at a fair price and to fully meet the clients’ needs and expectations.

One secret to maintaining a thriving business is recognizing when it needs a fundamental change [Johnson et al., 2008]. This change is related to the business model innovation,but true innovation success strories are seems to be rare. A recent study on major innovations within existing corporations, located in USA, shows that, in the past ten years, precious few have been business-model related.

The American Management Association study showed that no more than only 10% of innovation investment at global companies is oriented on developing new business models. Therefore, it is not surprisingly that a consistent change into a company’s business model doesn’t occur often and doesn’t bring profits overnight. Research2 have shown that over 50% of executives believe business model innovation will become even more important for success than product or service innovation. In this context, it seems that the decision to innovate the business model should be carefully adopted.

The business modelinnovation it is a hot topic but verylittle formal study has been done into the dynamics and processes of business model development. Johnson et al. suggest that is a need to follow a certain roadmap in developing a business model, and this roadmap consists of:

2

Economist Intelligence Unit conducted a survey in 2005 on the business innovation topic

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- to realize that success starts by not thinking about business models at all. It starts with thinking about the opportunity to satisfy a real customer who needs a job done.

- to construct a blueprint laying out how your company will fulfill that need at a profit.

- to compare that model to your existing model to see how much you’d have to change it to capture the opportunity.

An important question arises: When a New Business Model is needed? Creatingnew growth requires venturing not only into unknown market territory but also into unknown business model territory.

Most of the time success is not depending solely of the company’s business model or her capacity to innovate, there are external factors affecting the business growth.

Conclusion Literature and case studies review emphasize the fact that being successful on emerging markets seems to be a challenging endeavour, succesful companies in their home countries realise that they can’t export their business model as it is. Only those capable to innovate seem to enjoy significant profit gaines. Innovation is more likely to generate positive market positioning if it occurs in additional services not in produts’ quality or in strategies not neccessary in advertising.

References 1.

Aguiar M, Gopinath G., Emerging Market Business Cycles: the Cycle is the Trend, Working Paper 10734, http://www.nber.org/papers/w10734 2. Atkeson A., (1991) International Lending with Moral Hazard and Risk of Repudiation, Econometrica, vol 59, pp 1069-1089 3. Blinder Alan S. (2006) - Offshoring the next Industrial Revolution, Foreign Affairs March/April, available at: https://www.foreignaffairs.com/articles/2006-03-01/offshoring-next-industrial-revolution 4. Khanna T, Palepu K.G (2010) "The emerging arenas: An Agenda for Developing and Executing Strategy in Emerging Market" in Winning in Emerging Makets: A road map for Strategy and Execution,(Boston, Massachusetts, Harvard Business Press, 203-2017 5. Khanna T, Palepu S(2005).- Strategies that fit emerging Markets, Harvard Business Review, June 2005, available at: https://hbr.org/2005/06/strategies-that-fit-emerging-markets 6. Jansson H. (2007), International Business Strategy in Emerging Country Markets. The Institutional Network Approach, (Edward Elgar Publishing Limited, Cheltenham, , UK, 1-11 7. Johnson M.W., Christensen C.M, and Kagermann H. (2008 )- Reinventing Your Business Model, Harvard Business Review, Harvard Business Review, Dec.2008, Harvard Business Publishing, p.59-68 8. Meyer, K.E. (2001): Institutions,Transaction Costs and Entry Mode Choice in Eastern Europe, Journal of International Business Studies 32(2): 357-367 9. Neumeyer, Pablo A. Perri F(2004), Business Cycles in Emerging Markets: The Role of Interest Rates”, NBER Working paper no. w10387 10. Porter M. (1996)-- What is Strategy? Harvard Business Reveiw, nov.-dec 1996, Harvard Bsiness Publishing, 1996, 4-10 11. Santos J., Specktor B., Van der Heyden L , (2009) Towards a theory of business model innovation with incumbent firms, Faculty & Research, Working paper INSEAD and Northeastern University 12. Teece David J.(2010), Business Models, Business Strategy and Innovation, Long Range Planning, Vol. 43, p.172-194

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Sustainable Forestry in EU; Romania, United Kingdom and Sweden Case Studies Liliana GURAN-NICA1, Marioara RUSU2 Spiru Haret University, Ion Ghica, no. 13, Bucharest, 030045, Romania Tel: +4021 4551000, Fax: +4021 3143900, Email: info@spiruharet.ro 2 Institute of Agricultural Economics, Calea 13 Septembrie, no. 13, Bucharest, Romania Tel: (+40) 21 318 24 11, Email: iea@ines.ro 1

Abstract: Being an essential element of the environment and source of the economic development in many counties of the world, the forest is a central subject in the sustainable development policies in the last decades. European Union, as many other international organizations, has complex forestry legislation and regulations. The basic law, adopted in 2013, EU Forest Strategy: for forests and the forest-based sector puts forests and the forest sector at the heart of the path towards a green economy and to value the benefits that forests can sustainably deliver, while ensuring their protection. Taking into account the need for an agreed holistic strategic vision on forest issues, and for ensuring that linked EU policies are fully taken into account in national forest policies, many counties have adopted a new attitude towards forestry and sustainable development. In this context many new laws and regulations passed in the last two decades in all the EU member countries. Although there are many common points in this legislation, taking into account the important differences in the forestry development on the European continent, a comparison between the different countries is needed. This paper is presenting the characteristics of the forests and forestry in 3 countries, as well as the specificity of their legal frameworks.

Keywords: sustainable forestry, policy, EU, Romania.

JEL classification: K40, Q50.

Introduction After the crisis that “has wiped out years of economic and social progress and exposed structural weaknesses� in the economy, European Union has been following a new political path towards a smart, sustainable and inclusive growth [***, 2010, p. 3]. Thus, the European priorities mentioned in the Strategy Europe 2020 are referring to the

development based on knowledge and innovation, to a more resource efficient, greener and more competitive economy, and to high-employment delivering social and territorial cohesion. The sustainability goal of the strategy is perfectly defined by the "20/20/20" climate/energy targets: reducing GHG emissions by at least 20 % compared with 1990 levels, increasing the share of renewable energy in final energy consumption to 20 %, and moving towards a 20 % increase in energy efficiency. The initiative put forward by the Commission to underpin these targets is defined as: “"Resource efficient Europe" to help decouple economic growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable energy sources, modernise our transport sector and promote energy efficiency” [***, 2010, p. 4].

This strategy develops in the context of a wider political trend delineated in the last decade of the XXth century. The United Nations Conference on Environment and Development (UNCED), held in Brazil in June 1992, pointed out “the continuing deterioration of the ecosystems on which we depend for our well-being” [***, 1992, p. 3], underlining the need for conservation and management of resources for development.

Forest is one of these resources in need of conservation and sustainable development taking into account its role of reservoir of biodiversity, its importance for carbon sequestration, economic development, and subsistence. The worldwide policy-makers understand now the role of forests for the socioeconomic development and the environmental equilibrium at national and global level. “Ecological considerations are now being viewed not as subordinate but as an integral part of economic policy and planning” [Maini, 1992].

Related to this trend is the forestry legislation in EU. The newest strategy adopted in 2013, EU Forest Strategy: for forests and the forest-based sector, starts with the idea that “Europe needs its forests” [p. 2]. It underlines the fact that even if forests are multifunctional, serving economic, social and environmental purposes, their highly socioeconomic importance is underestimated. This law promotes a coherent, holistic view of forest management, covers the multiple benefits of forests, integrates internal and external forest-policy issues, and addresses the whole forest value-chain [***, 2013a].

Three guiding principles are the support of this new vision on the European forests and forestry: • sustainable forest management and the multifunctional role of forests, delivering multiple goods and services in a balanced way and ensuring forest protection; • resource efficiency, optimising the contribution of forests and the forest sector to rural development, growth and job creation.

• global forest responsibility, promoting sustainable production and consumption of forest products [***, 2013a, p. 5].

In this strategy there is also mentioned the fact that the sustainable forest management contributes to major societal objectives supporting the rural and urban communities, fostering the competitiveness and sustainability of the EU’s forest-based industries, bioenergy and the wider green economy, preventing the climate change, protecting forests and enhancing ecosystem services, improving the knowledge base, fostering coordination and communication.

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This strategy proves to be necessary since there was no common EU forest policy or guiding framework for forest-related issues until 2013. Many EU policies make demands on forests, so there is a need to coordinate sectorial policies and to have a holistic strategic vision on forest issues.

The main goal of the strategy is to “put forests and the forest sector at the heart of the path towards a green economy and to value the benefits that forests can sustainably deliver, while ensuring their protection� [***, 2013a, p. 17].

1. Some data about the forest cover and production in Europe The largest forest area (25%) out of the entire 3,999 million ha that cover the Earth is placed in Europe (including Russia). Nevertheless, EU has only 5% of the world’s forest, representing 176 million ha, 42% of the region.

There are also important spatial disparities inside EU. Comparing the member countries one can discover important differences concerning de extension of the forest land. For example, there are countries having over 60% of their national territory covered with forests (Sweden, Finland) as well as states with less than 15% (Denmark, United Kingdom).

The majority of the EU members, Romania being one of them, have a balanced land use structure, the forest covering 1/3 of their national territories (Figure 1 and 2).

Figure 1: Forest land disparities in UE (2010) Taking into account the forest importance Data source: Eurostat for their economy and environment, the European member countries developed specific programs for the extension and protection of the forest areas. The highest growth rate was registered in Italy (Figure 3), a country whose land-cover structure is similar to that of Romania. On the other hand, other countries like Sweden and Norway, having large areas of forest are mainly interested in exploiting and protecting tem and less in their extension. Romania has an interesting position in this hierarchy. This country seems to have good forestry development programs as the EUROSTAT database shows. In reality, a lot of other information sources discuss about intense illegal logging that reduces the forest areas. This is an example of incorrect manipulation of the data and information in this domain. In this context, there is a need of correct information in order to adapt the legislation to the real needs.

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Figure 3: Forest land growth rate (thousand ha/year) Data source: Eurostat

The main interest on the forest even today, when the entire world understands the need of protecting the environment, is economic. Living in a consumer society, people need more and more products and, wood being a traditional building material and fuel, the forest industry represent an important sector in many states.

Figure 2: Forest land distribution in UE – 3 categories (2010) Data source: Eurostat

The production of roundwood, the main forestry product, is almost evenly spread over the world (Figure 4). Nevertheless, Europe (including Russia) is again on the first place, this continent being also the main consumer as the result of a highly developed industrial system.

The structure of this industrial sector in EU is complex, almost half of the roundwood being used as sawnwood (wood-based panels, veneer sheets, plywood, etc.) (Figure 5). Second in the hierarchy is the production of woodpulp (mainly chemical woodpulp). Almost a quarter of the roundwood production is still used as wood fuel and this type of usage is growing.

Figure 4: The world round wood production (2014) Data source: FAO

Figure 5:Structure of wood production in EU (2014)

24 Data source: Eurostat

Figure 6: The first 10 EU countries producing and consuming round wood in 2014 (thousand m3) Data source: Eurostat

Analysing the production and consumption figures at the national level in EU one can discover the correlation with the forest land distribution.

Countries with large forested areas have also a very well developed industry and high productions, respectively. The first in this hierarchy is Sweden, United Figure 7: The structure of the wood production in 3 EU countries in 2014 (thousand m3) Kingdom being among the last countries (Figure 6). Romania is placed in the Data source: FAO second half, proving to have a higher consumption than production. On the other hand, we may doubt on the information offered by the statistical institutions in Romania. With two times larger forested areas than Austria, Romania reports a smaller production than that country and even less consumption, while unofficial sources offer important information about the huge illegal wood removals and high production of sawnwood in large industrial sawmills developed in Romania by one of the largest Austrian companies, Holzindustrie Schweighofer.

Comparing the structure of production between the three countries analysed in this paper one can observe some similarities and differences (Figure7). The main production in all the three cases is the sawnwoon, no less than 50% (more than the medium production in EU).

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The differences begin with the other types of products. While Sweden use 41% of the roundwood for woodpulp (a superior processing of the raw material), 32% of the Romanian wood production is used as fuel. This represents quite a large amount, much more than the medium amount in EU. It is opposite to the situation in Sweden. In the United Kingdom there is equilibrium between the two types of products.

Taking into this context, a discussion on the forestry legal framework and regulations in the three countries analysed in this paper can offer important information concerning the experience and the interests these states have for the sustainable development of their forested areas. From this point of view Romania can take a good example from the other two countries.

3. Legal Frameworks and Regulations In the context of a global trend towards smart, sustainable and inclusive growth, where the forest occupy an important place, al the EU member countries adopt new regulations following the objectives of the EU Forest Strategy. Each new regulation has also specific objectives taking into account the different characteristics of the national forest lands, the political and economic systems. A comparison between Romania and the other two countries, United Kingdom and Sweden can give some information about the relation between these characteristics and the development of the legal frameworks.

As mentioned before, UK is a country in great need of forest cover. Recognizing that “England’s trees, woods and forests are a vital national asset providing multiple economic, social and environmental benefits” the Government’s main objective is to ensure their protection, management and enhancement so that the benefits to be both maximised now and realised in the future [***, 2013b, p.7]. The UK forestry policy is, therefore, based on resilience.

The main objectives of this policy are: the protection of the trees, woodlands and forests from increasing threats such as pests, diseases and climate change; the improvement of the resilience to these threats and contribution to economic growth, people’s lives and nature; their expansion to increase further economic, social and environmental value[***, 2013b].

These are the basic principles of the forestry policy in UK: Economic growth – the policies are to promote sustainable growth maximising the value of the woodland assets, providing public benefits and protecting natural environment, Government should do what only Government can do – providing the right legislative and fiscal framework so that the sector can pursue its woodland interests, Deregulation – offering the freedom of the sector to pursue its woodland interests, the Government regulations being applied only where and to the extent necessary, Localism – local authorities, businesses and communities being best placed to decide their local priorities, Partnership – supporting the partnership between the Government, the forestry and woodland sector, 26

Value for Money – spending public money as efficiently and effectively as possible in order to gain the best deal for the taxpayer [***, 2013b].

One of the most important laws (regulations) is UK Forestry Standard (UKFS), that together with its Guidelines “outlines the context for forestry in the UK, sets out the approach of the UK governments to sustainable forest management, defines standards and requirements, and provides a basis for regulation and monitoring – including national and international reporting” [***, 2011, p. 1].

In Sweden, a country having more than 24 million ha forest land, half of it being private property (400.000 owners), especially small holdings (less than 25 ha), the “forestry model is mainly shaped by the country´s natural conditions and constraints, its history, the knowledge and experience of the forest owners and the tradition of consensus policies based on mutual respect, understanding and compromise” [***, 2009, p. 2]. The country has an old legal framework, the first modern law (1903) aiming to ensure forestland remains in a productive state. Later on, other laws (1923, 1948, 1980, 1983, etc.) propose sustainable and profitable management regulations.

In 1993 a reversal of policy took place. The new Forestry Act starts with the statement that “the forest is a national resource” an equal importance being given to the aspects of environmental conservation, and the production goal [Nylund, 2009]. This is the law of “freedom under responsibility” [***, 2009, p. 6].

The main stipulations of this law are: mandatory reforestation after final felling, a ban on the felling of young stands, an obligation on forest owners to carry out preventive control of insect pests, special management regimes for valuable hardwood forests and upland forests, a general duty of care for objects or sites of natural, historical or heritage value in the forests [***, 2009, p. 7].

Romanian forestry finds itself in a total different situation. As mentioned before, the forest cover is now 1/3 of the entire national territory, suffering a great loss compared with the situation from the beginning of the XIXth century, when the forests covered 55 – 60% of this country’s surface [Giurgiu, 2010]. Forest exploitation is very old in Romania and the first laws can be found during the Roman period. Starting with that period until present, the legal framework developed in connection with the political and administrative evolution of the territories that belonged to different Romanian regions.

Excepting the decades when this country was ruled by the Communist Party, the forests were mainly private propriety. Consequently, after 40 years of total state control, in 1991 the new forestry legislation created the conditions for the returning of small forest areas to former owners (Law 18/1991). In 2000 a new law (Law 1/2000) took into consideration the restitution of all community, town and communal forests up to 10 ha for individuals and 30 ha for churches. The protected forests were not taken into discussion. Later on, Laws 247/2005 and 165/2013 further expanded restitution to the entire forest area claimed by former owners, regardless to size and protected area status. All this restitution process favoured the development of illegal activities, fraudulent timber exploitation, and, in the end, the dramatic decrease of the forest areas [***, 2015].

Even in present there are numerous conflicting viewpoints on the main forestry law, the Forestry Code passed last year. Concerning this new regulation, AmCham representatives 27

say that “the amendments proposed under this draft law are far from solving the dramatic problem posed by the ongoing illegal deforestations and retrocessions” [20]. The same source claims that “Given the frequent floods and landslides of the last years that had catastrophic effects on certain regions of the country, the role played of the national forest area has become vital for communities, whereas the changes proposed under the new Forestry Code – especially the diminution of the land surface to be afforested by the Romanian State – do nothing but aggravate the situation and pose a risk to the safety of the population from the areas prone to such disasters”.

Conclusions Being one of the last new European members, Romania has been trying ever since to improve its legislation according to the EU directives concerning the sustainable forestry development. Nevertheless, there are a lot of difficulties resulting from previous negative experiences and incoherent policies. In these conditions, Romania is in position to take lessons from more experienced countries in this domain, as UK and Sweden.

References [1] Giurgiu, V. (2010), Consideraţii asupra stării pădurilor României - partea I : Declinul suprafeţei pădurilor şi marginalizarea împăduririlor, Revista pădurilor, nr. 2, p. 3-16.

[2] Maini, J. S. (1992), Sustainable development of forests, Unasylva, vol. 43, no. 169. Available athttp://www.fao.org/docrep/u6010e/u6010e03.htm#sustainable development of forests.

[3] Nylund, J. E. (2009), Forestry legislation in Sweden, The Swedish University of Agricultural Sciences, Department of Forest Products, Report No 14, Uppsala. Available athttp://pub.epsilon.slu.se/5503/1/ Forestry_legislation_in_Sweden.pdf.

[4] *** (1992), Agenda 21. United Nations Conference on Environment & Development, Rio de Janeiro, Brazil.

Available athttps://sustainabledevelopment.un.org/content/documents/Agenda21.pdf.

[5] *** (2009), The Swedish Forestry Model, Royal Swedish Academy of Agriculture and Forestry. Available athttp://www.skogsstyrelsen.se/Global/myndigheten/Skog%20och%20miljo/ENGLISH/retrieve_file.pdf.

[6] *** (2010), Europe 2020.A strategy for smart, sustainable and inclusive growth, European Commission.

Available athttp://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007%20-%20 Europe%20 2020%20-%20EN%20version.pdf.

[7] *** (2011), The UK Forestry Standards. The governments’ approach to sustainable forestry, Forestry Commission. Available athttp://www.forestry.gov.uk/theukforestrystandard.

[8] *** (2013a), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. A new EU Forest Strategy: for forests and the forest-based sector, European Commission. Available athttp://eur-lex.europa.eu/ resource.html?uri=cellar:21b27c38-21fb-11e3-8d1c-01aa75ed71a1.0022.01/DOC_1&format=PDF. [9] *** (2013b), Government Forestry and Woodlands. Policy Statement. Incorporating the Government’s Response to the Independent Panel on Forestry’s Final Report, Department for Environment, Food and Rural Affairs, Forestry Commission, England. Available athttps://www.gov.uk/government/ uploads/system/uploads/attachment_data/file/221023/pb13871-forestry-policy-statement.pdf.

[10] *** (2015), Stealing the Last Forest: Austria’s Largest Timber Company, Land Rights, and Corruption in Romania, Environmental Investigation Agency. Available athttp://eia-global.org/images/uploads/ EIA_2015_ Romania_Report_Final_low_res.pdf [11] http://www.statista.com/statistics/264665/world-forest-area-by-continent/.

[12] http://ec.europa.eu/eurostat/statistics-explained/index.php/Archive:Business_economy_by_sector__NACE_Rev._1.1 [13] http://www.romania-insider.com/amcham-new-forestry-code-can-destroy-romanias-forests/131981/

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Renewable Energy and the Environment Cornelia MARIN1, Liliana GURAN-NICA1 Spiru Haret University, 13, Ion Ghica street, Bucharest, 030045, Romania Tel: +40 0213112947, Fax: + 400213112947, Email: mrn_cornelia@yahoo.com 1,2

Abstract: The rush for renewable energy, as an alternative to energy from fossil fuels, generates a number of problems. This paper proposes to investigate domestic energy production using waterfalls. The country has a tradition of harnessing water power by building hydroelectric crowned with success. To these were added in recent years, small hydropower plants (SHP)whose beneficiaries aim to tap the energy of mountain water courses. The amount of energy produced in the country, which has water source, covers about a third of necessary. Is it a renewable energy with minimal environmental impact? Amid legislation and especially of taxation that favors the construction of such SHPs the number of such projects has exploded, although at the same amount of electricity produced an SHP has a 5-8 times higher impact on biodiversity, compared to a hydroelectric dam with. The impact that these have on the environment (SHP) is underreported. We present in this paper how the intervention works in the minor bed for installing water abstraction and adduction results in reduced water flow rate, to change the morphological characteristics of the river beds, the impaired quality of surface waters, and not least to the deterioration of ecosystems of river beds. The case studies that will be presented will focus on SHP Capra in Fagaraș Mountains where deforestation were not the only danger, and SHP Nera, project that would be carried out in the vicinity of the protected area Nera and was provisionally blocked.

Keywords:renewable energy, environment, small hydropower plants JEL classification:Q29

Introduction Renewable energy refers to the energy which does not contribute to greenhouse effect emissions and implicitly to climate changes [2]. That is why it is also called clean or ‘green” energy, being considered as having an insignificant impact upon the environment.

Renewable energy is the solution when conventional resources near depletion. Each country imposed the finding of solutions and investments in the field of “green” energy.

But how “green” is this renewable energy? The technology its generation is based on is still quite a pollutant technology, environmentally unfriendly. The operating period of the devices is not satisfactorily long and the waste itself becomes a problem. Thus, the situation occurs when the “green” energy has a significant impact upon the environment.

The study carried out refers to the erection and operation of micro hydropower plants.

The economic advantages must be weighed well against the impact upon the environment. The requirements that must be met for a correct positioning of the micro hydropower plants, and particularly checking the observance of the technical report, are elements that must be taken into consideration for any new project in the field.

1. About Renewable Energy 1.1.The need to obtain renewable energy based on the increase of energy consumption The energy rush is similar to the money rush (or gold rush until not so long ago). Both individual and industrial consumers are increasing their electricity demand. The increased energy demand also results in the increase of the electricity price, which can be traced in both the final cost of any product and service and domestic costs. Reducing energy consumption is not a solution considering that comfort has become a necessity for modern mankind.

That is why electricity and its generation are among the main concerns of every current human society. The generation of electricity went through several stages: from the use of energy resulted by the firing of fossil fuels to the energy generated by water and then to nuclear energy – considered Figure 1. Total rated energy of electric generator sets according “clean” forms of energy as to categories of electric power plants and energy consumption in Romania, between 1992 and 2014 (source INSS) opposed to the one resulted by firing fossil fuels – and, more recently, renewable resources – wind power, geothermal energy, biomass, biogas (waste fermentation gas, sludge fermentation gas in the waste water treatment plants), solar energy. Traditional renewable energy, such as hydro-power, wind power, solar energy, biomass, diversified depending on local conditions and available technologi es: Figure 2 – Percentage distribution of energy generation sources between 1992 and geotherma 2014 (source INSS) l energy, tidal energy, wave energy. An actual BANDWAGON effect was generated in the rush after “green” energy.

30

The total electric power generated in Romania between 1992 and 2014 can be seen in Figure 1, together with the evolution of the energy consumption over the same period. A decrease in the electric power requirement can be noticed between 1996 and 1999 as a result of closing down an important part of the energy-intensive industries. This economic conduct also required a decrease in the generation of electric power after 1999. The increase in the generation of electric power from renewable sources can be noticed beginning with 2010, based on the development of wind farms and solar parks (Fig. 2). The advantage of alternative energy sources is that they are practically inexhaustible (with reference herein to wind power and solar energy, but geothermal or biomass energy can also be added) and accessible on our level of access (according to the Russian physicist, we are a Type I civilization because we have access only to the energy accessible on our own planet and we aspire shyly to Type II civilization, that harnesses the energy radiated by its own star [6]).

Romania undertook before the European Commission that 24% of the total energy consumption in 2020 shall be from renewable sources. That was the target reached and exceeded from 2014, which caused a decrease of the investments in the field. In 2015, the green energy percent of the total energy consumption was 15.66% as opposed to only 1.29% in 2010 [4].

1.2.

How “green� renewable energy is

Renewable energy gained the aura of a salvation for the future of the consumptionstarved humanity. The major issues raised by clean energy generation are related to the storage of such energy. The lack of efficient energy storage systems results in quite significant fluctuations in the generation of electric power. Photovoltaic power stations and wind farms generate energy during certain periods of a year, depending on the insolation level and wind power, respectively. Neither is the distribution within the territory of the country an even one, thus resulting in a concentration of solar parks in the southern and south-eastern part, and of wind farms in Dobrogea, in the central part of the Moldova Plateau, and some areas in Banat. In order to solve those shortcomings partially, the electricity transmission networks should be intelligent. But how clean this energy is, is a question asked more and more often.

In this study we focus only on a few sources of renewable energy.

If the position of the wind farms is analyzed, it may be noticed that the impact upon the environment commences right from the construction stage. The land taken by these wind turbines is quite large, including access roads to the wind turbines and the electricitygenerating installations. Once they become operational, the wind turbines shall maintain an impact upon the environment because they are more than often positioned on the flyway of migrating birds.

Specialty studies underlined that the second longest migration flyway in Europe (Via Pontica) passes through Dobrogea and the Danube Delta [3]. Several wind farms grouped together in a certain area may generate a change in migration flyways with a negative effect upon migrating birds (decrease of their body weight, loss of energy at a faster rate) [3].It was noticed that these constructions have a negative impact upon rodents (some 31

would say “great”, but the fact that the balance within the ecosystem is damaged must not be omitted), and may determine a disturbance of bird nesting areas. The fact that they change the landscape can be regarded as an advantage and not necessarily a negative fact. What is troublesome is the fact that a number of wind farms overlap / cross Natura 2000 sites (Fig. 3). In Tulcea County, it may be noticed that approximately one fourth of the wind turbines are located on protected sites.

But one of the significant problems generated by these wind turbines is represented by the high maintenance cost in addition to the initial costs with the equipment and installation. The study would not be complete if the social aspect related to the presence of these wind “farms” was not analyzed.

Their construction lifted the hopes of the local Figure 3 (about Druga communities (most of Mariana, 2013) which were living in poverty) that they may benefit of electricity at a lower price, which would have led to a bearable financial effort.

There are cases where the wind farms have been completed but never commissioned, as is the situation with the 27 MW wind farm in Târgușor, Constanța County. Moreover, those who do not gain access to green certificates give up on supplying electricity [1].

A first condition for solar parks is arrangement. Photovoltaic arrays are efficient if they are exposed to sunlight for as many hours as possible. There is a direct connection between the quantity of generated electricity and the intensity of the light touching the surface of the panels. Besides photovoltaic panels, there are also solar thermal power stations, which operate by absorbing sunlight and the resulting heat transforms the water running a number of turbines into vapour. Such thermal power stations do not exist in our country.

Photovoltaic parks have a number of advantages, such as easy arrangement, the fact that they generate electricity without noise-polluting the environment, the costs are lower than those for wind farms.

The disadvantages in using this source of generating electricity may be significant. The panels are manufactured using chemical solutions (such as sodium hydroxide and hydrofluoric acid). Moreover, both water and electricity are used (which involves the greenhouse gas emissions).If sunlight is renewable, photovoltaic panels are not. The solar panel manufacturing leaves behind waste and the lifespan of such panels is quite short (in the end becoming waste with an impact upon the environment), which makes “clean” electricity generation a difficult target to attain in this manner. Currently, the recycling of solar panels raises the following issues: There are not enough recycling locations for old solar panels, and there are not enough old solar panels to make recycling economically profitable.

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Just like in the case of wind “farms”, solar parks do not represent an economic advantage for the communities in their neighbourhood. The benefits cannot be found in the supply of energy at preferential prices, but in the investors’ incomes who also gain the equivalent for the green certificates, which reward the generation of renewable energy, besides the price for the generated energy.

1.3 Obtaining renewable energy using the power of water, in our country (tradition and current status) The power of water was used by the Romanian peasant from the ages of time. His resourcefulness led to using the power of the water running in the vicinity of his house for washing clothes (in Maramureș), grinding grains – wheat, corn (in Banat, Bucovina). Even if the mills are now simple historical monuments or on their way to total ruin, one can still notice the manner in which they were built so that water is not hindered in its flow downstream. The mill parts are manufactured from wood and stone - raw materials existing in the area. Some stood against the passing of time and still stand proof of their perfect operation.

Another period followed - when hydroelectric power dams were built (Porțile de Fier, Vidraru and Bicaz Hydroelectric Power Stations are renowned for their size and installed capacity). They have quite a high impact upon the environment, but it weighed less against their installed capacity, power efficiency and the fact that the energy generated was not directly pollutant.

The building of these hydroelectric power stations was quite costly in itself, but the energy generated is quite cheap whence their efficiency. The fluctuation in electricity generation, as a result of seasons and draught periods, required that this electricity generating source be supported by other (generally conventional) sources. Hydroelectric power dams are built in areas of special geographical diversity. Unfortunately, these hydroelectric power constructions determine local changes in climate, and have a negative effect upon the fish.

The energy demand determined the adopting of projects called micro hydropower plants (MHPP). Such plants involved a lower cost for their execution, but a lower efficiency as well. The “advantages” consisted in that several of these small power plants using the power of water could be built.

From the information offered by the Ministry of the Environment, there are over 300 such projects all over the country, some of them non-operational. Hidroelectrica has sold 32 such micro hydropower plants and still has another 33 inefficient MHPP’s for sale on the market. Although such constructions already exist, some of them non-operational, the number of new projects is quite high. What made investors build new MHPP’s? The European funds coming with them were probably the stake.

2. Case Study– MHPP – Micro Hydropower Plant on the Nera River The herein Chapter will analyze at length the advantages and particularly the disadvantages of such constructions.

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After the European Commission launched the infringement procedure for Romania due to the projects on Capra and Buda Rivers in Făgăraș Mountains (MHPP’s that destroyed ecosystems and devastated wonderful landscapes), new projects for the building of MHPP’s emerge. Among these new projects are the two MHPP’s to be built on the Nera River - one of the few rivers in the country still having quality physical-chemical properties.

The advantages of the projects are ostensible. They bring in added value due to their easy arrangement and, as a result, lower execution costs. The development of an area is an argument that accompanies such constructions more than often. Unfortunately, as in the case of the other energy generating solutions from renewable sources, there are clearly no economic advantages for the local community. The advantages are featured in the project beneficiary’s incomes (money obtained from selling the electricity by introducing it into the national grid as well as from the green certificates meant to support investments in energy from renewable sources).

The disadvantages of these projects, which may also be extended to other MHPP projects in the country, are: 1.

Arrangement of these MHPP is in the close vicinity of protected natural areas:

Site N2000 - ROSCI0226 Semenic - Caraș Keys is 500 m away from the Nera 1 MHPP. Site N2000 downstream ROSCI0375 Nera River between Bozovici and Mocerișis located approximately 17 km upstream the Nera 2 MHPP (this close distance is within the 20 km limit recommended by Romania’s Energy Strategy (“Avoiding the implementation of projects involving modifications to the watercourse, flow or level within protected natural areas where water has an important role in maintaining habitats/species or within 20 km upstream such”).

2.

Such constructions, particularly on Mountain Rivers, affect the fish, mostly salmonidae. Solutions are attempted, such as the building of “steps” for fish on which they could climb upstream (the impact studies have not offered a clear solution to such purpose). The impact study accompanying the projects specifies that not to many or the protected species were noticed upstream and downstream the designed construction.

Such an approach decreases any credibility in the accuracy of such study.

Over time, the construction of dams on the Nera River and its tributaries determined a dramatic decrease in the number of sturgeons, which could no longer migrate to reproduce.

3.

These projects lead to the irreversible damage of the protected species habitats.

Part of the species is specified in the environment impact study, but there are other species, not specified, such as the stone crayfish and the otter. The negative impact is to be noticed in the construction stage of the MHPP’s.

4.

The area is renowned for the value of its tree species (the area is in a prime forest areal). Romsilva intervened and specified that no land clearing may be carried out to execute the two water bodies and three MHPP (to be specified that one project describes the building of a MHPP and one water filling and the other project analyzes the erection of 34

two MHPP and a single filling). Without such intervention by Romsilva, the construction works would have sacrificed a forested area (as always, smaller on paper because there is nobody to check the conformity).

5.

What is more serious is the fact that Caraș Severin Environmental Protection Agency has not analyzed the cumulated effect of the two projects to block them. Each project was presented as being unique within the areal that was to bear the construction.

The environmental impact produced by a construction shall be doubled once it is executed as a continuation of a similar one.

6.

Roman era vestiges are in the vicinity of the site for one of the projects, as well as complex-layered archaeological sites, Hallstatt (Basarabi culture) and 3rd – 4th century BC ceramic fragments, but nobody gave a thought to any archaeological survey previous to any intervention.

7.

The construction in itself has many shortcomings. The fact that too little water is left for natural servitude makes the lower course of the Nera River dry out during periods with low rainfall. The MHPP’s have a problem with their inconstancy in generating electricity – in winter, frazil ice is formed and the plant fails to operate; in spring, floods may occur, which will clog the storage basin and the efficiency is minimized; in summer, draught periods will generate great problems in the good operation of the power plant.

The alluvia accumulated in the intake areas, together with vegetal remains, will determine gas emissions.

The story of the two projects has a nice ending, at least for the time being. The assessment procedure also involved a public meeting should take part and express their opinions on the subject. The inhabitants of Prigor Township (administrative locality on the territory of which these MHPP’s were to be built) together with environmental protection organizations (WWF being among the most active ones) requested within the public meeting, backed by both scientific and sentimental arguments, that these projects be stopped. The power of their arguments and the wonderful manner in which the community gathered together around the idea of keeping Nera clean convinced the environmental authorities to analyze the impact study reports for the proposed projects with greater professionalism. The facets of reality are multiple. After this small victory, the Nera River is again threatened – this time by the approval issued by the Serbian authorities for the execution of 4 MHPP’s on the Jeruga River (a branch of the Nera) (the information being supplied by the Nera Ecological Collaboration Group – GEC NERA).

Conclusions A better cooperation is required between the local authorities, the local community, and the economic agents that want to invest in such projects.

Another conclusion would be that the research and innovation activity in this field should benefit of genuine financial support.

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Local strategies must be developed on the possibility obtaining electricity from renewable resources, and local development must be followed up with emphasis on durability. Such strategies must also take into consideration the climate changes that may result in a source becoming more valuable than another in the years to follow.

The use of renewable resources (for generating electricity) for small communities must be stimulated and, what is more, the adopting of an intelligent transmission system must be encouraged.

From the previous studies made, the legislation in the field proved to be too thick and bureaucracy blocks a great part of the projects in the field.

References [1] Bratu I., (2015) Premiera negative: primele turbine eoliene din Romania vor fi demontate DeCe NEWS Available at http://www.dcnews.ro/premiera-negativa-primele-turbine-eoliene-din-romania-vor-fidemontate_482133.html [2] Dawn Stover (2011) The myth of renewable energyAvailable at Bulletin of the Atomic Scientists [3]Drugă Mariana (2013) Dezvoltarea energiei eoliene http://www.sor.ro/img/File/Utile/Analize/1%20Raport%20%20dezvoltarea%20energiei%20eoliene%20in%20Dobrogea.pdf

în

Dobrogea,

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[4]Kardashev, Nikolai (1985) On the Inevitability and the Possible Structures of Supercivilizations" in "The search for extraterrestrial life: Recent developments; Proceedings of the Symposium, Boston, MA,June 18–21, 1984, p. 497–504.

[5]Kamala Vainy Pillai PhD (2014) Is Renewable Energy Really Green?Available at http://www.forbes.com/sites/realspin/2014/09/24/is-renewable-energy-really-green/#419fad9e4d8e [6] Roxana Petrescu (2016) Cel mai verde an: energia produsă de eoliene şi solare a acoperit peste 15% din consumul de energie, dar investițiile tind spre zero Ziarul Financiar – EconomieAvailable at www.zf.ro [7] *** (2016) Sinteza calității apelor din România în anul 2015 Administrația Națională ”Apele Române” [8] *** Strategia energetică a României pentru perioada http://www.minind.ro/energie/STRATEGIA_energetica_actualizata.pdf

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2007-2020

Available

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Analayzing the Impact of Restructuring on the State-Owned Banks1 Gazi SARISAKALOGLU2, Mustafa BILGIN3 Hittit University Institute of SocialSciences, Economics Department, Çorum, 19260, Turkey, Tel:+90 364 235 0620, Fax:+90 0364 235 0621, Email: gsarisakaloglu@ziraatbank.com.tr.

Abstract: The subject of this research is to compare the performance based on determined criteria of the state owned banks in Turkey before 10 years and after 14 years from 2001 the date they were included in restructure program. The t-test method is used in the study. According to the analysis results, it has concluded that the most successful state-owned bank was Halk Bank with a small margin in front of Ziraat Bank after the year that the restructuring program was implemented in Ziraat Bank, as well as having the second most positive development of public banks in terms of analysis ratios, it has almost equal proportions with Halk Bank in terms of asset quality and branch ratios. Halk Bank is ranked first as usual in terms of and branch ratios. All state owned banks are subject to the close rates for branch ratios.

When evaluating the performance of public banks in general over a total of 36 criteria, they showed positive development for 26 criteria. That means after the restructuring program that we called 2nd period in the study they became more successful based on established criterias.

Keywords: Bank, State Owned Bank, Restructuring of State-Owned Banks, Banking Sector.

JEL Codes: G21, G28, G34

1

This studyis produced from the Master Thesis presented to Hittit University Institute of Social Sciences prepared by Gazi Sarısakaloğlu consultation with Assistant Professor Mustafa Bilgin.

2 Hittit University Institute of Social Sciences, EconomicsDepartment, Çorum, 19260, Turkey, Tel:+90 364 235 0620, Fax:+90 0364 235 0621, Email: gsarisakaloglu@ziraatbank.com.tr.

3 AssistantProfessor.HittitUniversityFaculty of EconomicsandAdministrativeSciences, Çorum, 19260, Turkey, Tel:+90 364 235 0620, Fax:+90 0364 235 0621, Email: mustafabilgin@hitit.edu.tr.

Introduction After the great economic crisis spread to the whole world international sizes in 1929, the prevailing economic thinking in the world was Keynesian Economic Thought System.

According to this opinion; private sector alone cannot provide the capital adequacy to reach the desired level of industrialization in the national economy and the state should take place more effectively to achieve the economic goals and to implement the economic policy was advocated.

The economic crisis covered all over the World in 1929, the deterioration over the international trade balance, foreign exchange, the supervisory procedures applied in foreign exchange transactions and the other similar problems required radical changes in our country's economic policy in that period. These economic developments has made necessary to apply different policies in many sectors including banking sector. Under these developments, large-sized state-owned banks was established between the years 19301940.[Ă–ztin, 2007].

It was aimed through these banks to carry out or finance capital investments and industrialization cannot be met through the private sector. [Atasoy, 1993]. The state owned banks founded by special law mainly aimed to transfer the economic resources to the areas that given priority by state. They were established to support the industry investments because of private banking structure was insufficient in achieving these goals.

[Uçarkaya, 2006].

State owned banks established with these purposes were failed in 1980s to adapt to global economic developments and competition. These banks have been continued their activities in the public interest for many years but by the time they became a kind of institutions that hurt and burden to the public.

In 2000s our country has experienced economic crisis adversely affecting the entire economy but mainly the banking sector. After these crises the troubled banks including State Owned Banks, were removed from the system or were taken in restructure program in order to coverage ensure a healthy structure. As a part of restructuring program to strengthen the financial structure of the banking system and to increase the effectiveness of control mechanisms the international regulations have been implemented.

In May 2001 a comprehensive package of reforms announced concerning the Turkish banking sector by BDDK (BankingRegulationandSupervisionAgency) to solve the problems of these troubled banks that were affected adversely from the November 2000 and February 2001 crisis. It was aimed to ensure the achievement of a healthy and strong structure in banking sector in Turkey.

As a part of restructuring works, some of the state-owned banks which have been damaging to the financial sector had been liquidated or exposed to a merger or decided to be privatized. The state owned banks agreed on restructuring were Ziraat Bank, Halk Bank and VakÄąflar Bank. The objective of this study is to analyze the performance of these state owned banks were included restructuring program and not privatized yet in terms of the determined criteria before and next the restruction decision.

38

2. Case Study 2.1. Purpose of the Study The main purpose of this study is to measure the performances of 3 state owned banks engaged in deposit banking operating across Turkey. They were measured in terms of their performances of 10 years before restructuring process and also14 years after restructuring process.

2.2. Limitations of the Study Performance of state-ownedbankscoveringtheyears 1990-2000 wascalled 1st period.The performance between the years 2002 to 2014 are expressed in the form of the 2nd period in the research. In order to have a more solid foundation of this practice, the adverse effects of the 2001 economic crisis occurred in our country in banking sector was deemed appropriate to exclude of the research. Therefore, 2001 ratios were not included in study.

2.3. Methods Used in Research and Data Analysis The analysis system of the research called t-test is a method that helps to evaluate the differences between the two groups either it is incidental or statistically significant.

[AkdaÄ&#x;, 2011].

Independent sample t-test, the type to be used in the study means comparing the average of two independent groups mutually which were determined according to dependent variable. While making this comparison a certain level of confidence is determined and it is tested either there is a significant difference over the confidence interval or not. [Ural, 2006].

2.4. Data Collection Tool Some of the data used in this study are provided from the website of Banks Association of Turkey directly or obtained as calculating by author using the ratios about the banks.

These data and ratios used in this study are the most widely used in the measurement of bank performance in literature; Equity/Assets, Total Loans/Assets, Total Loans/Deposits, Non-Performing Loans/Total Loans and Receivables, Net Profit/Equity, Net Profit/Assets, Net Profit/Capital, Per Branch Assets Average, Per Branch Deposits Average, Average Credit Per Branch, Per Branch Employee Average, Per Branch Net Profit Average.

2.5. Results By using the determined ratios, it is examined in this study that whether the state owned banks in Turkey has a positive improvement and significant differences before and after there structuring. Results obtained by using the ratios are shown in Table 1.

39

Table 1: According To The İndependent Sample t-test The Results of Halk Bank, Ziraat Bank and Vakıflar Bank Halk Bank Vakıflar Bank t-te st for Equality t-teof st for Equality of Me ans Me ans Sig. (2Sig. (2t t taile d) taile d) Equity / Asse ts Total Loans / Asse ts Total Loans / De posits Non-Pe rforming Loans / Total Loans and Ne t Profit / Equity

Ne t Profit / Asse ts Ne t Profit / Capital Pe r Branch Asse ts Avarage Pe r Branch De posits Ave rage Cre dit Pe r Branch Pe r Branch Employe e Avarage Pe r Branch Ne t Profit Avarage

Ziraat Bank t-te st for Equality of Me ans Sig. (2t taile d)

Equal variances assumed

-5,222

,000

-6,369

,000

-3,508

,002

Equal variances not assumed Equal variances assumed

-4,749

,001

-6,703

,000

-3,209

,008

-2,160

,043

-1,708

,102

1,893

,072

Equal variances not assumed Equal variances assumed

-2,363

,030

-1,841

,081

1,944

,066

-1,942

,066

-1,189

,248

1,755

,094

Equal variances not assumed Equal variances assumed

-2,093

,050

-1,205

,242

1,796

,087

4,606

,000

2,338

,029

1,816

,084

Equal variances not assumed Equal variances assumed

4,013

,003

2,384

,027

1,999

,062

-8,845

,000

,581

,567

-,892

,383

Equal variances not assumed Equal variances assumed

-9,238

,000

,522

,612

-,805

,438

-1,569

,132

2,535

,019

,515

,612

Equal variances not assumed Equal variances assumed

-1,418

,184

2,241

,049

,459

,656

-3,629

,002

,654

,520

-2,221

,038

Equal variances not assumed Equal variances assumed

-3,990

,001

,611

,551

-2,155

,046

-5,602

,000

-9,154

,000

-7,063

,000

Equal variances not assumed Equal variances assumed

-6,406

,000

-10,439

,000

-8,063

,000

-2,576

,018

-1,603

,124

-1,172

,254

Equal variances not assumed Equal variances assumed

-2,493

,024

-1,429

,183

-1,052

,316

-3,789

,001

-5,837

,000

-3,732

,001

Equal variances not assumed Equal variances assumed

-4,343

,001

-6,682

,000

-4,277

,001

1,082

,292

4,669

,000

17,872

,000

Equal variances not assumed Equal variances assumed

1,100

,284

5,181

,000

18,648

,000

-5,508

,000

-9,190

,000

-7,713

,000

-6,313

,000

-10,464

,000

-8,841

,000

Equal variances not assumed

Detailed information regarding the analaysis and Table 1and 2 performed by using the T-Test, data and resourcesare available in the Master Thesis of Gazi Sarısakaloğlu called ‘Theİmpact of Restructuring of The State Owned Banks on The State Owned Banks’ prepared under the consultancy of Assistant Professor Mustafa Bilgin.

The results obtained by using t-test are signed as accepted and refused. Accepted means there is significant differences between two periods in this study.

Table 2: Resulting According to Significance Level

Banks

Equity / Assets

Total Total Loans / Loans/De Assets posits

NonPerforming Net Net Net Profit / Loans/Total Profit/Ass Profit / Equity Loans and ets Capital Receivables

Per Branch Assets Average

Per Average Per Per Branch Credit Per Branch Branch Deposit Branch Employee Net Profit Average Average Average Average

Halk Bank

Accepted Accepted Accepted

Accepted

Accepted

Ziraat Bank

Accepted Accepted Accepted

Accepted

Refused

Refused Accepted Accepted

Refused Accepted Accepted Accepted

Vakıflar

Accepted Refused Refused

Accepted

Refused

Accepted Refused Accepted

Refused Accepted Accepted Accepted

Refused Accepted Accepted Accepted Accepted

40

Refused Accepted

According to analysis results when we compare the 1st and the 2nd period duetotheperformanceratios of publicbanks, there are more of the criteria which have significant differences between terms. That means after restructuring program the state owned banks have been more successful than the previous period.

3. Result and Discussion The basic tasks of establishment of public banks in our country are to lead the economy in financial matters, to assist in solving the problems in the banking sector, transporting the banking services in rural areas and to contribute to the economy in areas such as financial and fiscal stability.

The state owned banks in Turkey had irregular balance structure and became unable to continue basic task during 2000s, due to the crisis in 2000s and 2001s. Therefore, these banks are included in banking restructuring program implemented in the financial sector for the purpose of resolving the problems of them. In this context, primarily duty losses of these banks were paid and capital support was provided to these banks. The interest rates of the banks have been harmonized to the market as both deposit and lending thus financial restructuring process was completed.

One of the other important restructure issues of these banks is the arrangements are implemented to ensure compliance with public sector numbers and international standards about loans, deposit and non-performing loans. A number of arrangements have been done to improve the asset quality of these banks. Such as the qualifications of the personnel employed in state-owned banks, the number of branches and employees has been the subject of debate topics and became one of the issues given the importance part of the restructuring.

According to the results of our study evaluating the performance of public banks included the restructuring program; over the 12 ratios in the study, 10 criteria of the Halk Bank, 9 criteria of Ziraat Bank and 7 criteria of VakĹflar Bank were found to be positive differences to be statistically compared to the previous period. It has been concluded that there is a small margin difference between the Halk Bank and Ziraat Bank in terms of performance in state-owned banks and Halk Bank is the most successful state owned bank according to the analysis. Ziraat Bank, as well as having the second most positive development of public banks in terms of analyze ratios has almost equal proportions with Halk Bank in terms of asset quality and branch ratios proportions. Halk Bank is ranked first as usual in profitability ratios. In terms of the branch ratios, all public banks are subject to the close level of success rate. Halk Bank’s branch/employee ratios lagged behind the other two state banks and through the branch/deposit ratio, it has a better average growth than the others.

As a result of our study, while the state banks have been assessed as a whole, after the restructuring process in 26 of the total 36 criteria, 3 state-owned banks have been found to show a positive evolution. In this case, it is understood that after the restructuring works in public banks they became more successful in the next process.

41

Similar to our study, Bağlı and Rençber analyzed the performance index of our country's public and private banks between the years 2006-2012. As a result of the study, they came to the conclusion that Public banks are more profitable than the private banks. Another conclusion of the study is that Halk Bank is the most profitable bank in the state-owned banks. [Bağcı, 2014].

In the similar nature of the study performed by Altıkulaç, state-owned banks have been subject to performance evaluation between the years 2001-2005 on the basis of 2001. In this study, in parallel with our research it was determined that there have been improvements in public banks after restructuring program. [Altıkulaç, 2006].

References [1] Akdağ, M. (2011) SPSS’ İstatistiksel Analizler, p.3, Malatya.

[2] Altıkulaç, E. (2006) Kamu Bankalarının Özelleştirilmesi ve Türkiye’de Performanslarının Özel ve Yabancı Bankalarla Karşılaştırılmasına İlişkin Kantitatif Bir Analiz, p.232-251, İstanbul, Marmara UniversityDepartment of BankingandInsurance, PhDThesis.

[3] Atasoy V. (1993) Kamu İktisadi Teşebbüsleri ve Özelleştirme Sorunları’, p.27-28, Ankara, Nurol Matbaacılık.

[4] Bağcı, H.; Rençber, F.Ö. (2014) Kamu Bankaları ve Halka açık Özel Bankaların Promethee Yöntemi ile Karlılıklarının Analizi, p.1, Aksaray UniversityJournal of EconomicsandAdministrativeSciences.

[5] Öztin, A. (2007) Türkiye’de Yabancı Bankalar, 36thedition, p.11-12,Muhasebe ve Finans Dergisi [6] Uçarkaya, S. (2006) Kamu Bankalarının Bankacılık Sistemindeki Rolü, p.64-65, Ankara, The Central Bank of theRepublic of Turkey General Directorate of Bankingand Financial Institutions, ExpertiseProficiencyThesis.

[7] Ural, A.; Kılıç, İ. (2006) Bilimsel Araştırma Süreci ve SPSS ile Veri Analizi, p.200, Ankara, Detay Akademi Anadolu Yayıncılık.

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Growth, Development and Progression Crisis after Crisis?

1

Ferenc SZAVAI 1, Department of International Economic Relations Institute of Methodology Faculty of Economic Science of the Kaposvรกr University szavai.ferenc@ke.hu Abstract: The article talks about the history of enterprise, crisis and the prosperity history main findings. It underlines the economic growth features before industrialization, during the period of industrialization, during the crises and emergency situations. Then a forecast for the future, for the 2030 year is discused.

Keywords: history of enterprise, economic growth, crisis, emergency situations JEL classification: A10

Historical Aspects of Economic Growth The frames of reference of modern economic history are usually drawn at the micro, macro and political level.

Our topic at the same time, the limits to economic growth, also appears at the macro and micro economic level.

On the macro level approach the economic growth and the problem of structural change is brought to the fore, its important areas are employment, money and capital market, and international economic relations.

The political approach carries us to issues of economic order, state and economy, economic self-regulation and industrial relations.

Besides the subfields of economic history such as the history of entreprises, international economic relations, regional economic differences, demographic history, agrarian history, urban history, the frames of banking history and financial history determine mainly the aspects of inquiry.(Moderne Wirtschaftsgeschichte, 2006) 1

During the fiftees and sixtees of the 20th century – deliberately following the patterns of social sciences, social history was developed, its important dimensions are: employment, relatedly the structure of income, distribution, magnitude and social prestige connected with it.

Economy and social history are related in many ways.

Here are some illustrations of it: history of enterprise, crisis and prosperity history, history of economic sectors (commerce, bank, industry, craft), social and welfare systems, or economic and social policy (Gyáni-Kövér, 2006) Besides classic economic history, new schools have emerged, such as, cliometrics for whose application and research Robert W. Fogel and Douglass C. North received the Nobel Prize in 1993.

Contemporary economic history schools likewise start from economic calculability, addressing particular problems with proofs based upon exact calculations.(LSE, 2012) An important theoretical foundation of economic growth is modernization theory.

All of this was a product of the 50s and 60s.(Wehler, 1975) a) modernization is development, more specifically it can be reduced to economy: it is growth. (The theoretical critics of the modernization conception). b) On the other conception modernization refers to the process and ways of catching up. It divides countries to ’pionneers’ (e.g. England) and ’late comers’ (e.g. Eastern Europe), and represents them by their backward structures. (Gerschenkron, 1974) c) Historical approach. In Europe the result of the process undergoing during the long 19th century was: the transformation of ’traditional societies’ into industrial societies, or into ’rational societies’ to put it in terms of Max Weber. The emergence of rational market economy. Its necessary conditions: 1. Free property, 2 Free market, 3. Free labor, 4.

Commercialization of economic life, 5 Rational clear legal system, 6 Technological inventions. (Weber, 1923) d) Human history is the series of subsequent modernizations (John Komlos, D. North) Hubert Kiesewetter distinguishes between random and necessary factors of economic development: such as geographical location, mineral resources, climate and soil fertility.

Among necessary factors he emphasizes capital, technology, enterprises and education.

The research fields of economic growth are: rate of mean growth (Gross Domestic Product), average labor and equity release, average rate of increase in labor productivity and capital intensity. (Kiesewetter, 1996)

1. Economic Growth Before Industrialization Economic growth – increase in production per capita.

Growth was possible prior to industrialization, but it meant primarily the sustained growth of wealth.

-

Growth, therefore, is slight 44

-

Crop yields fluctuate

-

75-80% of domestic expenditures are on food.

-

Heavy crops were chancy.

-

The technological level of production has barely changed on the long run.

- Production was increased through increase of the workforce instead of investing more capital into the production process. In these circumstances genuine economic growth could not be achieved, that is, increase in production per capita.

-

The ciclicality of prosperity, unexpected famines (double motion) (Dideriks, 1995)

2. Economic Growth During the Period of Industrialization There are many differences between traditional and industrial growth: - The modern economic growth is faster and comprises the whole economy (The economic sectors mutually influence each other) -

Integrated economic system, first on regional then on national level.

- After 1850 the dependence between the various national economies has increased, an international economic system emerges. The role of the European economic community in the international economic division of labor.

-

Decrease or even disappearance of differences between countries.

-

Higher economic growth ratio, mainly because of the increase of labor productivity.

- There is much more invested capital around, prior to that the major barrier of growth was the low investment level.

- The modern economic growth is more stable (population and living standards increase) - Economic development taking place for centuries and following it the food crisis ceased to be and in its place “long waves” and “properity motions” became characteristic.

(Dideriks, 1995) Increase of productivity has many causes: the most obvious is technological development, decrease of the time needed to make the product, craftsmanship and efficiency, the increase of productivity is higher in the industry than in the agriculture.

In the 20th century growth was characterized by the following features: a) relativ balance up until the First World War b) Uneven during the Great Depression (significant downturn) c) Strong renewed growth in the 50s and 60s d) In the seventees slow down again Before the First World War Great Britain, Switzerland and Belgium were on top. Portugal was still a wealthy country in the 19th century.

45

In the 20th century the gross domestic product per capita was highest in Northern Europe.

Europe’s share in the world gross product was 50% at the beginning of the 20th century, which due to the crises dropped to 37% by 1950.

In the 70s it was 50% again, in the meantime Europe gave only 10% of the world population in 1980. It had a dominant role besides the American economic region.

(Ambrosius, 1986) The Foreign Policy Review published in March 2 1940 anticipated that by the year 2000 the world’s oil reserve would run out. This has proven not to be true. (Magyar Külügyi Szemle, 1940) In 1972 the Massachusetts Institute of Technology (USA) formulated the problem of the limits to growth. (Cameron, 2015) In the 60s Jay Forrester started to devise various models of growth.

A year after Forrester, Dennis Meadows released his own model under the name World 3.

The model was significantly more complex than world 2 was.

A single screen is no longer enough for that. Unlike Forrest, Meadows did not make public his model equation in his book (Limits of Growth).

He just speaks of simulation results. The model appeared only two years later in a separate book under the title of Dynamics of Growth in a Finite World. Meadows’ model was undoubtedly superior to Forrester’s as it could undoubtedly answer more scientific questions.

Everything points to the direction that we deplete the resources of our planet faster than we could reproduce them.

Current living standard can no longer be permanently sustained. In such case it does not help, if we eliminate the limits, in fact it just makes things worse. To this end it is even worse, if we permanently imposed limits on the necessary resources. The quicker we act the better the results will be. (Meadows, 2005) Unfortunately nothing suggests that we did anything or even that we thought about how to do this. Main trends causing global concern: 1. accelerating industrialization 2. fast population growth 3. wide range of malnutrition 4. the use up of non-renewable resources 5. the destruction of the environment (2015) The race between the population growth and the resources raises two different problems: -

The problem of total depletion of resources.

- The regular energy resources are running out, their price is increasing, and the demand for solar energy research is increasing.

46

3. Crises and Emergency Situations Just as economic prosperity, crisis is a natural concomitant of a functioning economy.

Although it is an important question, whether this situation can still be handled, or at which stage the handling start, whether it really can handle local conditions.

John Kenneth Galbrait’s work The Great Crash 1929 was first published in 1954, since then it was published several times (25th anniversary of the 1929 crisis); in 2009 as well.

In it the ‘psychological portrait’ of the 1929 speculative stock market bubble is drawn with such a humor and irony as if it was the first bestseller.

The last chapter deals with the causes and effects of the crisis.

He originates the 1929 crisis from five ‘weak points’ of the American economy which probably also greatly contributed to the depth and prolongation of the crisis.

He summed the weak point as follows: 1. Poor income distribution structure 2. Poor company structures 3. Poor bank structure 4. Doubtful state of the balance of payment’s financial equilibrium 5. Poor condition of ‘economic intelligence’(Galbrait, 1954) The American mortgage market crisis starting in the summer of 2007 which spread into the sphere of real economy and went global revealed the European Union’s and within it the Economic and Monetary Union’s institutional and functional deficiencies.

Overconsumption by the USA – financed by Chinese savings. Starting point: real estate mortgage market, as Galbrait had previously established.

Many trillion dollars losses across the world, the shadowbank system of the USA (investment funds, hedge funds, and supermarket banks), together with the allocation of Chinese savings were not sufficient enough.

There is serious debate about the cause of this horrible monetary crisis. Experts also debate how far to go back in their explanation, whether there is any similarity between past crises and the present one. At any rate the unveiled broker poker, the mortgage loan bonds were essential features of the 2008 crisis. On the other hand people got cheap money (the supervision of creditability was not done), which initiated housing demand, real estate prices ran high. Real estate constructions increased.

After the 1929 crisis it is a question why did the current crisis also start in the USA? The answer is that the USA went the farthest in monetary innovations which attracted the most and barely creditable customer on the market. They were unable to gather information required to assess the creditability of the borrowers.

By further burdening the mortgage package very complicated securities appeared on the market.

In their defence they relied on the hypothesis of the efficient market, and applied the modern portfolio theory.(Móczár, 2010) 47

Naturally it does raise questions about risking good moral and human greediness, but to most it is about the future: China becoming the leading economic superpower.

So the comparison of the current crisis with the 1929-1933 world depression could lead to erroneous conclusions, especially because the crisis management back then was much less coordinated and was more anti-market than is now. Nor could the energy price crises of the late 1970s be compared to the crisis of 2008.

It was the former which made it clear that structural distortions could not be rectified with Keynesian means. The only effect of aggregated increase in demand is stagflation.

Whereas in the foreign currency crises between 1997-1999 “a new model of monetary crisis has emerged where the fundamentals, that is, the basic indicators of growth and balance of the national economy have no determining role at all.”

Does ‘Kasino Kapitalismus’, that is, the blind playfulness of money dealers accords with the views of many analysts? Irresponsible monetary policy coupled with a banker approach for great profit? (Sinn, 2010) Banks and insurance companies depreciations and losses during the monetary crisis on February 1 2010 was a magnitude of 1,74 trillion dollars or 1,24 trillion euros, immediately state financed rescue packages were created. (Sinn, 2010) This or that way, but agreeing with the analysts saying that the cause of the crisis was to a great extent the immodesty of economic actors, the forecast of Raghuram Rajan has occurred exactly the way he described.

Galbraith’s previously shown crisis analysis concurs with Katalin Botos’ view that the first great victim of the 2008 crisis was the housing market.

After which the big social systems has to be cut back: health care, education, library, parks, etc.(Botos, 2011) Crisis management has erased with a single stroke the social policy achievements of past decades.

The third great victim is the bail-out of the financial sector which will cost tax payers a huge amount of money. Its fourth effect is the international consequence. Because of the badly shaken confidence the fleeing capital must avoid risky businesses.(Botos, 2011)

4. And the Future?

The role of the sustained growth path will be more valuable and timing could be the key to success.

According to the global trends of the American National Intelligence Council the world will struggle with crises and conflicts until 2025.

They call the trends of the era as crisis after crisis, and the forecast is quite ominous for 2025, some of its elements we shall now present: - Satisfactory conflict managing methods has to be found in the middle of many kinds of shortages.

48

- Increment of the limit imposed on raw material-resource, parallel to that the emergence of new actors, managing their effects will be the main challenge of the international system.

- Access to the safe and clean energy resources and handling the chronic food and water shortages will have key importance to more and more countries in the next 15-20 years.

- Climate change will render the already limited raw material-resource sector’s position even more complicated – its physical effect will be even more dire.

- In the next 15 years emitted gas causing greenhouse effect will depend on the technological development and political decisions.

- The greatest danger is that the different trouble spots will simultaneously mutually affect each other and will conserve the situation.

-

At the dawn of the post-oil age nuclear and solar energy will become more important.

-

At 2025 the world will be in the middle of energy (usage-production) transition.

- Production of liquid hydrocarbons (crude oil and liquid gas) will not be able to fulfill the ever increasing demand.

- The level of production in traditional energy providers such as Yemen, Norway, Oman, Columbia, etc. is already decreasing.

-

The number of countries which could significantly increase production is decreasing.

- 6 countries will provide 39% of world’s oil production: Saudi-Arabia, Iran, Kuwait, United Arab Emirates and Russia.

- The big oil producers are all situated in the Middle-East possessing 2/3 of the world’s oil reserve.

-

The OPEC production in Persian Gulf will increase to 43%.

-

Saudi-Arabia alone will provide half of the Gulf production.

-

On the short run the energy source sought after will be the natural gas.

-

Natural gas consumption will soar by 60% around 2025.

- If we take into account only natural gas and oil, two countries emerge as energy superpowers: Russia and Iran.

-

In this conflict-ridden world timing will be the most important, many analysts say.

- Current technologies are not suitable to bring about the replacement of traditional energy sources.

- The new energy technologies will probably not be commercially viable and widespread by 2025.

- The current bio-fuel is too expensive, it would increase food prices and its production would require the same amount of energy it itself could produce.

-

Making fuel from non food-based biomass is potentially more promising.

49

- Pure coal technology will become more important. If it becomes cost-effective, then it could produce significant amount of energy in an appropriately controlled environment.

-

The creation of a hydrogen-economy would require vast investments.

- In the next two decades meeting the basic energy demands would require an estimated 3 trillion dollars of investments.

- Because it is improbable that any new form of energy could use the present infrastructure, it is safe to say that the production of any new kind of energy would require significant amount of investments.(Global Trends, 2025)

Conclusion - 2030 The real issue is which world model can answer the following question: when will our world reach the limits to growth?

The models are consistent in that, to answer the question: it is happening right now.

To different extent, but fossil propellant, mineral resources, drinking water, food will reach all time maximum in a matter of one or two generations.

The direct consequences of exponential growth as opposed to the finite resources of our planet.

One of the greatest challenge lying before humanity is to make the transition from an exponentially growing society into a society which is on a path of sustained growth.

This challenge carries with it many problems for us to be solved. The reduction of energy, global warming are signs of a much deeper problem.

It is also an open question who will be the actors to deal with these challenges and how will they act. The American National Intelligence Council projects four probable but hypothetical scenarios for the year 2030. Let me quote it in full: „Stalled Engines – a scenario in which the US and Europe turn inward and globalization stalls.

Fusion – a world in which the US and China cooperate, leading to worldwide cooperation on global challenges.

Gini-Out-of-the-Bottle – a world in which economic inequalities dominate.

Nonstate World – a scenario in which nonstate actors take the lead in solving global challenges.” (Global Trends, 2030) But the basic problem is this: exponential growth while limited resources of the system.

This problem has no solution at present.

References [1] Ambrosius Gerold, Hubbard William H.: Sozial und Wirtschaftsgeschichte Europas im 20 Jahrhundert, Munich, C.H. Beck, 1986.

50

[2] American National Intelligence Council (NIC). Global Trends 2025: A Transformed World. 2008.

[3] American National Intelligence Council (NIC). Global Trends 2030: A Transformed World. 2012.

[4] Botos Katalin: Válságmagyarázatok. In.: Botos Katalin: Pénzügypolitika gazdaságpolitika. Válogatott tanulmányok. Tarsoly Kiadó, Budapest. 2011.259-265. old [5] Cameron, Rondo: A Concise Economic History of the World: From Paleolithic Times to the Present, 5th Edition, Oxford 2015.

[6] Diederiks Lindblad, D. J. Noordam , G. C. Quispel, P.H. H. Vries: Nyugat-európai gazdaság és társadalomtörténet. A rurális államtól a gondoskodó államig. Osiris, Budapest, 1995.

[7] Galbrait John Kenneth: The Great Crash. 1954 [8] Gerschenkron, Alexander: Economic backwardness in historical perspective, a book of essays, Cambridge, Massachusetts: Belknap Press of Harvard University Press.1962 [9] Gyáni Gábor-Kövér György: Magyarország társadalomtörténete a reformkortól a második világháborúig.

Oziris Kiadó Budapest. 2006.

[10] http://www.lse.ac.uk/collections/economicHistory/seminars/default.htm 2012.09.16 [11] Kiesewetter, Hubert: Das einzigartige Europa. Zufällige und notwendige Faktoren der Industrialisierung, Göttingen 1996.

[12] Magyar Külügyi Szemle, 1940. március 2.

[13] Meadows, D. et al: A növekedés határai harminc év múltán. Kossuth Kiadó, Budapest, 2005., [14] Móczár József: A globális pénzügyi válság anatómiája és tanulságai. Pénzügyi Szemle, 2010.4. 727-743. old.

[15] Moderne Wirtschaftsgeschichte: Eine Einführung für Historiker und Ökonomen. Hrsg.: Gerold Ambrosius, Dietmar Petzina, Werner Plumpe. Oldenbourg Verlag, 2006.

[16] Sinn Hans Werner: Kasino Kapitalismus. Wie es zur Finanzkrise kam, und was jetzt zu tun ist. Ullstein.

Berlin, 2010.

[17] Szávai Ferenc: Gazdaképzési rendszerek - A mezőgazdasági szakképzés története a XIX-XX. századi Európában. Pro Pannonia, Pécs. 1996 [18] Weber, Max: 1923: Wirtschaftsgeschichte. Abriß der universalen Sozial- und Wirtschaftsgeschichte, Berlin 1923, 5. Auflage. 1991, 6. Auflage. 2011 [19] Wehler, Hans Ulrich: Modernisierungstheorie und Geschichte, Vandenhoeck & Ruprecht, Göttingen 1975 (wieder: 1995)

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Sustainability Reporting in the Hospitality Industry: A Research Model Proposal on Sustainability Performance Alp YENIDOGAN1, Tugba GURCAYLILAR-YENIDOGAN2, Nilufer TETIK3 1 Akdeniz University,Faculty of Economics and Administrative Sciences, Dumlupinar Boulevard Campus-Antalya,TR-07058, Turkey Tel: +90 242 763 66 80, Fax: +90 242 763 66 84, Email:alp.yenidogan@kamelyacollection.com 2 Akdeniz University,Faculty of Economics and Administrative Sciences, Dumlupinar Boulevard Campus-Antalya,TR-07058, Turkey Tel: +90 242 227 44 00 (ext. 3785), Fax: +90 242 227 44 54, Email:gurcaylilar@akdeniz.edu.tr 3 Akdeniz University,Faculty of Tourism, Dumlupinar Boulevard Campus-Antalya,TR-07058, Turkey Tel: +90 242 227 44 00 (ext. 3785), Fax: +90 242 227 44 54, Email:niltetik@akdeniz.edu.tr Abstract: As a new methodology of business accounting, sustainability performance management has been expanded the coverage of firm performance to include the organizational impacts on its all stakeholders. Although various frameworks have been developed to measure sustainable development in recent years, those are at the country- or destination- level and hence the debate still continues on business sustainability performance. Given this gap, the current study provides some measures for sustainability performance in the hospitality industry consistent with the ETIS indicators. Furthermore, the authors propose a research model to clarify how environmental and social sustainability affect the traditional financial accounting performance.

Keywords:TBL accounting; Sustainability performance; Economic performance; Social performance; Environmantal performance; Hospitality industry.

JEL classification:Q56 1Akdeniz University, Faculty of Economics and Administrative Sciences, Dumlupinar Boulevard Campus-Antalya, TR-07058, Turkey, Tel: +90 242 763 66 80, Fax: +90 242 763 66 84, Email:alp.yenidogan@kamelyacollection.com 2Akdeniz University, Faculty of Economics and Administrative Sciences, Dumlupinar Boulevard Campus-Antalya, TR-07058, Turkey, Tel: +90 242 227 44 00 (ext. 3785), Fax: +90 242 227 44 54, Email:gurcaylilar@akdeniz.edu.tr 3Akdeniz University, Faculty of Tourism, Dumlupinar Boulevard Campus-Antalya, TR-07058, Turkey,Tel: +90 242 227 44 00 (ext. 3785), Fax: +90 242 227 44 54, Email: niltetik@akdeniz.edu.tr

Introduction With the increasing awareness of the need for corporate social responsibility, a growing number of tourism companies have embraced a value-based stakeholder management approach asserting that building a strong coalition of all interest groups surrounding the organization enables maximization of economic value for all stakeholders (i.e. stockholders, customers, suppliers, creditors, employees and, even members of a community) rather than the short-run profitability. Given this great emphasis on sustainable business practices, the role of sustainability performance and reporting is likely to become increasingly important to business. Whereas attractiveness of tourist destinations is strongly influenced by their natural and socio-cultural environment, the hotels as an integral part of tourism superstructure can gain a competitive age just in a way of taking more responsibility for the environmental and social impacts of their operations and using an effective performance management system that serves monitoring and auditing of strategic goals on sustainability action plan [Assaf et al., 2012; Cvelbar & Dwyer, 2013; Wagner & Svensson, 2014]. At the corporate level, sustainability performance management necessitates a new methodology of business accounting that expands the coverage of firm performance to include the organizational impacts on its all stakeholders.

Triple Bottom Line [Elkington, 1997] serves as an integrated framework of business accounting that incorporates environmental and social performance outcomes into the profit-based financial reporting model. Adoption of the TBL approach implies the state of being accountable for reporting on social, environmental and economic performance towards stakeholders [Dwyer, 2005]. The economic reporting is concerned with monitoring general financial performance and sector-specific operational efficiency. The environmental reporting with a particular attention to issues such as solid waste and water management, energy usage, climate change, biodiversity conservation, and etc. is related to savings and ecological footprint accounts on natural capital assets. The social reporting reflects the social and cultural impacts of operations on human capital assets (i.e. employees, customers, cultural heritage, local community). A key challenge of sustainability reporting with the TBL accounting is the difficulty in measuring the social and environmental bottom lines respectively referred to as “planet” (natural capital) and “people” (human capital), not in quantifying the bottom-line profitability for economic activities. Several world-leading organizations such as the United Nations Environment Programme (UNEP), European Commission, The European Federation of Financial Analysts Societies (EFFAS) have put sustainability reporting on a strategic agenda of priority and developed sustainability frameworks and guidelines to enable corporations and NGOs to report the corporate social responsibility practices of a business.

The Global Reporting Initiative pioneered the development of the world’s most widely used sustainability framework for reporting on the triple bottom line. In addition to the universally applicable guidelines of the GRI, sector supplements are tailored versions and submit additional documents specialized to a given sector. However these supplements are not available for the hospitality industry. Although some institutions such as SASB (Sustainability Accounting Standards Board) and DVFA (Deutsche Vereinigung für Finanzanalyse und Asset Management) provide Key Performance Indicators (KPIs) to 53

account for sustainability performance tailored to the hospitality industry, the deficiency of a reliable and comprehensive measurement tool for sustainability performance in the hospitality industry still continues to remain. On the other hand, the European Commission has launched many initiatives (including the EU eco-management and audit scheme-EMAS, the EU Ecolabel, the Tourism and Environment Reporting MechanismTOUERM, and the Corporate Social Responsibility initiatives- CSR) to raise awareness in the environmental, social, cultural and economic management for businesses and destinations. Especially the ETIS (European Tourism Indicator System) initiative has been addressing a much broader spectrum of metrics in the categories of destination management, social and cultural impact, economic value, and environmental impact. The enterprise survey module of the ETIS can fulfill the need for a reliable measure of hospitality sustainability performance and hence clarify ambiguous relationships between the sustainability performance pillars.

1. Relationship between the Three Pillars of Sustainability Performance Environmental and social management practices can cause better financial performance through cost reduction and revenue enhancements associated with customer satisfaction and loyalty in service business [WĂźstenhagen, 2008]. The study of Bohdanowicz (2005) showed that the strongest incentive for hotels to undertake more environment-friendly activities is a decrease in operating costs and thereafter increased customer demand appears as the second-strongest incentivizing factor. Kassinis and Soteriou (2003) investigated the relationship between environmental management practices and market performance in the hospitality industry. Their findings provide support for revenueincreasing effect of product/service satisfaction through customer loyalty. Garay and Font (2012) reported positive correlations between corporate social responsibility practices (environmental- and social- impact assessments) and corporate financial performance.

Segarra-OĂąa et al. (2012) analyzed whether economic performance of Spanish hotels differs according to the adoption of ISO 14001 environmental certification. They found that the applications of ISO 14001 standards positively affects EBITDA profit margin for beach hotels. The results of Alvarez-Gil et al. (2001) indicated that environmental management exerts a positive influence on short-term financial performance although contradictory results have been discussed in previous literature. Environmental management may cause a diminishing effect on financial performance whereas environmental protection regulations enforce firms to take costly actions in pollution control activities [Klassen & Whybark, 1999].

Lopez-Gamero et al. (2009) clarified conflicting results on the relationship between environmental protection and firm performance. In this new model based on the resource-based view, firm resources (i.e. knowledge and learning capacity for adopting environmental management practices and capabilities of cooperating with external stakeholders) generated through proactive environmental management, mediate the positive relationship between environmental performance and financial performance. It is of great importance to distinguish between environmental management and environmental performance. Environmental performance is the output of environmental management practices and they are not automatically interlinked concepts. Firms with a 54

better environmental performance can gain competitive advantage by lowering costs and improving differentiation, which in turn leads to improved financial performance.

According to the study of Lopez-Gamero et al. (2009), being proactive in environmental management enhances the competitive edge of hotels in terms of differentiation by gaining a strong brand image and reputation rather than reducing costs.

Socio-cultural impacts of a tourism company within its operating network of local organizations may influence financial performance, as well as environmental management practices that have already been discussed extensively. Social performance can be increased with the success of a firm in relationships with its stakeholders such as employees, customers and local community. For example, building strong relationships with hotel employees may reduce the rate of employee turnover as one of the highest operating cost in the hospitality industry and hence leads to retention gains without bearing the costs of hiring and training new employees. Furthermore improved employee satisfaction helps achieve higher levels of service quality that fosters customer satisfaction. Accordingly, the research coverage for the links between the pillars of triple bottom line approach should be expanded to include the influence of social impacts [Boley & Ayscue, 2016].

2. Sustainability Frameworks In recent years, various frameworks have been developed to measure sustainable development at the country- or destination- level (see Table 1). On the other side, the debate on how to measure business sustainability performance is still going on because of sector-specific characteristics of measurement. Despite the generic version of sustainability performance comprising of economic, environmental, and social impacts, measurability of business sustainability will soon be a possibility with the development of sector supplements.

Table 1: Sustainability frameworks Framework Accountability

Carbon Disclosure Project (CDP)

Dow Jones Sustainability Index in

Criteria AccountAbility's AA1000 series are principles-based standards to help organizations become more accountable, responsible and sustainable.

The AA1000 Series of Standards; The AA1000 AccountAbility Principles Standard (AA1000APS) provides a framework for an organization to identify, prioritize and respond to its sustainability challenges.

The AA1000 Assurance Standard (AA1000AS) provides a methodology for assurance practitioners to evaluate the nature and extent to which an organization adheres to the AccountAbility Principles.

The AA1000 Stakeholder Engagement Standard (AA1000SES) provides a framework to help organizations ensure stakeholder engagement processes are purpose driven, robust and deliver results.

Carbon Disclosure Project aims to motivate companies and cities to disclosure their environmental impacts giving decision makers the data they need to change market behavior.

Companies and cities are reporting to CDP’s;Climate Change Program,Water Program,Forests Program, Dow Jones Sustainability Index is the first global scale application. The index constitutes a reference point for global investors as it is adding sustainability criteria to traditional financial analyses.

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collaboration with RobecoSam Global Reporting Initiative (GRI)

Goldman Sachs GS Sustain ESG

Social Accountability International (SAI)

ISO 14000

European Tourism Indicator System (ETIS)

The Academy of Business in Society (ABIS)

Deutsche Vereinigung für Finanzanalyse und Asset Management (DVFA) STOXX Indices

Many companies with high financial performance from all around the world are evaluated and the companies ranked as having the highest sustainability performance have the right to be listed in the DJSI. GRI is an international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others. GRI improves the sustainability reporting framework.

GRI’s mission is to empower decision makers everywhere, through GRI sustainability standards and multi-stakeholder network, to take action towards a more sustainable economy and world.

GS SUSTAIN is the long-term investment strategy of Goldman Sachs’ Global Investment Research division (GIR).

GS SUSTAIN is focused on identifying the companies in each industry best positioned to deliver long-term outperformance through sustained industry leadership and profitability.

SAI is a non-governmental, international, multi-stakeholder organization dedicated to improving workplaces and communities by developing and implementing socially responsible standards.

In 1997, SAI launched SA8000 (Social Accountability 8000) – a voluntary standard for workplaces, based on ILO and UN conventions – which is currently used by businesses and governments around the world and is recognized as one of the strongest workplace standards.

To manage the environmental responsibilities, companies and organizations of all kinds may use ISO 14000 family of standards.

ISO 14001:2015 sets out the criteria for an environmental management system and can be certified to. The standards can be used by any organization regardless of its activity or sector. Also using ISO 14001:2015 can provide assurance to company management and employees as well as external stakeholders that environmental impact is being measured and improved.

The European Commission has developed a ‘European Tourism Indicators System’ (ETIS) to measure tourist destination’s performance in relation to sustainability.

ETIS is a Europe-wide system suitable for all tourist destinations. It is; a management tool, supporting destinations who want to take a sustainable approach to destination management a monitoring system, easy to use for collecting data and detailed information and to let destinations monitor their performance from one year to another an information tool (not a certification scheme), useful for policy makers, tourism enterprises and other stakeholders.

ABIS (formerly known as EABIS) was founded in 2001 and launched at INSEAD in 2002 with the support of the leading Business Schools in Europe (INSEAD, IMD, London, ESADE, IESE, Copenhagen, Warwick, Vlerick, Ashridge, Cranfield, Bocconi) in partnership with IBM, Microsoft, Johnson & Johnson, Unilever and Shell.

This initiative was driven by a shared belief that challenges linked to globalization and sustainable development required new management skills, mindsets & capabilities.

Mission of ABIS is to build bridges and strengthen collaboration between the corporate and academic worlds to accelerate systematic change in business education and practice.

DVFA was founded in 1960 as a society of investment professionals in Germany. DVFA published a document in conjunction with European Federation of Financial Analysts Societies (EFFAS) titled “Key Performance Indicators for Environmental, Social and Governance Issues” in 2010. The document is a Guideline for the integration of Environmental, Social and Governance Indicators into financial analysis and corporate valuation.

STOXX Ltd. is an established and leading index specialist and first STOXX indices have been launched in 1998.

Globally more than 500 companies which include the world’s largest financial products

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issuers, capital owners and asset managers are licensed with STOXX indices.

The STOXX Low Carbon index family is designed to enable investors to decarbonize their portfolios, i.e. limit the exposure of their portfolios to climate-related risks, such as stricter regulations and physical damage, while participating in the low-carbon economic growth.

Source: Created by authors utilizing from the web sites of organizations.

Conclusion: A Research Model Proposal for Measuring Sustainability Performance in the Hospitality Industry We propose a model to explore the relationships among the three pillars of sustainability performance in the hospitality industry (see Figure 1 and Table 2). This research model assumes that long-run profitability of accommodation companies is more likely correlated with how sustainable environmental and social resources are used to gain economic benefits. We differentiate hotel-specific economic performance from the general financial performance. Whereas financial performance is the statement of the net monetary worth of tourism activities over a given period of time, hotel-specific economic performance reflects the success of an organization through the creation of economic growth in its market value. Hence, we consider the meaning of financial performance as reaching beyond economic performance [Becchetti, 2007]. In this connection, social and environmental performance may affect economic performance in two ways: First, the hotel-specific economic performance may positively mediate the links between financial performance and social performance, and environmental performance. Second, social and environmental performance is likely to increase financial performance by either its costreducing effect on operations or revenue-increasing effect of market performance.

Figure 1: Conceptual framework for sustainability performance

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Source:Created by authors.

Table 2: Measures for sustainability performance in the hospitality industry Environmental Performance

Social Performance

-Ratio of average energy consumption (water, electricity, LNG etc.) to the total annual expenditure -Percentage of average annual cost savings from the investments in water conservation -Percentage of average annual cost savings from the investments in electricity and fuel energy conservation - Percentage of average annual cost savings from the waste recycling and disposal -Percentage of the area designated for landscape and protection -Ratio of the investments in green product development to the total annual sales

-Rate of female employment -Gender of general manager -Ratio of average education expenditure per person to the total annual expenditure -Percentage of the supply from local producers -Average turnover rate of supply chain -Average employee turnover rate

Hotel-specific Economic Performance -Repeat guest ratio -Average rate of “same day” visitors in year -Average length of stay of the guests (nights) -Average occupancy rate in year /in high season -Average price per room in high season /in low season -Earnings per room

Source: Created by authors utilizing from the ETIS indicators.

References [1] Alvarez-Gil, M.J.; Burgos-Jimenez, J.; Cespedes-Lorente, J.J. (2001) An Analysis of Environmental Management, Organizational Context and Performance of Spanish Hotels, Omega, Vol. 29, 457–471.

[2] Assaf, A.G.; Josiassen, A.; Cvelbar, L.K. (2012) Does triple bottom line reporting improve hotel performance?,International Journal of Hospitality Management, Vol. 31, No. 2, 596-600.

[3] Becchetti, L. (2007) Corporate Social Responsibility: Not Only Economic and Financial Performance, Finance & Bien Commun, Vol. 3, 152-158.

[4] Bohdanowicz, P. (2005) European Hoteliers’ Environmental Attitudes: Greening the Business, Cornell Hotel and Restaurant Administration Quarterly, Vol. 46, No. 2, 188–204.

[5] Boley, B.B.; Ayscue, E.P. (2016) Socio-cultural Impacts of Hotel Chains. The Routledge Handbook of Hotel Chain Management, 94. Ivanova, M.; Ivanov, S.; Magnini, V.P. (Eds.) (2016). The Routledge Handbook of Hotel Chain Management. Routledge.

[6] Cvelbar, L.K., & Dwyer, L. (2013) An importance–performance analysis of sustainability factors for longterm strategy planning in Slovenian hotels,Journal of sustainable tourism, Vol. 21, No. 3, 487-504.

[7] Dwyer, L. (2005) Relevance of Triple Bottom Line Reporting to Achievement of Sustainable Tourism: a Scoping Study, Tourism Review International, Vol. 9, No. 1, 79-94.

[8] Elkington, J. (1997) Cannibals with Forks, The Triple Bottom Line of 21st Century Business. Capstone Publishing, Oxford.

[9] Garay, L.; Font, X. (2012) Doing Good to Do Well? Corporate Social Responsibility Reasons, Practices and Impacts in Small and Medium Accommodation Enterprises, International Journal of Hospitality Management, Vol. 31, 329–337.

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[10]Kassinis, G.I.; Soteriou, A.C. (2003) Greening the Service Profit Chain: The Impact of Environmental Management Practices, Production and Operations Management, Vol. 12, 386–403.

[11]Kassinis, G.I.; Soteriou, A.C. (2008) Quality, Environmental Practices and Customer Satisfaction in Services, Sustainable Innovation and Entrepreneurship, 227-247.

[12]Klassen, R.D.; Whybark, D.C. (1999) Environmental Management in Operations: The Selection of Environmental Technologies, Decisions Sciences, Vol. 30, No. 3, pp. 601–631 [13]Lopez-Gamero, M.D.; Molina-Azorin, J.F.; Claver-Cortes, E. (2009) The Whole Relationship between Environmental Variables and Firm Performance: Competitive Advantage and Firm Resources as Mediator Variables, Journal of Environmental Management, Vol. 90, 3110–3121.

[14]Segarra-Oña, M.V.; Peiró-Signes, A.; Verma, R.; Miret-Pastor, L. (2012) Does Environmental Certification Help the Economic Performance of Hotels? Evidence from the Spanish Hotel Industry, Cornell Hospitality Quarterly, Vol. 53, No. 3, 242–256.

[15]Wagner, B., Svensson, G. (2014) A framework to navigate sustainability in business networks: The transformative business sustainability (TBS) model,European Business Review, Vol. 26, No. 4, 340-367.

[16]Wüstenhagen, R. (2008) Sustainable Innovation And Entrepreneurship. Edward Elgar Publishing.

[17]http://www.accountability.org/standards/ [18]https://www.cdp.net/en-US/Respond/Pages/Forests.aspx [19]http://www.sustainability-indices.com/about-us/index.jsp [20]https://www.globalreporting.org/information/about-gri/Pages/default.aspx [21]http://www.goldmansachs.com/our-thinking/archive/gs-sustain-2011/ [22]http://www.sa-intl.org/index.cfm?fuseaction=Page.ViewPage&pageId=490 [23]http://www.iso.org/iso/iso14000 [24]http://ec.europa.eu/growth/sectors/tourism/offer/sustainable/indicators_en [25]http://www.abis-global.org/about/ [26]https://www.stoxx.com/search-result?searchTerm=Low%20Carbon&discover=true [27]http://www.dvfa.de/

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Quantifying Atypical Employment in Romania – The Social Dimension 2

Cătălin GHINĂRARU1, Luise MLADEN2 National Scientific Research Institute for Laborand Social Protection, 6-8 Povernei Street, Bucharest, 010643, Romania Tel: + 40-21-3124069, Fax: + 40-21-3117595, Email: ghinararu@incsmps.ro Abstract: Official statistics can not always highlight the true scale of atypical work phenomenon in Romania because of the multitude of the non-standard forms of employment and because of the fact that its regulatory and monitoring mechanisms are build in accordance with the typical work model. The purpose of our research is to try to quantify the atypical employment in Romania using the reliable statistical data basis.

Keywords: labour market; atypical employment; bogus self-employment JEL classification: J21, J41

Introduction In Romania, the atypical forms of employment got little attention from the academic environment because until recently most employment contracts were typical, full-time, of undetermined duration and signed with a single employer.

The changes made in recent years to the legal framework regulating individual and collective labour relations, have led to increased forms of atypical employment in our country, particularly in the context of a labour market that was affected by the economic crisis.

The extent to which atypical work is covered by the provisions of the labour law is difficult to quantify both because of the diversity of non-standard forms of work and because of the fact that the common regulatory and monitoring mechanisms are shaped considering the typical work. For this reason, official statistics cannot always reveal the true scale and characteristics of atypical work phenomenon in Romania.

2

National Scientific Research Institute for Laborand Social Protection, 6-8 Povernei Street, Bucharest, 010643, Romania, Tel: + 40-21-3124069, Fax: + 40-21-3117595, Spiru Haret University, 13 Ion Ghica, Bucharest, 030045, Romania, Email: lmladen.fb@spiruharet.ro

1. Basic Quantifications and Dimensions According to the Romanian Labour Inspection subordinated to the Romanian Ministry of Labour, Social protection, Family and Elderly Persons, which maintains the REVISAL national electronic register of the employees, as of the end of 2014 (see the website of the labour inspection at www.inspectiamuncii.ro, annual reports), there were a total of 5,824,582 individual labour contracts registered. This is however not the total number of employees necessarily as some of the employees may have two or even more labour contracts both with their employer as well as with another employer, but it is close to it as the number of those having more than one labour contract is practically marginal (see next section for that). As against 2011, the year when the Labour Code has witnessed quite a profound change especially with regard to the collective bargaining rights (i.e.: mandatory national collective bargaining and national collective agreement have been removed from the text of law), the total number of individual labour contracts has increased by 11%, which proves that a certain upward move has been taking place in the economy since it has managed to extract itself from the claws of the deep recession following the 2008-09 crisis. As against 2010, when the effects of the massive lay-offs that took place during 2009 were still deeply felt on the labour market, the total number of individual labour contracts increased by 34%, making it for a more than clearly positive move.

Total number of registered individual labour contracts, undetermined duration and determined duration individual labour contracts (RO, 2007-2014, 2007=100) 140

as of 2007, =100

120 100 80 60 40 20 0 2007

2008

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Figure 1: Source: Data of the Romanian Labour Inspection (at www.inspectiamuncii.ro) processed by Dr.CatalinGhinararu;

As of the structure by type of contract allowed by the Romanian Labour Code (i.e.: undetermined duration contract which is the rule, determined duration, which is considered the exception inside which here may be full-time or part-time undetermined or determined duration contracts), 91.72% were “typical” or undetermined duration contracts (2014), with only the rest of 8.3% (482,423, also 2014)) being determined duration contracts (which may qualify as “atypical” work arrangements). Inside this broad structure out of the 482,423 determined duration contracts, a total of 132,178 or 27.9% 61

are part-time determined duration contracts with the rest of 72,7% (350.248) being fulltime determined duration contracts. As for the undetermined duration contracts, 4,453,810 individual work contracts, or 83.3% of the total are full-time contracts with only the remaining 888,349 or 16.6% being part-time undetermined duration contracts. The conclusion which imposes itself is that due to the peculiar character of the Labour Code which limits the use of determined duration contracts to a certain well specified number of situations and activities the use made by the employers of this type of contractual arrangement is highly limited, mostly counting as work on “projects�. This is also due to the fact that no fiscal and nor social contributions facilities are associated with this type of contractual arrangement.

7000000

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no.of registered contracts

Total number of individual labour contracts registered, undetermined duration and determined duration individual labour contracts (RO, 2007-2014)

Total ILC undeterminde duration

Figure 2: Source: Data of the Romanian Labour Inspection (at www.inspectiamuncii.ro) processed by Dr.CatalinGhinararu;

As against 2011, when a certain relaxation occurred with respect to the determined duration contracts in the sense that the number of such successive contracts an employer may conclude with its employees as well the maximum duration in months have been increased from two to three and respectively from 24 to 36 (in some cases, with proper justification, the completion of a project for example, even exceeding the limit of 36 months is allowed, which means that there is a limited flexibility with regard to duration but NOT with regard to the number of successive contracts), the number of determined duration contracts registered with the Labour Inspection has increased nevertheless by 23% which is quite significant although in absolute numbers this only means 94,924 contracts. As a share of the total number of individual labour contracts registered with the REVISAL the increase is only from 7.4% (2011) to the current 8.3% (a difference of only 0.9 percentage points) thus showing that the progress is rather limited.

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Share of full time and part time registered individual labour contracts in the total of individual labour contracts registered (RO, 2007-2014) 100.0

% of total , =100

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Figure 3: Source: Data of the Romanian Labour Inspection (at www.inspectiamuncii.ro) processed by Dr.CatalinGhinararu;

According to the data of the National Institute of Statistics NIS3 which through its LFS records number of individuals as against the ‘number of individual labour contracts� recorded by the Labour Inspection through its REVISAL system, the number of part time workers, distinct therefore from employees per se, would be as of 2014 of 859932 (this means workers working less than 40 hours per week). This would make for a share of the total employment of 9.9% (2014).

Finally administrative data of the Labour Inspection show that the total number of parttime individual labour contracts, that is the sum of determined duration and undetermined duration part-time individual labour contracts is of 1,020,527, or as a share of the total number of contracts 17.53%.

As for the daily labourers which since the adoption of a specific law in 2011, have their own special status, the administrative statistics of the Labour Inspection gives a figure of 12,651,047 entries into the national register of the daily labourers with 4,615,335 of these entries or 36.4% of the total being taken by agriculture which thus emerges as the sector of the national economy that made the largest use of the act thus also marking a significant progress in tackling widespread undeclared work. As against 2011, when the law has been adopted and first applied the number of entries has risen almost six times (from something more than 2 million entries to the current more than 12 million). Even back then, agriculture was the single most important user of this facility.

3

Data are taken from the TEMPO-ONLINE data base of the National Institute of Statistics, available at www.insse.ro , via subscription;

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This brings us the most important type of “atypical work” in Romania, which makes practically for the distinctive feature of the Romanian labour market in the EU, i.e.: self employment in agriculture in small household production for their own final consumption farms (the so-called subsistence and semi subsistence farms). All in all and in accordance with NIS data as published in the Romanian Statistical Yearbook (2013 data) make for 1.3 million (53.3% of total employment in agriculture which at 2.5 million makes still for a staggering 29% of total employment, also 2014 data, NIS). To this we have to add the around 990 thousand contributing family workers, 45% of which are women, and which together make for 92.9% of the total employment in Romania’s agriculture or more than 2.3 million individuals. They have no labour contract, are covered by no statutory minimum salary legislation, have no coverage with respect to collective bargaining and are by law no obliged to contribute to any of the three major public social insurance schemes (i.e.: pensions, unemployment health). Their contribution may be however voluntary. They form the bulk of those daily labourers in agriculture as they complement thus their meagre monetary incomes. They make for the largest part of the working poor in Romania.

Adding together4 the figures above and taking into account the fact that other types of atypical work are not accepted or not known by the Romanian law or are negligible in terms of numbers (e.g.: ”members of the clergy”5 as mentioned in the annex 1 of the ELLN report) as well as that most of the daily labourers (for which we may only approximate the number as what we do have is “number of entries” into their system of registration) we would come to a total of around 3 million persons (including the 2.3 million self-employed in agriculture and contributing family workers which make for Romania’s most important “atypical” form of employment, although without any contract per se thus however not making it undeclared and, from here-on, the specificity of it) or as a share of total employment 35%. Taking however out the “atypical’ employment in agriculture we would talk about roughly 0.8-0.9 million employees making thus around 9% of total employment and roughly 15% of the total number of salaried employees. Taking an even more restricted measure and referring just at the determined duration contract, which is the closest thing Romania has to “atypical’ contracts, it would come down to no more than 480 thousand employees or 8.4% of their total number and as a share of total employment standing at 8.5 million (NIS figures, 2013), 5.6%.

4

Aggreation of the figures belongs to the author. The author is aware however that this is just a „rough” exercise and that due to the many differences in the „substance” of the indicators further work has to be done so as to obtain a truly „consistent” aggrenation of atypical work in Romania and its overall dimensions; 5 Mistakenly referred in the ANNEX as „clerical staff”, clarification however via explanatory text; It has to mentioned however that in terms of their employment status there is no difference as against „regular” or typical employees (same taxes, same social contributions, same labour contract, etc);

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Share of full time and part time individual labour contracts as % of total individual labour contracts (as of 2007=100) 250

As of 2007=100)

200 150 100 50 0 2007

2008

2009

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SHARE OF PART TIME IN TOTAL

Figure 4: Source: Data of the Romanian Labour Inspection (at www.inspectiamuncii.ro) processed by Dr.CatalinGhinararu;

2. Cumulating the Jobs and Contracts, the Secondary Activity Regimes The national regulatory regime allows, in accordance with the Labour Code, an employee to cumulate any type of contracts, be they “typical” (regular, undetermined duration, full time contracts) or “atypical”. In accordance with the same body of legislation (i.e.; the Labour Code, Law no.53/2003) an employee may have as many contracts as deemed necessary with one employer or with a multiple of employers provided of course that all other legal provisions, are observed, including the one relating to the working time, legal holidays, resting time between working days as well as weekly resting time (48 consecutive hours). With regard to that there is no longer any limitation. Administrative data as provided by the Labour Inspection which maintains the REVISAL electronic register of the employees do not provide such data as they their focus is on the number of contracts and not the number of individuals. However, the LFS run by the National Institute of Statistics give us a pretty accurate measure by recording the number of individuals with a “secondary activity” which generally means a second job, a second contract be it with the same employer or with a different employer than the one with which the first job is held. According to the most recent data provided by the TEMPOonline database available at www.insse.ro (the official ON-LINE data base accessible on the official website of the National Institute of Statistics of Romania), the total number of such persons was of 165504 (2014). There is a drop of almost 30% as against 2011, the year when the Labour Code has been modified eliminating a previous constraint that limited the number of contracts with one and the same employer at two, which may be explained only by the effects of the crisis and the subsequent recession which have thus reduced opportunities for a secondary activity both with the same employer as well as with a different one(s). The reduction is even sharper when compared to the last year before the crisis (2008) the drop as against the level of this year being of 45%. As against the year when the Labour Code has been adopted thus replacing the old Labour Code 65

inherited from the communist period and which was practically no longer in use except for minor parts (practically labour legislation had been replaced during the period in question, with the exception of collective bargaining, with civil law) the drop is of 51.6%. As against the first year for which data are available which is 1996, practically the “golden age” of the so-called “civil conventions” the reduction in persons with a secondary activity is a staggering 73% (!).

No. of persons performing a secondary activity (numbers and as% of 1996=100) 120.0

800000

100.0

700000 600000

80.0

500000

60.0

400000 300000

40.0

200000

AS OF 1996, =100

no. of persons, LFS/AMIGO

900000

20.0

100000 0

0.0 1

2

3

4

5

6

as of 1996, =100

7

8

9

10 11 12 13 14 15 16 17 18 19 No.of persons with a secondary activity

Figure 5: Source: National Institute of Statistics of Romania data, TEMPO-ONLINE data base (available at www.insse.ro)6, sourced from the RO-LFS/AMIGO, processed by Dr.C. Ghinararu;

This shows that the cause of the reduction for the whole of the period of almost 20 years is a gradual tightening of the labour legislation especially as with the adoption of the new Labour Code in 2003 and its subsequent amendments which have made it less and less possible for individuals to engage in such activities and more and more costly for employers to resort to them. The elimination of the “civil conventions” from the labour legislation with the adoption of the labour code in 2003 has practically closed the door for what was a cheap form of employment that brought benefits to employers in terms of reduced labour costs as well as to employees in terms of additional income. It was nevertheless also a form of contribution if not tax evasion and thus practically a form of undeclared or rather under declared work. Nonetheless it also serves to illustrate the fact that the Labour Code increased the rigidity of the Romanian Labour Market and that practically the whole of the 13 years following 1990 were an “exceptional” period of highly law labour relations which must have played a role (still poorly studied) in the shielding of the adverse social and economic effects of the plan to market transition. The current number of persons with a secondary activity (i.e.: read job or contract) make for only 2.8% of the total number of registered labour contracts. As a share of the total employment the percentage is only a tiny fraction, 1.9%. As a share of the total number of salaried employees as recorded by the LFS their share is 2.8%. This serves to show that the

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overwhelming majority of salaried of dependent employees in Romania have only one labour contract. The ones having more than that are the exception and not the rule, thus again pointing to a rigidity of the labour legislation as well as to its rather more than prescriptive character.

3. Bogus Self-Employment There is no such definition and per se there is no such phenomenon in Romania. Due to the highly restrictive character of the labour code, even the use of determined duration contracts or of the part-time contracts is rather limited. Also in the case of civil contracts due to the restrictions to their use, their numbers is now very low. Therefore hardly one may talk of “bogus self-employment” as existing legislation does not permit it. It may be however that some of the “licensed individuals” (persoană fizică autorizată-RO) may, but only to a certain limited extent be counted as “bogus self employment” although in this case one cannot talk about employment as this is not covered in anyway by the labour law. It is therefore a form of service provision. There are scantly any more systematic studies to date on the phenomenon. The National Labour Research Institute is currently developing a research that aims precisely at the study of the atypical working arrangements on the Romanian labour market. It will also include a field investigation which may shed new light on the phenomenon. The study is financed from the national research programme and will take place throughout 2016-177. A recent study on this has appeared under the aegis of the Swiss-Romanian Cooperation programme on which we will talk some more in the coming paragraphs.

Another form of “bogus self-employment’ is the one related to individuals employed under authorship contracts a form that is frequent in mass media as well as in advertising, show business, translations etc. This is truly precarious and those so-called ‘self employed’ workers were practically having no social security coverage until Jan.1st of 2016 when the payment of social security contribution (i.e.: contribution to the public pension scheme) became mandatory in their case also.

One could make an estimate basing on the number of the so-called “persoană fizică autorizată” (licensed professional/licensed individual professional) but it would be difficult to ascribe a share of those being actually “dependent” on a certain employer (a form that would mirror the Italian case of the “indipendente-dipendente”, or the “independentdependent” worker) and thus being in a sort of “bogus self employment” state. Therefore we would refrain from making any more precise, numerically substantiated estimate here, although we would dare to say that it may be that in between one third and one half of those working in this form (a grand total of 281031 as of 2015) could be classified as such8. It has to be said however that the statute of these persons can hardly be considered as precarious as in most of the instances they are also involved in salaried employment.

7

The study is directed by the undersigned Dr. Catalin Ghinararu and is financed from the funds of the National Research, Development and Innovation Plan (PNCDI-Planul National de Cercetare Dezvoltare si Inovare, Program NUCLEU 2016-18) of the National Authority for Scientific Research and Innovation of the Romanian Government (ANCSI); 8 This is an own estimate of th author; It should be taken however with reservetions as the difficulty in estimating the scale of this phenomenon is more than considerable;

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Therefore this is for them rather a form of “secondary activity” or “complementary activity”. This speaks however rather significantly on the level of incomes a person may derive from on job in Romania, providing also an explanation for the high number of working hours recorded per worker. In a nutshell, one would not be able, for the time being at least, to give any accurate estimate of the phenomenon for Romania.

An explorative study undertaken by the sociologist Stefan Guga9 and recently presented to the public under the aegis of the Swiss Romanian Cooperation Programme draws the attention to the situation of several categories of what may be labelled as “bogus self employed”, e.g.: the literary translators as well as persons working under so-called authorship right contracts, which are nevertheless not acknowledged per se “labour contracts” but which according to the Fiscal Code (2016, 2015 amendments in force as of Jan.1st 2016 will have to pay mandatory contributions to the state (public) pension fund (i.e.; also known as “social security contribution”) while being still exempted from contributions to the public health insurance scheme as well as from the one to the unemployment insurance scheme. This type of what could be called “bogus self employment” is especially widespread amongst mass media professionals, journalists, translators and interpreters and others such categories although effective statistics are still rather incongruous. The study makes it clear that since the beginning of the crisis there is a marked increase in the resort of employers to whatever the Romanian law allows as “atypical work contracts”. However the study fails to reveal what would be the actual “advantages” or “disadvantages” that both the employer as well as the employee would draw from this resort given the prescriptive character of the Romanian labour law.

The only clear case is the one of the “persoană fizică autorizată” (licensed professional/licensed individual professional) where it is clear that advantages can be drawn only by very few well placed workers, the others being placed at the mercy of their employers; same goes for persons employed under authorship contracts.

Conclusion The concluding remarks of our study are given below.  What actually would count in Romania as atypical work is concentrated in the socalled part time work as well as in the determined duration contracts these being the solo types that are allowed by the Romanian legislation and which may be concluded anyway only for a certain very well specified in the Labour Code (law no.53/2003 with subsequent amendments) types of activities. Therefore the margin of manoeuvre of any employer and of any employee is to this avail highly limited by the existing legislation. A possible explanation of the limited number of such contracts is lack of fiscal or social contribution facilities associated with this type of contractual arrangements.  The most important type of “atypical work” in Romania, which makes our country different from the other EU countries, is self employment in agriculture, in small

9

Stefan Guga: „Munca Atipica in Romania de la izbucnirea crizei. O perspectiva de ansamblu”/ „Atypical Work in Romania since the beginning of the crisis; An overall perspective”, the Swiss Romanian Cooperation Programme, NEXT PUBLSIHING, Bucharest-RO, 2016.

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household production farms, the so-called subsistence and semi subsistence farms. To this are added the contributing family workers.  The overwhelming majority of salaried employees in Romania have only one labour contract and the ones having more than that are the exception, not the rule. This comes to demonstrate again the rigidity of the Romanian lobour legislation.  In Romania there is no definition of bogus self-employment and the existing legislation does not permit it. However, a form of this is “licensed individual” (“persoană fizică autorizată”) and the one related to the individuals that are employed under authorship contracts (in mass media, advertising, translations, etc.)

Knowing the true extent of the phenomenon of atypical work one can achieve an adequate protection of such workers, under a suitable regulatory framework and on the basis of an effective social dialogue.

References [1] Guga, Şt. (2016) Munca Atipică în România de la izbucnirea crizei. O perspectiva de ansamblu , The Swiss Romanian Cooperation Programme, NEXT PUBLSIHING, Bucharest-RO. [2] Ghinăraru, C. (coord.) (2016) Cresterea flexibilitatii pietei muncii din Romania prin largirea si diversificarea modalitatilor de contractualizare a muncii. The study is financed from the funds of the National Research, Development and Innovation Plan (PNCDI-Planul National de Cercetare Dezvoltare si Inovare, Program NUCLEU 2016-18) of the National Authority for Scientific Research and Innovation of the Romanian Government (ANCSI).

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

From Urbanization to Metropolization; A Case Study of Romania Liliana GURAN-NICA1, Michael SOFER2 Corina BISTRICEANU PANTELIMON1 1 “SpiruHaret” University, Ion Ghica, no. 13, Bucharest, 030045, Romania Tel: +4021 4551000, Fax: +4021 3143900, Email: info@spiruharet.ro 2 Bar Ilan University, Ramat Gan, 5290002 Israel, Tel: 972-3-5318340, Fax: 972-3-7384033, Email: Geog.Dept@mail.biu.ac.il Abstract: The metropolitan areas (MA) in Romania, defined as “intercommunity development association”, are legally constituted in the last decade as voluntary partnership between a city and the neighbouring rural and urban settlements no further than 30 km. They are characterized by a specific development process that involves all the components: economic, social, cultural and, mainly, infrastructure.

The interdisciplinary research carried on in the Constanța Metropolitan Area revealed the emergence of many new processes involving all the components of this regional system. An extended research would reveal similar evolutions of all the Romanian MAs. Thus, from the demographic point of view this rural-urban fringe experiences a phenomenon previously observed in western societies, the population turnaround. This new demographic behavior determined the increase of the rural population percentage weight in the area, and, consequently, the economic function of the rural settlements, meaning that the predominant agricultural activities are combined with services and, sometimes, industrial activities. The rural communities are also changing, as the proportion of the middle class is growing, and, in some cases, replacing the lower classes (the rural gentrification process). But there is also the migration of the poor urban population looking for some stable income sources offered by the rural subsistence economy.

This growing urban-rural migration flow determines the overcrowding of the rural areas and, implicitly, environmental and landscape degradation.

Keywords: urbanization, metropolization, metropolitan areas, Romania.

JEL classification: J61, R11, R12.

Introduction The analysis of the dynamics of urbanization revealed that nowadays this process is happening at a fast pace in the developing countries ,while in the industrialized countries

the urban expansion has apparently ceased; consequently urbanization is now occurring as a decentralization process, as urban de-concentration, gentrification or as a form of ”friendly urbanism”; however, while in these countries the population numbers in the big cities stay the same or tend to decline1, the population of the metropolises of the developing country is growing rapidly.

Manuel Castells [1983] describes a ´dependant urbanization´ phenomenon occurring in the less developed countries, such as the underdeveloped or developing countries, including the ex-communist, ex-socialist European states. This issue closely mirrors the historical links between such countries and the more dominant states (e.g. former colonies, commercial and industrial links). Geoffrey McNicoll [1984] talks about ´hyperurbanization´, while Franklin D. Wilson [1984] describes ´over-urbanization´, namely the accelerated growth of population while employment opportunities fail to match the needs, or infrastructure basically develops at a considerably slower pace[Abraham, 1991, pp.33-39].

As far as Romania is concerned, Dorel Abraham [1991] is in favour of elaborating mediumterm approaches, which would deal with the country´s specific circumstances during urbanization; these approaches would address both common, as well as specific features significant for urban development. Thus, by analysing the evolution of urbanization in Romania from a geographical point of view (namely South-Eastern Europe), the author points out that the first stage of urbanization in Romania (namely the urban concentration) is similar to those happening in Western countries; nevertheless, the subsequent stages are totally different.

Actually, by looking at the causes of the urban concentration evidence suggests that urbanization in Romania (as well as in all ex-communist states) was a process characterized by distinctive features. First of all, the concentration of population was entirely planned, synchronized with the planned industrial development and controlled by the state; secondly, the urban infrastructure was lagging behind the urban development.

Consequently, towns went through a ”rural” phase, due to continuous commuting as well as to an intense migration from villages to towns in a relatively short period of time. All this led to a kind of ”sub-urbanization” of the town itself, not as much connected to an increased number of suburbs or peri-urban areas directly influenced by the town, but rather due to the emerging of slums, that is urban areas isolated from the typical urban lifestyle.

1. The Evolution of the Urbanization Process in Romania In Romania, the perspectives of urban development started in the antiquity. During the Thraco-Dacian period one can see villages taking on an identity of their own, as they become distinct from the opidava settlements (oppidum – the main settlement of an administrative region in the Roman Empire).This distinction becomes apparent in the 2nd7th centuries. During the feudal period and the beginning of the modern period, namely from the 7th to the 19th century, one can easily identify towns as being distinct from villages from a functional perspective, also as far as design and construction are concerned. It is not uncommon for important villages to reach an urban status, due to a special geographical location, as well as to a privileged social and economic position.

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However, Romania undergoes an extremely slow urbanization process, mainly due to its rural civilisation and agricultural economy [***, 1984].

In the 20th century the town network expands following three distinct stages. Thus, the first stage covers the first half of the century and consists of a slow linear growth; urban population grows by 5% per year, corresponding to a rise from 16.3% to 23.4% of the total population, while the total number of towns rises from 119 to 152. During the second stage, that is during 1948-1966, the process develops at a faster pace, namely the urban population rises from 23.4% to 38.3%, while the number of towns increases from 152 in 1948 to 183 in 19682. Finally, after 1966 and especially following the administrative reform of 1968 the urbanization is clearly taking over (236 towns in 1980), with small towns gradually giving place to the big urban centres; at the same time the development of Bucharest remains stable, the percentage of its population compared to the national urban population even goes down. Thus, in less than 40 years (1948 to 1987) the percentage of Romania´s urban population rises from 22% to 51.3% [***, 1984]. In the eighties urbanization happens at a slower pace, with a visible decline in the number of the urban population; at the beginning of the nineties urbanization accelerates, especially after restrictions of access to cities have been removed. A number of processes become apparent, such as suburbanization, de-urbanization and even counter-urbanization or suburbanization, especially due to the fact that the connection between the new urban population and the rural environment had only been suspended during one generation (between 1950-1990), namely between the fifties and the nineties [Rotariu, Mezei, 1999; Ianoș, 2010].

Recent research may prove that the phenomenon of ´population turnaround´ also happened in Romania but for specific reasons; this involved the changes occurring in the demographic structure within the urban and the rural areas respectively, entailing a more rapid increase of population in the small towns as compared to a slower growth in the metropolitan areas [Mithcell, 2004].

2. Foundation and Evolution of the “Metropolitan Zones” in Romania Although the metropolization process as a new form of urbanization was largely discussed in the Romanian scientific literature, and the peri-urban areas of many cities were research subjects for different specialists, the official foundation of the “metropolitan zones” (MZs) occurred after Law 351/20013 was enacted [Popescu, 2008; Guran-Nica, Sofer, 2011].

In the next period, one or more metropolitan zones were established almost each year as “Intercommunity Development Associations” based on cooperation relations at different levels (communication network, economic, social, cultural, and infrastructure facilities) between first rank municipalities, including small towns up to 30 km distance (Law no.

351/2001). A comparison between all the 16 MZs reveals important disparities: some of them are very large as number of settlements (Dunărea de Jos – 50, Satu Mare - 31) others are small (Suceava – 7, Pitești - 9); in some MZs the percentage of the urban population is higher (Cluj – 84%, Botoșani – 74%), and in others is reduced (Bacău – 57%, TârguMureș – 63%). The conclusion is that there is no specific model concerning the administrative and demographic structures of the MZs. 72

The spatial distribution of the MZs is also unequal. The majority is placed in the northern half of Romania, especially in two development regions: North-West and North-East (Figure 1). Two large MZs are located in South-East Development Region. The South-West Development Region has no metropolitan zone yet, although Timișoara, one of the most important cities of this country, developed a considerable peri-urban area in the last two decades, and therefore, the County Council started in 2004 the discussions for the establishment of the Timișoara MZ [***, 2008].

Legend Metropolitan zones Bucharest Metropolitan Zone - proposal

Figure 1.The location of the metropolitan zones in Romania (2016)

3. Constanța Metropolitan Zone – Characteristics and Evolution Constanța is the second big city and one of the most important economic centres of Romania. Its location on the Black Sea coast offers the opportunity of a complex development, in good connection with the main maritime gateway of Eastern Europe. The Black Sea represents the connection element between Europe and Asia, opening through the Mediterranean Sea to the Atlantic Ocean, thus permitting Romania to develop relations with the countries all over the world. In this context, Constanța harbour is the economic gateway of this country. On the other hand, Mihail Kogălniceanu airport, located at 26 km away from the city is the air gate of the region. And the last but not least, the touristic function of the city together with its millenary cultural richness is another pull factor [***, 2005].

This is the context in which the neighbouring settlements developed, under the direct impact of the big city. Their location on the seaside, offering tourism attractiveness, is also sustained by the well-developed urban infrastructure and always represented a real development potential.

Beginning with the year 1990 new socio-economic trends occurred in the settlements neighbouring Constanța Municipality, hence, following the promulgation of the Law 315/2001, some of these communes and small towns together with the city signed the 73

protocol for the new Constanța Metropolitan Zone (CMZ). This Intercommunity Development Association was officially founded in 2007, bringing together 14 settlements (6 urban and 8 rural). In the next years other two communes4. In 2012 (the last census) the entire population of this area was approximately 460,000 inhabitants, representing 63% of the county’s population. The area extends over 1,000 km 2, some of the settlements as Constanța Municipality, Mihail Kogălniceanu and Corbu communes being larger than 100 km2. The most populated settlement is Constanța City (66% of the CMZ population), while the largest communes are Cumpăna, Valul lui Traian and Mihail Kogălniceanu, exceeding 10,000 inhabitants each (Figure 2).

A

B

Figure 2.Dimensions of the settlements members of CMZ: population (A), area (B) of (2012)

Since the moment the Constanța MZ was borne new demographic and socio-economic trends have been manifesting. Nevertheless, they are characteristic of the entire country, both at national and local levels.

Figure 3. Total population trend

Figure 4. Demographic trend bytypes of settlements

There have been two phases of the demographic trend. The first one, a decade long, manifested as a slow but constant decrease of the population, following a two year rapid growing tendency, determined by the intensive migration of rural population mainly to the Constanța Municipality5. The second decade is characterised by a slow demographic increase6 (Figure 3). This positive demographic trend can be also observed in the evolution of the CMZ population percentage in the entire population of Constanța county (59,4% in 74

1990 compared to 62% in 2012). Another characteristic of this trend is the higher increasing growing rate of the rural population in comparison with the urban one, while the number of Constanța city inhabitants is decreasing (Figure 4).

Figure5. Populationgrowth rate(1992-2012)

Figure 6. Evolution of the natural increase and migration rate in CMZ

Figure7.Evolution of the natural increase in CMZ

Figure8.Evolution of the migration rate in CMZ

The comparison between the metropolitan zone and the entire county underlines the trend of demographic growth in the rural settlements of the CMZ related to the other communes. As shown in the next diagrams the demographic trend is negative at the level of the total population, the value being higher in the metropolitan area as a result of important loss suffered in the last decade by Constanța city. The rural population is growing, the values being considerably higher in CMZ (Figure 5).

Both the natural increaseand the migration rate of the population in the CMZ decreased after 1990. Two of the communist laws were abolished in that year, determining much 75

smaller values of the indicators compared to the previous decade. Both the interdiction of migration to the big cities, and the abortion restrictions were important factors sustaining the higher natural increase and reducing the movement of the population during the communist period. Afterthat, everything changed (Figure 6, 7, 8).

The demographic growth determined important changes in the socio-economic behaviour of all the settlements. The new comers attracted new investments in the urban network and in the services. The respective data show growing tendencies determined also by the growing number of private houses and economic buildings beginning with the year the CMZ was founded. As many new houses and guesthouses were built, the water supply and sewerage networks developed very quickly. The length of the urban roads grew also at a high rate. Nevertheless, all this transformation determined negative impacts, especially concerning the environment, as the pollution of the air, land and water are much higher, especially during the summer, the most agglomerated season.

Conclusions The present research study on Constanța Metropolitan Zone reveals the ongoing suburbanization process. The socio-economic development of the member settlements of CMZ is both the determinant factor and the result of the demographic growth of the area in the last decade. The suburban settlements, especially the rural ones, prove to be very attractive to the urban inhabitants, who are looking for the amenities specific to the rural space (attractive environment, natural landscape, less pollution, larger spaces, less expensive conditions of life, etc.). This trend is similar to the population turn around process that characterises the urbanization in the developed societies [Guran-Nica, Rusu, 2004]. The results are important changes in the social structure and the landscape of the rural settlements of the metropolitan zone.

The demographic growth of these settlements has a different meaning compared to the other rural areas of Romania. The suburban population of the metropolitan area has higher incomes, urban consumption habits, higher education level, and a higher social mobility. In short, the rural and the small urban metropolitan areas are growing from the demographic point of view, and experience changes in social relations, behaviour models, life style, and the values associated to all these.

The environmental impact of this process manifests in the new architectural trends, residential expansion, extension of the urban infrastructure, and, in the end, in a great loss of the amenities, the attractive factors in the beginning.

References [1] Abraham, D. (1991). Introducere în sociologia urbană. București: Ed. Științifică [2] Castells, M. (1983). The City and the Grassroots: A Cross-cultural Theory of Urban Social Movements.

Berkeley: University of California Press (1983) [3] Guran-Nica, L., & Rusu, M. (2004). Probleme de geografie şi economie rurală. Bucureşti: Editura Fundației „România de Mâine“.

[4] Guran-Nica, L., Sofer, M. (2011). ”Migrationdynamics in Romania andtheCounter-UrbanisationProcess: A Case Study of Bucharest’s Rural-UrbanFringe”. In: Hedberg, C. and do Carmo, R. M. (eds). Translocal

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Ruralism: MobilityandConnectivity in European Rural Spaces, pp. 87-102. Springer, The GeoJournalLibrary, vol. 103.

[5] Ianoş, I. (2010). ”De la teoria polilor de creştere la dezvoltarea policentrică”, Urbanismul, 4: 30-32.

[6] McNicoll, G. (1984), Consequences of the Rapid PopulationGrowth. World Bank Publications [7] Mitchell, C. (2004). ”Makingsense of counterurbanization”. Journal of Rural Studies, 20(1): 15-34.

[8] Rotariu, T., & Mezei, E. (1999). ”Asupra unor aspecte ale migrației interne recente din România”, Sociologie Românească, serie nouă (3): 5-38.

[9] Popescu, R. I. (2008), ”The role of greatcities in Romania for themetopolitandevelopment”, Transylvanian Review of Administrative Sciences, 22E: 149-170.

[10] Wilson, F.D. (1984). ”Urban Ecology: UrbanizationandSystems of Cities”. Annual Review of Sociology, 10: 283-307.

[11] * * * (1984), Geografia României II. Geografia umană și economică, Ed. Academiei Române [12] * * * (2001), Monitorul Oficial al României, anul XIII, nr. 373, editor: Parlamentul României – Camera Deputaților.

[13] * * * (2001), Monitorul oficial al României. Partea I, anul XIII, nr. 408, editor: Parlamentul României – Camera Deputaților.

[14] * * * (2005), Geografia României V. Câmpia Română, Dunărea, Podişul Dobrogei, Litoralul românesc al Mării Negre şi Platforma continentală, Ed. Academiei Române [15] * * * (2008), Asociere pentru Zona Metropolitană Timişoara, Timis Online, http://www.tion.ro/asociere-pentru-zona-metropolitana-timisoara/news-20080723-07541124 [16] http://www.timpolis.ro/pdf-articol-zona-metropolitana-timisoara-un-proiect-inghetat-5355. html 1

Urban population growth rate in the developed countries has reduced after 1970(1.5% in 1970-1975, 0.8% in 1985-1990 andpossible 0.3% in 2020-2025),as this type of population was already predominant.

2

It is worth pointing out that this evolution was managed and partially determined by administrative measures taken by the state 3

Law no. 351/2001 – on the approval of the National Spatial Planning Plan – Section IV – The network of localities 4

basic Romanian rural administrative units

5

Before 1990 the migration of rural population towards the big urban settlements was dramatically reduced by legal means. In 1990 the law was abolished.

6

The diagram shows a steep decrease in population in 2002, representing a statistical correction of the data base made by the National Institute of Statistics at the moment of the census.

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Labour Market Integration of Refugee Women in Germany Raluca-Marilena MIHÄ‚LCIOIU Spiru Haret University, Address, Ghica street no 13, Bucharest, 030045, Romania Tel: +40213169793, Fax: +40213169793, Email: raluca@spiruharet.ro Abstract: The year 2015 was defined by historically high refugee immigration to Europe. In Germany 1.1 million refugees have been registered. Also in 2016 continue to travel refugees to Germany, although the influx numbers are currently declining. It can be assumed that about 50 per cent of asylum seekers are granted the right in Germany. Most of the refugees were young men but the women represent a very important group. The integration of these people into German society and in the labor market is crucial for the success of the German refugee policy and social cohesion in the country. To work is not only a condition of economic success, but central to independent living and integration into German society. The requirements of a successful labor market, integration are favorable due to the positive employment situation.

However, women particularly meet high barriers to German labor market access, even if they are qualified or have work experience in their origin country. Some time ago only 50 percent of refugees in Germany manage to find employment after five years of residence. So Germany is facing the great challenge to enable hundreds of thousands of vulnerable people to step into the labor market.

Keywords: refugees, labour market, employment, integration, gender JEL classification: J16, J61, D63

Introduction Hundreds of thousands of so-called refugees fleeing the civil war in Syria, Afghanistan and Somalia, an from military regime rule in Eritrea. 330 000 dead, a million wounded, more than 11.6 million people fleeing: this is the result of the Syrian civil war in the fifth year.

What began as a peaceful protest against the regime of Bashar al-Assad in March 2011, has evolved to the worst refugee disaster since the genocide in Rwanda, according to UN figures. The conflict between government forces and various armed groups is unclear.

Fighters of the Islamic State (IS) now control one-third of the country and commit, according to Amnesty International war crimes and serious human rights violations, as well as allied with al-Qaeda jihadist Al-Nusra Front, which is regarded as the third strongest party in the civil war.

All this facts conduct to a migration process to Europe. The fact that between the European Union countries does not exist borders controls, permitted the refugees to

arrive Germany without the necessary documentation. German society was not financially prepared to face this massive refugee’s crises. Even if hundreds of people embrace a “refugee welcome” culture, the integration of these refugees if difficult. A very important part of this integration is played by the access of women on German labor market. Inspite all expectations, many women have studied or worked in their origin country.

1. Refugees in Germany – Facts The exact number of Refugee in Germany is unknown. Major news portals as Stern, der Spiegel or Focus Online release regularly new figures. In September 2015 163,000 refugees were registered in Germany. More than half the people of the current refugee crisis are Syrian nationals. An estimation of how many people are looking for protection in Germany in the current year can help the local authorities to enhance their absorption capacity.

Some people were registered more than once, or others leave Germany without applying for asylum here, or they wait months till they are registered.

According to the Ministry of Interior, the number of in Germany asylum seekers in the first half 2016 decline compared to the previous year. In January 2016 came more than 2,000 refugees/day, in August 2016 were about 100 Refugees/Day. Total 222,264 new arrivals were registered by the end of June this year in the EASY system, as Interior Minister Thomas de Maizière (CDU) told.

Most of these asylum seekers are war refugees from Syria. In second place and three countries of origin are Afghanistan and Iraq, followed by the countries of Iran, Russian Federation, Eritrea, Somalia, Pakistan, Nigeria and Morocco.

Among the applicants in 2016 there are more and more women and children registered compared to 2015, when most of the refugees were young men.

In June 2016, about 16.335 asylum seekers were newly detected. This is a slight increase over the two previous months, but drastically less than at the beginning of the year (Mai: 16,281 April: 15,941, March 20 608 February 2016: 61 428 January 2016: 91,671).

2. Refugee Integration on German Labour Market In the recent months the focus in the German refugee policy was to meet the challenge of accommodation and registration. But, the most important challenge is refugee’s integration in the German society. A successful integration beginns with learning the language and find a job. A lot of the refugees will remain permanently or will be at least temporarily tolerated. Few will find quick access to the labour market. If the integration policy will not be changed than hundreds of thousands of high qualified and high-willing people only benefit from the social systems, without being able to help themselves. Their acquired qualifications in country of origin will be lost.

The labour market economist Holger Bonin has recently estimated the realistically expected long-term cost of the recording of a million refugees to 110-220 billion euros.

Costs for refugees should be minimized. These attempts can be made to save resources on the expenditure side or tap on the income side paths, so that the refugees are able to work for himself and for the community he lives in.

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From a sociological perspective, it is anticipated that a persistent inaction of refugees impacts negatively on their integration and employability. Persistent involuntary inactivity negatively affects the mental and physical health of those affected and causes resignation effects. Recent psychological studies also show significant effects on personality changes that may preclude future employment. The minimum social security in Germany’s System ensures the economic existence of unemployment affected largely. Germany is wealthy enough to guarantee this basic security to all who live here and are in need of help.

Discussed here is the idea of "integration work": it offers employable refugees a wide range of activities, opens them immediately meaningful and inclusive labour. Since the activities of the integration work in the worst case should be cost neutral for public budgets and at best even generate savings or revenue, all able-bodied refugees are to participate in such measures. In essence, it's about to support refugees to activities in which a value can be created, for which there is also a willingness of people.

The refugees develop work skills through their stakes in integration that can help them with a subsequent integration into the regular labor market. They learn to find their way into the local labor market, learn about typical ways of working and usual demands to know. Besides, they improve the contact with German colleagues and clients, they improve also their language skills. They also socialize outside the group of refugees and thus begin to integrate into the society. Above all, they have the opportunity to finish the gruelling and debilitating period of the idle biding.

3. Women Refugee’s Access to German Labour Market The refugee immigration of 2015 was heavily male influenced with an estimated share of 70 percent. But Refugee women play a crucial potential for the labour market. Social services (hospitals, elderly homes and elderly care, nursery etc.) need a lot women human capital.

In fact, women refugees often remain invisible and are reduced to the stereotype of the wife and mother. But, most of the women refugees have attended school for than nine years, and in a third of cases they have professional experience in the country of origin.

Also, they succeeded better than men in their professional experience on labour market. It is therefore important to take women as a target for potential labour market participants.

Required basic condition is an adequate accompanying childcare and a work-life balance.

Women from the Middle Eastern countries of origin are often culturally distanced from the labour market and amazed what terms of employment are in Germany available.

Men use the counselling services far more common and women come to the appointment usually accompanied by a man. Traditional gender roles are still clearly anchored. But just for Syrian refugees Women can we observe a strong desire to adapt to the social circumstances, when they take part to a labour consulting service. There is a good chance that women change their settings brought.

In the labour market integration for refugee women, stronger measures are required for a successful integration process. Even the German Federal Agency for Work one sees the need to support the labour market activation of women. While refugee men enter relatively quickly in language and vocational support measures, married women stay at 80

home and take care of the children. In a first step, it requires targeted information strategy for women to educate them about the opportunities available for them on market entry. Furthermore, labour market promotional activities for women should increase the part-time jobs for women and support the childcare facilities. Federal and state governments need to clarify the issue of an appropriate quickly reimbursement.

Existing measures have to be opened for refugee women and tailored to them: for example, the program "Stark on the job" for mothers with an immigrant background. The program "Perspective comeback" supports women after parental leave in the return to work. Even refugee women should take part in these programs.

Conclusion Nobody can expect from the refugees to have a “German or an European behaviour” after taking part in an integration course, as many Germans wish to. Most of the refugees are Muslims and this means a completely different life rules. Islam is not a religion like Christianity, Islam is a life model. For many refugee women Islam is the high barrier to access the labour market and to live independent. One of the most compelling challenges currently faced is the need to establish consistent procedures for recognizing qualifications and assessing skills that include informally and non-formally acquired skills for women refugee. The current shortage in the supply of qualified refugees is attributed to the presumed overall lower qualification level among incoming refugees, who require new forms of vocational partial qualification. In order to effectively integrate the large inflow of individuals expected in the short and medium term, protocols for skills assessment, vocational guidance, probation periods and qualification will need to be designed with the rapid facilitation of substantial numbers of participants in mind. This requires testing and implementing new approaches to skills assessment, partial qualification and certification. And this, in turn, entails increasing the capacity of authorities tasked with supporting the labour market by expanding their staff and qualifications.

Establishing a low threshold for refugees women that are seeking employment is a further key aspect of effective labour market integration. In the context of a social labour market, employment opportunities accompanied by language and vocational training should be provided. Formal vocational training for refugees’ women should be facilitated through offerings such as partial qualification opportunities and flexible training modules. It must find a work – life balance, as many women are also mothers and wives. In addition, it must be developed other offerings such as those targeting a career start or entry simulations for women: part-time jobs, facilities for children, flexible work-time.

References [1] Aumüller, Jutta (2016), Arbeitsmarktintegration von Flüchtlingen; bestehende Praxisansätze und weiterführende Empfehlungen, Bertelsmann Stiftung, Gütersloh [2] BAMF Bundesamt für MigraPon und Flüchtlinge (2016). Aktuelle Zahlen zu Asyl. Nürnberg 1 2016 [3] Blaschke, Astrid et al. (2015) Flüchtlinge in Arbeit und Ausbildung. Bilanzpapier des ESFBundesprogramms zur arbeitsmarktlichen Unterstützung für BleibeberechPgte und Flüchtlinge mit Zugang zum Arbeitsmarkt. Hrsg. Nationales Thematisches Netzwerk im ESF-Bundesprogramm. Berlin.

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[4] Büschel, Ulrike, Volker Daumann, MarPn Dietz, Elke Dony, Barbara Knapp und Karsten Strien (2015). „Abschlussbericht Modellprojekt Early IntervenPon–FrühzeiPge ArbeitsmarkPntegraPon von Asylbewerberinnen und Asylbewerbern“. Ergebnisse der qualitaPven BegleiUorschung. IAB- Forschungs bericht 10/2015. InsPtut für Arbeitsmarkt- und Berufsforschung, Nürnberg

[5] Daumann, Volker, Martin Dietz, Barbara Knapp und Karsten Strien (2015). „Early Intervention – Modellprojekt zur frühzeiPgen ArbeitsmarkPntegraPon von Asylbewerberinnen und Asylbewerbern“.

Ergebnisse der qualitaPven BegleiUorschung. IAB Forschungsbericht 3 2015. InsPtut für Arbeitsmarktund Berufsforschung, Nürnberg.

[6] Fratzscher, Marcel, und Simon Junker (2015). „IntegraPon von Flüchtlingen – eine langfrisPg lohnende InvesPon“. DIW-Wochenbericht 45 2015. Deutsches InsPtut für WirtschaVsforschung, Berlin.

[7] OECD (2016). Making Integration Work. Refugees and Others in Need of Protection. OECD, Paris.

[8] Worbs, Susanne, und Eva Bund (2016). „AsylberechPgte und anerkannte Flüchtlinge in Deutschland – QualifikaPonsstruktur, Arbeitsmarktbeteiligung und ZukunVsorienPerungen“. BAMF-Kurzanalyse 1 2016.

Bundesamt für MigraPon und Flüchtlinge, Nürnberg.

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Consequences of Refugee Crises on German Economy Raluca-Marilena MIHÄ‚LCIOIU Spiru Haret University, Address, Ghica street no 13, Bucharest, 030045, Romania Tel: +40213169793, Fax: +40213169793, Email: raluca@spiruharet.ro Abstract: Even in 2016 thousands of new refugees arrived to Germany. Many of them are potential qualified workers to strengthen the German economy. But there are also critical consequences. Not any Syrian that arrived Germany is a doctor. Not any refugee woman is a nurse. Many refugees have no work experience and possess low formal vocational qualifications.

Exactly the academic and vocational qualifications play a crucial role when it comes to successfully integration refugees into German society. For migrants to find a job in Germany, it is very important that the Qualifications they bring with them are in demand on the German labor market. On the one hand, it is crucial that they learn German, on the other hand they should seek German recognition of their academic and vocational certificates. This paper aims to present an overview of the consequences of high refugee immigration on German Economy.

Keywords: refugees, labour market, employment, macro economy, integration JEL classification: J16, J61, H50, I15

Introduction More than one million arrived in Germany during 20015/2016. This is not only a challenge for politics and society, but the influx has also economic consequences.

Both in this and next year, experts anticipate a slight increase in gross domestic product.

In Germany, economic output in 2015/2016 is expected to rise to quarter percent, estimates Holger Sandte, European chief economist at Nordea bank. His argument: The state increases its spending on facilities for asylum seekers. It is estimated that the cost of housing and care of around 12,000 Euros per person per year. That would be overspending by 5.4 billion Euros or just under 0.2 percent of expected 2015 nominal GDP. For programs to integrate into the labor market, they will quote 600 million to 1.1 billion Euros. For vocational language courses in addition EUR 180 million would be needed. This is like a small stimulus package.

German Labour Minister stressed that the unemployment will rise, probably because of the refugees. After all, most of the refugees could not be acquired immediately in a job or

a training program. However not even one tenth fulfil the conditions with to be conveyed directly into a job or training.

1. Critical points in integrating refugees on german labour market The hope that the influx of refugees could ease the existing bottlenecks in the labor market destroys more and more.

The most important point is that Germany allowed all refugees come and stay on its territory. German authorities had no instruments to control the refugees. Most of them didn’t have any identity card or passport. So, it is very difficult to assess which level of school or qualification did refugees achieved in their country of origin. The refugees simply explained that they lost their documents when they fled. Without identity and other documents to prove how they are as citizens, is very difficult to start training programs for integration.

Secondly, many refugees are not motivated to integrate. They get enough money to live a comfortable life in Germany. Crucial for integration is learning German language. But only a few want to do it, the rest are visiting the courses only for not losing the social services they get.

Thirdly point represents the security of German society. Since most of the refugees are Muslims, their meets point is the mosque. Here is the place where some imams and other fundamentalists recruit militants for terrorism. As many refugees are weak and seek for protection and acceptance, they are very probable to slip in political radicalism.

Many economics experts warn about the nativity on the shortage of skilled workers that will rapidly integrate into the German labour market. This is also related to the origin of the incoming refugees in Germany. Immigrants from Afghanistan, Iran, Iraq, Syria, Somalia, Eritrea and the former Yugoslavia are, according to a recent study by the International Monetary Fund on average worse qualified than the local population or other migrants. Especially for the German economy, which requires professionals in a particularly high degree, that is a problem. There are already 1.2 million unemployed who are looking for a simple job, only 110,000 vacancies with lower qualification opposite.

Taking the experience gained in Sweden based on only about 20 percent of the immigrant in the past year working refugees are initially finding work. According to calculations of the IW, this means that this year only 100,000 refugees are finding work - and this despite a historically favourable situation on the German labor market. The majority will remain unemployed for a long time.

The Institute for Economics, however, prognoses this year 280,000 additional unemployed in 2017 it should be then 235,000 unemployed refugees more (by 600,000 new arrived refugees). Should the previously stable economic situation in Germany deteriorate, all calculations are waste. By a weak economy low skilled jobs will be most affected.

Unemployment among immigrants should then be appreciably higher.

The fact that the subtle difference between refugees and a controlled immigration was often overlooked and it is more than a small flaw. Because refugees come to Germany because of threats or existential danger, not because they want to start their own 84

initiative a new life or look for their qualification and personal career planning better opportunities in a foreign country. They are neither of their knowledge or mentally prepared for life in a different place or even in a foreign (German) culture. And that has significant economic consequences. The IMF appreciate in a study that refugees in Australia in the first ten to 15 years have a negative financial impact on a country, while economic refugees - is often talked about in Germany with a negative connotation - " make a positive contribution. The experience gained in Germany gives rise to a great deal of scepticism. In no other developed country of the world organization OECD the negative financial impact of refugees was as large as in Germany. Germany is not a world champion in the integration of refugees.

Conclusion Yes, we admit in this paper that the state must take people from humanitarian responsibility reason. But from an economic perspective, there are no arguments for open borders: Germany threatens to gamble the future.

Refugees Integration is expensive and takes many years. Experience shows that in the first two years probably 90 percent of all recognized refugees will be unemployed, and after five years it could be even 50 percent. In addition, the refugees workers are not as productive as German workers. German Institute for Research assumes that refugees workers generate only two-thirds of that of a German one.

The refugee crisis was a wake-up call for German Economy. Germany needs a massive shift of government spending. The state has finally realized that he needs to invest more in education and infrastructure. This backlog existed however already before the refugee crisis.

But who wants to live in these locations, when a majority of the refugees after several years perhaps going back? And then who takes the jobs for which we have paid years to trained refugees? Alternative candidates could be in short supply. Who makes even a modern and oriented to the needs Germany's immigration law, if the acceptance of newcomers fades more and more in view of the influx of refugees and the associated problems?

To prevent any misunderstanding arise: to accept refugees from war zones is a humanitarian duty of every democratic state. However, the reasons for this may be only in morality and humanity, and not in economics.

To calculate economic benefits from such a refugee movement belies the realities. Above all, it distracts them, to set the course for continued prosperous country properly. This would be disastrous not only for the welfare of German citizens, but also for the ability of Germany, that continues to accept war refugees.

References [1] Liebau, Elisabeth, Salikutluk Zerrin (2016), Many refugees have work experience but a smaller share process formal vocational qualifications, DIW Berlin, Deutsches Institut f端r Wirtschaft e.V., Berlin [2] BAMF Bundesamt f端r MigraMon und Fl端chtlinge (2016). Aktuelle Zahlen zu Asyl. N端rnberg 1 2016

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[3] Blaschke, Astrid et al. (2015) Flüchtlinge in Arbeit und Ausbildung. Bilanzpapier des ESFBundesprogramms zur arbeitsmarktlichen Unterstützung für BleibeberechMgte und Flüchtlinge mit Zugang zum Arbeitsmarkt. Hrsg. Nationales Thematisches Netzwerk im ESF-Bundesprogramm. Berlin.

[4] Büschel, Ulrike, Volker Daumann, Martin Dietz, Elke Dony, Barbara Knapp und Karsten Strien (2015). „Abschlussbericht Modellprojekt Early IntervenMon–FrühzeiMge ArbeitsmarkMntegraMon von Asylbewerberinnen und Asylbewerbern“. Ergebnisse der qualitaMven BegleiRorschung. IAB- Forschungs bericht 10/2015. InsMtut für Arbeitsmarkt- und Berufsforschung, Nürnberg [5] Daumann, Volker, MarMn Dietz, Barbara Knapp und Karsten Strien (2015). „Early IntervenMon – Modellprojekt zur frühzeiMgen ArbeitsmarkMntegraMon von Asylbewerberinnen und Asylbewerbern“.

Ergebnisse der qualitativen Begleitforschung. IAB Forschungsbericht 3 2015. InsMtut für Arbeitsmarktund Berufsforschung, Nürnberg.

[6] Fratzscher, Marcel, und Simon Junker (2015). „IntegraMon von Flüchtlingen – eine langfrisMg lohnende InvesMon“. DIW-Wochenbericht 45 2015. Deutsches InsMtut für Wirtschaftsforschung, Berlin.

[7]

Fratzscher, Marcel, Deutsches Institut für Wirtschaftsforschung Berlin, https://www.welt.de/wirtschaft/article148364620/Nach-sieben-Jahren-bringt-ein-Fluechtling-demStaat-Geld.html

[8] Nahles, Andrea in http://www.faz.net/aktuell/wirtschaft/wirtschaftspolitik/arbeitslosenzahl-steigt-durchfluechtlinge-laut-andrea-nahles-13795574.html

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Performance Comparison Between Real Estate Securities and Real Estate Investment Using Stochastic Dominance and Mean-Variance Analysis 1

Assoc. Prof. Aekkachai NITTAYAGASETWAT Ph.D.1, National Institute of Development Administration, Bangkapi, Bangkok, 10240, Thailand Tel: +66 2 727 3932 , Fax: + 66 2 374 3282 Jiroj BURANASIRI Ph.D.2 2 Srinakharinwirot University, Wattana, Bangkok, 10110, Thailand Tel: +66 2 169 1018 Abstract: Unlike in the past, different choices for real estate investment are now available for investors. Real estate securities were introduced as another alternative investment vehicle for real estate investors. To promote efficient investment in real estate and real estate securities, this paper explores the relative performance of different types of real estate investment including land, town home, single house, and real estate securities in Thailand from April 2008 to May 2016 by applying mean-variance and stochastic dominance techniques. The results of this examination suggest that the real estate market is not efficient and asset allocation plays important role in real estate investment performance. Mean-variance and stochastic dominance analysis report the same result that town home investment dominates single house investment and land investment dominates condominium investment. Beside trying to choose the best real estate or real estate security in their portfolio, investors should put extra effort in finding the proper types of real estate for their portfolio.

Keywords: Performance; investment; real estate; real estate securities; meanvariance analysis; stochastic dominance.

JEL classification: G

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National Institute of Development Administration, Bangkapi, Bangkok, 10240, Thailand Tel: +66 2 727 3932 , Fax: + 66 2 374 3282 22 Srinakharinwirot University, Wattana, Bangkok, 10110, Thailand Tel: +66 2 169 1018 87

Introduction The real estate class is one of the common asset classes in many investment portfolios for many reasons. For example, real estate is considered a low risk asset. It always has value even when the economy is extremely poor. The imperfect correlation of its return and other assets’ return also helps in lowering a portfolio’s diversifiable risk. Recently, the trend of aging society in many countries leads to more demand of long-term and safe investment like real estate investment.

Real estate securities are introduced to let low-wealth investors be able to invest their money in real estate. As a result, the real estate investment is more accessible for ordinary investors. Different types of real estate with different level of risk and return are available for investors to choose. However, the increase in real estate investment’s choices also confuses investors. In addition, the highly uncertain and volatile economic condition nowadays also brings about more difficulty for investors in making proper investment decision.

However, the knowledge about the investment in real estate and real estate securities is quite limited. Researches on the comparative performance of different types of real property are relatively rare.

This paper applies the mean-variance and stochastic dominance techniques to compare the performance of the different types of real estate and real estate securities to promote more understanding on real estate investment so that investors would be able to built more efficient portfolio.

The study focuses on the relative performance of different types of real estate investment including land, townhome, single house, and real estate securities in Thailand because of its obvious and lucrative real estate and real estate securities investment’s demand and opportunity. As a member of ASEAN Economic Community (AEC) which was formed in late 2015 to promote trade and investment among the member countries including Brunei, Indonesia, Malaysia, Singapore, Philippines, Laos, Cambodia, Myanmar, Vietnam and Thailand, Thailand is expected to have higher economic growth and more real estate development in many types of real estate such as offices, hotel, condominium, industrial estate and etc. Consequently, the issuing of real estate securities to raise capital to support the real development is inevitable. The growth in real estate investment is foreseeable.

The findings should help investors to gain more understanding on real estate and real estate securities investment and provide academic researchers who are interested in real estate and real estate securities investment additional evidence about the existence of market efficiency in real estate investment and comparative nature of the performance of different types of real estate investment.

This paper is organized by starting with introduction. Then, literature reviews, data collection and methodology, findings, and conclusion.

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1. Literature Reviews Several researchers have investigated real estate investment in relation to other investment vehicles and showed the diversification advantage of adding the real estate asset class on investors’ portfolio. [Ibbotson & Siegel, 1984] reports that the correlation between the returns of real estate investment and other investments is low and [Westerheide, 2006] concludes that real estate securities are different from other securities. In other words, adding real estate into an investor’s portfolio could help to lower his/her portfolio’s diversifiable risk. In addition, [Hoesli et al., 2009] confirms that real estate could be used to lower the unsystematic risk effectively.

For the comparison of the different types of real estate investment, [Andrew & Glenn, 2003; Brounen & Eichholtz, 2003] argues that the returns of real estate and real estate securities are not significantly correlated and [Clayton & MacKinnon, 2003] reports the existence of the difference between the performance of direct and indirect real estate investments for the test on short horizon. However, the study by [Giliberto, 2009] finds evidence that real estate and real estate securities might be influenced by the same fundamental factors. In addition, many long-run studies, [Oikarinen et al., 2011; Hoesli & Oikarinen, 2012) report that, in the long-run, REIT and direct real estate investments are highly related and REIT investment could be used as a substitute for direct real estate investment. Many reviewed literatures on real estate investment, hence, obviously point on practical implication for investors to add real estate and real estate securities in their portfolio for diversification benefit. The next important issue is which type of real estate should be added into investors’ portfolio so that their wealth will be maximized.

As aging society becomes important issues nowadays, another useful group of studies is related to the performance of different types of real estate investment in long-term.

[MacKinnon & Al Zaman, 2009] discovers the supportive evidence for real estate investment and claims that the risk of real estate investment becomes lower when its investment horizon increases. In contrast, [Fugazza et al. 2007] finds that there is mean reversion in long-run investment for the European listed real estate and the risk of investment in the listed real estate is higher than other asset investments.

For the examination of the relative performance of different types of real estate and real estate securities investment, there are at least two important methods; stochastic dominance and mean-variance analysis. Both methods could be used as tools for judging for the better type of real estate to investors’ portfolio. Mean-variance analysis is continuously extensively used in investment performance analysis, for example, [Markowitz et al. 2000; Alexander & Baptista 2002; Björk et al. 2014; Shinzato, 2015]. The Stochastic dominance compares the outcome and probability of the two examined candidates. The technique is developed to overcome the drawback of mean-variance analysis which could not be used for ranking the investment choices. Stochastic dominance was mainly improved by [Hadar & Russell, 1969; Whitmore, 1970; Levy, 1992] and widely applies in many researches in economics and finance related areas.

In Thailand, very few literatures are done on examining the performance of different types of real estate and real estate securities investment. Hence, the investors who would like to 89

allocate their funds for different real estate sub-classes have very limited information to help for making appropriate investment decision. This paper should fill up the mentioned gap and provide academic area additional evidence of the real estate investment’s performance.

2. Data Collection And Research Methodology 2.1 Data Collection The data used for the paper’s investigation are the monthly returns of different types of real estate investment from April 2008 to May 2016. The returns of real estate including land, town home, single house and condominium are calculated from their price appreciation from the Bank of Thailand’s database and the returns of real estate securities are market weighted average returns which are calculated from the return of securities listed under property fund and REIT section of the stock exchange of Thailand.

2.2 Research Methodology The research method used in this study is stochastic dominance and mean-variance analysis. Stochastic Dominance is introduced by [Levy, 1998].

2.2.1 Mean-variance Analysis First, mean ( ) and standard deviation (S.D.) of the return of each type of real estate investment are calculated as follows:

∑

(1)

. .

∑

(2)

Where is the return of month i and N is number of months.

Then, both mean and standard deviation are annualized for analysis as follows: 1 1

(3)

. . . . √12

(4)

General rule of mean-variance analysis is that a better investment is the investment which has higher return at the same level of standard deviation or has lower standard deviation at the same level of return. The investment cannot be claimed as a better investment if it does not meet this condition. When low risky investment has low return and high risky investment has high return according to risk-return trade-off nature, no investment dominates other investment.

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2.2.2 Stochastic Dominance Analysis The test for stochastic dominance is done in three levels: first-order, second-order, and third-order stochastic dominance. When the result shows the first-order stochastic dominance, there exist the second and the third-order stochastic dominance. Also, when the result shows the second-order stochastic dominance, it implies the third-order stochastic dominance exists. • Conditions for first order stochastic dominance (FOD) Let FA(r) and FB(r) be two continuous distribution functions for random return r Ͼ [a, b].

Then, FA(r) first order stochastically dominates (FSD) FB(r) if and only if 1. FA(r) ≤ FB(r) for all r Ͼ [a, b] and 2. EA U(r) ≼ EA U(r) for all non-decreasing utility function Where A and B are two different types of real estate investment.

Conditions for second order stochastic dominance (SSD) Let FA(r) and FB(r) be two continuous distribution functions for random return r Ďľ [a, b].

Then, FA(r) second order stochastically dominates (SSD) FB(r) if and only if for any r

1. ∞ F t F t !" # 0 2. EAU(r) ≼ EB U(r) for all non-decreasing utility function and concave utility function U Conditions for Third order stochastic dominance (TSD) Let FA(r) and FB(r) be two continuous distribution functions for random return r Ďľ [a, b].

Then, FA(r) third order stochastically dominates (TSD) FB(r) if and only if for any r

1. % ∞ F t F t dt dz # 0 2. EAU(r) ≼ EBU(r) for all non-decreasing utility and concave utility function U which are positively skewed.

For the test, each pair of investment is examined one by one for the stochastic dominant level. Once a stochastic dominant level is found, the investigation will stop or the further investigation will stop after the third order test has been examined.

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3. FINDINGS 3.1 Descriptive Analysis The descriptive data based on data of 98 months during April 2008 to May 2016 in Table 1 shows that generally, risk and return are positively correlated. The real estate securities investment has the highest standard deviation and average monthly return at 2.88% and 0.88%, respectively. It also has the lowest minimum return at -16.86% and the highest maximum return at 6.02%. The town home investment has the lowest standard deviation at 0.76% and has the second lowest return at 0.46%. Among the different type of real estate investment, its minimum return is the highest at -1.6% and its maximum return is the lowest at 2.52%. The single house investment has the lowest average monthly return at 0.41% and the second lowest standard deviation of 0.88%. In addition, the nature of real estate securities investment is quite different from the group. Besides its high average return and standard deviation, its return distribution is obviously skewed to the left and its kurtosis is the highest.

Table 1 Descriptive Data of the Monthly Returns of Each Type of Real Estate Investment in Thailand from April 2008 to May 2016.

Mean Median Standard Deviation Kurtosis Skewness Range Minimum Maximum Count

Single House Town Home 0.41% 0.46% 0.25% 0.49% 0.88% 0.412 -0.012 5.22% -2.19% 3.03% 98

Condominium Land 0.49% 0.68% 0.47% 0.61%

0.79% 0.231 -0.070 4.12% -1.60% 2.52% 98

1.70% 0.676 0.425 9.66% -3.55% 6.12% 98

1.46% -0.508 0.0488 6.60% -2.50% 4.10% 98

Real Estate Sec 0.88% 1.23% 2.88% 14.119 -2.7119 22.88% -16.86% 6.02% 98

Source: The Bank of Thailand and Reuter Database

3.2 Mean-variance Analysis For mean-variance analysis, Table 2 and Figure 1 show that the town home, land, and real estate securities investment are not dominated by any investment. Higher standard deviation is accompanied by higher return. The single house investment is dominated by the town home investment. The average annual return of the single house investment (5.05%) is lower than the average annual return of town home investment (5.66%), the standard deviation of the single house investment (3.06%) is higher than the standard deviation of the town home investment (2.73%). The condominium investment is dominated by the land investment. The average annual return of the condominium investment (6.05%) is lower than the average annual return of land investment (8.41%), the standard deviation of the condominium investment (5.88%) is higher than the 92

standard deviation of the land investment (5.05%). The real estate securities investment has highest average annual return (11.14%) and highest standard deviation (9.98%).

Table 2 Relationship onship between Standard Deviation and Return of Different Types of Real Estate Investment in Thailand based on Data of 98 Months from April 2008 to May 2016.

Single House Town House Condominium Land Real Estate Securities

Standard Deviation per Year Average Return per Year 3.06% 5.05% 2.73% 5.66% 5.88% 6.05% 5.05% 8.41% 9.98% 11.14%

Source: The Bank of Thailand and Reuter Database

Figure 1: Graph Shows the Relationship between Standard Deviation and Average Returns in Thailand based on Data of 98 Months from April 2008 to May 2016 Source: The Bank of Thailand and Reuter Database

3.3 Stochastic Dominance Analysis For stochastic dominance analysis, Figure 2 shows the cumulative distribution of each pair of investment types and it appears that there is no type of real estate investment first firstorder stochastically dominates (FSD) the other type of real estate investment. investment.

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Figure 2 Cumulative Distribution of Each Pair of Types of Real Estate Investment in Thailand based on Data of 98 Months during April 2008 to May 2016 Source: The Bank of Thailand and Reuter Database

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Second-order stochastic dominance analysis shows the results in line with mean mean-variance analysis (Figure 1). Figure 3 shows that town home investment second-order second order stochastically dominates (SSD) single house investment and land investment second-order second order stochastically dominates (SSD)) condominium investment. Consequently; Town home investment third thirdorder stochastically dominates (TSD) single house investment and land investment third thirdorder stochastically dominates (TSD) condominium investment too.

Figure 3 B. Value of the Difference between Cumulative Value of Cumulative Probability Distribution of the Return oof Condominium and Land Investment.

Figure 3 A. Value of the Difference between Cumulative Value of Cumulative Probability Distribution of the Return of Single House and Town Home Investment.

Figure 3. Value of the Difference between Cumulative Probability Distribution of the Return of Each Pair of Real Estate Investment with Second-order Second order Stochastic Dominance in Thailand based on Data of 98 Months during April 2008 to May 2016.

Source: The Bank of Thailand and Reuter Database

The other pairs with no second-order second order stochastic dominance (SSD) are then examined for the existence of the third-order order stochastic dominance. The results in Figure 4 show that single house investment third-order third order stochastically dominates (TSD) condominium investment vestment and real estate securities investment. Town home investment third third-order stochastically dominates (TSD) condominium investment and real estate securities.

Condominium investment third-order third order stochastically dominates (TSD) real estate securities investment stment and land investment third-order third order stochastically dominates (TSD) real estate securities investment.

The pair of town home and land investment and the pair of single house and land investment shows no existence of first-order first order stochastic dominance, sec second-order stochastic dominance, and third-order third order stochastic dominance from the investigation. The summary of the findings is in Table III.

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Figure 4. Value of the Difference between Cumulative Value of Cumulative Value of Cumulative Probability Distribution on of the Return of Each Pair of Real Estate Investment with Third-order Third order Stochastic Dominance in Thailand based on Data of 98 Months during April 2008 to May 2016.

Figure 4 A. Value of the Difference between Cumulative Value of Cumulative Value of Cumulative Probability Distribution of the Return of Condominium minium and Single House Investment.

Figure 4 B. Value of the Difference between Cumulative Value of Cumulative Value of Cumulative Probability Distribution of the Return of Condominium and Town Home Investment.

Figure 4 C.. Value of the Difference between Cumulative Value of Cumulative Value of Cumulative Probability Distribution of the Return of Real Estate Securities and Condominium Investment.

Figure 4 D.. Value of the Difference between Cumulative Value of Cumulative Value of Cumulative Probability Distribution of the Return of Real Estate Securities and Land Investment.

Source: The Bank of Thailand and Reuter Database

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Table III Summary of Stochastic Dominance Test

Level of Stochastic Dominance First Order Stochastic Dominance (FSD) Second Order Stochastic Dominance (SSD) Third Order Stochastic Dominance (TSD)

Pairs of investment None Town home investment SSD Single house investment Land investment SSD condominium investment single house investment TSD condominium investment Town home investment TSD real estate securities investment Town home investment TSD condominium investment Land investment TSD real estate securities investment

Source: The Bank of Thailand and Reuter Database

Conclusion The problem of real estate investment on the lack of investment tools is less significant since there are many types of real estate investment available for investors in many markets. This study analyses the relative performance of different types of real estate and real estate securities investment by using mean-variance and stochastic dominance techniques to provide more information to investors to use in improving their portfolio.

The examination by mean-variance analysis apparently points that town home investment dominates single house investment and land investment dominates condominium investment. When stochastic dominance analysis is applied, the study finds that there is no type of real estate investment first-order stochastically dominates other types of real estate investment. However, at the second-order stochastic dominance analysis, the results appear the same as mean-variance analysis. In addition, when the further analysis on stochastic dominance is applied, the investigation shows that, for traditional real estate, single house investment and town home investment third-order stochastically dominates condominium investment. All of traditional real estate investment third-order stochastically dominates real estate securities investment.

In theory, the existence of the dominated types of real estate investment is the evidence which is against the idea of market efficiency.

In practice, the results imply that investors should pay attention not only on the selection of the specific real estate or real estate security but also on the choosing of the types of real estate investment to avoid having the inferior sub-asset class in their portfolio.

Nonetheless, there are at least two obvious limitations on this study. First, the period of study might be too short. The seasonality impact might not be completely counted into 97

the findings. Second, the scope of the data is limited to only Thailand market. Hence, the further study should be done to overcome these limitations and to provide more complete results.

References [1] Alexander, G. J.; Baptista, A. M. (2002) Economic implications of using a mean-VaR model for portfolio selection: A comparison with mean-variance analysis, Journal of Economic Dynamics and Control 26(7), p.

1159-1193.

[2] Andrew, M.; Glenn, M. (2003) Public and private real estate in a mixed-asset portfolio, Journal of Real Estate Portfolio Management 9(3) , p. 193-203.

[3] BjÜrk, T. et al. (2014) Mean–Variance Portfolio Optimization with State-Dependent Risk Aversion."

Mathematical Finance 24(1) , p. 1-24.

[4] Brounen, D.; Eichholtz, P. M. (2003) Property, common stock, and property shares, The journal of portfolio management 29(5) , p. 129-137.

[5] Clayton, J.; MacKinnon, G. (2003) The relative importance of stock, bond and real estate factors in explaining REIT returns, The Journal of Real Estate Finance and Economics 27(1) , p. 39-60.

[6] Fugazza, C. et al. (2007) Investing for the long-run in European real estate, The Journal of Real Estate Finance and Economics 34(1) , p. 35-80.

[7] Giliberto, M. (2009) Equity real estate investment trusts and real estate returns, Journal of Real Estate Research.

[8] Hadar, J.; Russell, W. R. (1969) Rules for ordering uncertain prospects, The American economic review 59(1) , p. 25-34.

[9] Hoesli, M. Et, al. (2009) International evidence on real estate as a portfolio diversifier, Journal of Real Estate Research.

[10] Hoesli, M.; Oikarinen, E. (2012) Are REITs real estate? Evidence from international sector level data, Journal of International Money and Finance 31(7) , p. 1823-1850.

[11] Ibbotson, R. G.; Siegel, L. B. (1984) Real estate returns: a comparison with other investments." Real Estate Economics 12(3) , p. 219-242.

[12] Levy, H. (1992) Stochastic dominance and expected utility: survey and analysis, Management Science 38(4) , p. 555-593.

[13] MacKinnon, G. H.; Al Zaman, A. (2009) Real estate for the long term: The Effect of return predictability on long-horizon allocations, Real Estate Economics 37(1) , p. 117-153.

[14] Markowitz, H. M. et al. (2000) Mean-variance analysis in portfolio choice and capital markets, John Wiley & Sons.

[15] Oikarinen, E. et al. (2011) The long-run dynamics between direct and securitized real estate, Journal of Real Estate Research, p. 73-104 [16] Shinzato, T. (2015) Self-Averaging Property of Minimal Investment Risk of Mean-Variance Model, PloS one 10(7): e0133846.

[17] Westerheide, P. (2006) Cointegration of real estate stocks and reits with common stocks, bonds and consumer price inflation-an international comparison, ZEW-Centre for European Economic Research Discussion Paper(06-057).

[18] Whitmore, G. A. (1970) Third-degree stochastic dominance, The American economic review 60(3), p.

457-459.

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Social Business Models in the Context of Romanian Rural Environment Daniela PAČ˜NICU1, Gabriela TUDOSE2 Spiru Haret University, Address, Ghica street no 13, Bucharest, 030045, Romania Tel: +40213169793, Fax: +40213169793, Email: danielapasnicu@yahoo.com Abstract: The labor market in rural areas faces a new challenge, of to increase employment through entrepreneurship development and transfer of labour from subsistence agriculture sectors to non-agricultural competitive sectors under the conditions of the existence of a high percentage of workforce aging, inactive, discouraged from finding a job, with low level of education, training, entrepreneurial culture and income. The paper presents a SWOT analysis of rural workforce market and the framework of regulations regarding the development of social entrepreneurship opportunities as a modern form adapted for solving social problems. It is important to developing another type of business towards to solve social problems facing rural environment, an equitable redistribution of income, reinvest profits to create new jobs and not to accumulate it in order to deepen the economic and social inequalities. Based on a statistical investigation on the main problems faced by entrepreneurs from rural area and internationally good practices are mentioned several orientation directions ofsocial business models in the context of rural area.

Keywords: social business, employment, rural area, vulnerable persons, labor market, social economy.

JEL Classification: J21; J43; M2.

Introduction The second objective of the National Strategy for Labor Force Employment 2014-2020 (NSLFE), which refer at improvement of the occupational structure and labor participation among women and persons belonging to vulnerable groups, directly targets employment in the rural areas, through the action "decreasing of employment in subsistence

1

SpiruHaret University (USH)/ National Scientific Research Institute for Labor and Social Protection (INCSMPS), Bucharest, Romania, danielapasnicu@yahoo.com 2 National Scientific Research Institute for Labor and Social Protection (INCSMPS), Bucharest, Romania, gabriela_tudose@yahoo.com

agriculture through facilitating relocation of this human resources towards nonagricultural activities". Also, among the priorities of the National Competitiveness Strategy (2014-2020) with the direct effect on employment growth in rural areas, are: connecting the education system with labor market requirements; determining non-agricultural domains of activity with added value, growth potential and competitiveness to which could be labor transferred from subsistence agriculture; and the transformation of economic growth conditions in the next programming period (2014-2020) to improve competitiveness and to prepare long-term conditions for a higher standard of living. The priority "Preparing the Generation 2050 and societal challenges" appears as objective "Competitive development of agriculture and rural areas", which aims at both reducing the agriculture of subsistence, increased investment in non-agriculture activities from rural area and doubling labor productivity in agriculture, in 2020.

Of the 450,000 active SMEs nationally, only 14% operate in rural areas, which are mostly micro, unable to absorb the surplus labor and having a minimum contribution to economic development. Low density rural SMEs related to population, specifically the amount of 7 SMEs / 1000 inhabitants is six times lower than the European average (42 SMEs / 1000 inhabitants in Europe) and three times lower than the national average. SMEs active in the agricultural sector represents only 3.46% of total assets from the companies of 2014 (INS Directory, 2015). As a result, rural SMEs fail to contribute significantly to the sustainable economic development of rural areas as long as there is a sufficient number of companies and a favourable environment to stimulate their creation and growth. Supporting entrepreneurship is mentioned in the Governmental Strategy for the Development of SMEs and improving the business environment in Romania as a priority for the economic crisis and mitigates the risk of slipping into poverty. Given that 45% of the population exists in rural areas, encouraging the formation or development of business in rural areas must become a priority. It highlights the need to address stimulating economic activity in line with the employment potential in rural areas.

A solution for imbalances of labor market from the rural areas is, along with increasing the performance of labor market institutions, development of social entrepreneurship of insertion, regulated in our country relatively recently (Law 219/2015). It aims to fight against exclusion, discrimination and unemployment, by socio-professional insertion of disadvantaged people. In this paper, the authors analyse the role of promoting social entrepreneurship in the development of Romanian agriculture and rural area, alike.

Through this type of entrepreneurship, the target group will turn from consumers of the social resources in producing added value and active participants in the dissemination of the principles of social economy.

1. Social Entrepreneurship - a Possible Response to Current Social Challenges The social economy emerged in the context changing of needs of analytical approaches and of development of a comprehensive methodological potential which better respond to current societal challenges, beyond of sufficiency of pure economic theories and of 100

focus on market mechanism. It was developed by innovative approaches in treating social problems, especially created by the existence of isolated communities, persons belonging to vulnerable groups, at risk of social exclusion and that through the conventional methods of accessing the labor market fail to integrate. Developing the social economy structures, led in Europe, over the last 10 years, in social and health systems, at increasing employment more than in other areas. It is proven that investing in the social economy has led in recent years to a report net favorable against to classical economics market, 17 new jobs at 14, in sectors of manufacturing and distribution energy and 17 at 11 new jobs created in other economic sectors (Commission européenne, Approchesproposées pour la mesure de l'impact social dans la législation et dans les pratiques de la Commission européenne).

Entrepreneurship is a process that can be applied to economic or social goals. The entrepreneur always looking for change, meet the challenge and exploits it as an opportunity, indifferent if this possibility is commercial in nature or social (Drucker, 1985).

While entrepreneurship economically focused on economic affairs aimed at maximizing profit and concentration of capital in the hands of a few people, social entrepreneurship is opposed somewhat in that it aims activities with social purposes, aimed at redistributing income, goods and services there where it is more need. Thus, social entrepreneurship repair "gaps" left behind by the economic and social inequalities and imbalances, generated by the capitalist economy,in order to create social capital. Moreover, the literature mentions that we focused too long on a particular model focused on maximizing company profit and it is clear that we need alternative models (Stiglizt, 2009). We conclude that social entrepreneurship is the activity that aims to solve a social problem (Durieux and Stebbins, 2010).

Social entrepreneurship is a new category of business that brings a new dimension to the business world and a new sense of social awareness among the business community.

Muhammad Yunis and others (2010) defined social business as a self-sustaining company that sells goods or services and repays its owners' investments, but whose primary purpose is to serve society and Improve a lot of the poor. This type of business is between one that aims to maximize profit and non-profit one. On the basis of social entrepreneurship are mentioned in the literature seven principles: 1. the business objective is to overcome poverty, or one or more issues (eg: education, health, access to technology and environment) which threaten people and society and not to maximize profit; 2. the financial and economic sustainability; 3. Investors will receive dividends not just money invested; 4. The company's profit is used to extend and improve the company; 5. pays attention to gender and environment aspects; 6. remuneration of labor and improvement of working conditions and

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7) ... do it with joy. (Mohammad Younis, World Economic Forum in Davos, January 2009).

In Romania, under Law 219/2015 are mentioned in art. 4, as principles: priority to the individual and social objectives as against to increase profits; solidarity and collective responsibility; convergence of interests of associated members and the general / corporate; democratic control of the members, exercised over the developed activities; voluntary and freedom of association in the forms specific to the social economy; separate legal personality, autonomous management and independence from public authorities; allocating most of the profit to achieve the objectives of general interest / interest of a corporate or personal prerogatives of members; and in Article 8, paragraph 4, b the granting of the certificate of social firm if it allocates at least 90% of the profit to the social purpose and statutory reserve.

Social entrepreneurship is a relatively new field, developing, which benefiting on the one hand, by a generous literature, from conceptually speaking, sometimes contradictory, but on the other hand, an reduced offer of data and empirical research. For this reason, he remains a phenomenon still insufficiently analyzed and developed both a practical and methodological perspective. Therefore, the lack of rigorous empirical research does not allow conceptualization and categorization of social entrepreneurship to the economic theories, reason why is not yet known the potential of future development of these types of businesses. Still exists debates regarding the definition of entrepreneurship on its different forms of implementation. Moreover, the economist Stiglitz (2009) argued that we need to do more to identify the contribution that alternative forms of organization bring to our society both in terms of GDP and satisfaction.

1.1. The origin of social entrepreneurship An important contribution to development of social business concept had the Grameen group (Grammenos means village), which has over 30 years of existence, especially through the model of the Grameen Bank from Bangladesh, in 1983, whose founder is Muhammad Yunus, Nobel laureate. This bank began to lend money to poor people and found that the poor people had entrepreneurial abilities, only which traditional banks refused to give loans without guarantees. Grameen Bank now offers loans to more than 7.5 million poor people, of which 97% of them are women. Through these loans, the Bank Grammenos help them to pass the poverty line, 68% of families of debtors of the bank have succeeded. The bank has been profitable every year of its existence, except the years 1983, 1991 and 1992, with a repayment rate which is currently at 98.4%. The activity of socially oriented organizations of Grameen Group currently differs, for example, the largest phone company in the country; supply of drinking water in villages; providing affordable dairy product, designed to meet the nutritional needs of children in Bangladesh; the sole provider of affordable healthcare, etc. Some companies Grameen works in partnership with other international companies for the provision of economic goods. The experience in ongoing construction of the group of companies, which aim to reduce poverty, has led to the concept of "social business" that can be regarded as still in the development phase.

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2. Socio-economic Situation of the Rural Population Late as the failure of the implementation of specific policies to revitalize the Romanian village led to the deepening structural crisis of the labor market in rural areas. Today we find that rural labor market is rigid, lacking opportunities, unable to provide sources of income to compete at raising living standards. The employed population in rural areas representing 45.3% of total employed population of Romania and 42.28% to the total active population of Romania (Tempo, Online, INSE, 2015), is characterized by: the predominance of employment in subsistence agriculture which keep captive a broad category of unpaid family workers (24.6% of the employed population in rural areas) and the self-employed (36.2% of the employed population in rural areas); a small percentage of the salaried population compared to urban areas (38.6% in rural areas compared to 91.7% in urban areas) and rural agriculture developed EU countries. Also, in rural areas is a percentage high inactive population; an aging population, discouraged by inefficiency of active measures implemented and lack of jobs; a high percentage of people with low education and training, much less entrepreneurial. Given that 60% of the employed population in rural areas working in agriculture, forestry and fishing (INS 2013) requires that the motion strategic at employment level, decrease of employment in subsistence agriculture and population and transfer to competitive activities from non-agricultural sector, leaving instead of a population adequately sized for commercial farming, decent income generating, capable of raising the standard of living of the inhabitants of villages and communes (objective mentioned in the common Agricultural Policy).

The multitude and magnitude of the accumulated problems of population employment of Romanian rural areas which might constitute opportunities for developing social entrepreneurship are captured in a painting synthetic socio-economic (Table. 1).

Table 1: Summary of SWOT analysis of labor market issues of rural development in the context of social entrepreneurship development

Strong points: High volume of labor resources Great potential to create added value in agriculture Trend of improving employment structure Positive balance of internal migration in rural areas Growth trend of salaried employment in rural areas through the diversification of the rural economy.

Weak points: Significant share of inactive population Specific occupational structure of an economy based on subsistence agriculture Lack of employment opportunities in rural areas Severe compression of the social economy in rural areas as a result of reducing the number of the service units and handicraft cooperatives units Large share of people discouraged from looking for a job in rural areas Poor labor market insertion of young people in rural areas Underdeveloped entrepreneurial culture High percentage of employed people aged over 65 years Persistence of a significant share of inactive population Lack of employment opportunities in rural areas Low level of education of the population in rural areas

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Inappropriate educational system to labor market needs of rural areas Low density rural SMEs related to population Active measures applied inefficiency and weak institutional capacity in implementation Financial services not adapted to the needs of rural investments, especially for small and medium investors.

Opportunities: Policies/strategies/legislation/institutions of rural employment framework strategies and harmonized with EU regulations Regulation of social economy social economy Fostering private commercial family farms European type through a gradual reduction of the subsistence farms Expanding of rural food, non-agricultural and cultural SMEs The establishment and development of local food supply chains and sales networks to connect producers and consumers Increase investment in rural areas

Threats: A dominant subsistence agriculture Insufficient sustainability of rural SMEs and social entrepreneurship; Difficulty accessing European funding programs experiences; Lack of markets Weak development of non-agricultural activities Gaps law concerning atypical work contracts appropriate to the livelihoods of people in rural areas; Lack of impact studies on the development and implementation of social entrepreneurship initiatives Maintaining high level of employment in the agricultural sector at the expense of other sectors of the rural economy.

Social dialogue unsatisfactory

Source:Selectionfrom rural employmentanalysisdevelopedwithintheframework of theproject "System of Measurestoencreaseemployment of the rural Population, 2015," D. Pasnicucoordinator.

3.Social Entrepreneurial Business Models in the Context of Rural Romanian Areas with a Focus on Future Developments Directions outlined in this section focuses on the examples of social business models Grameen Group and the results of statistical research, based on questionnaires, analysing the perception of heads of household in rural areas on satisfaction with public services and causes that hinder the development of rural areas. The investigation was conducted under the project "System measures to increase the employment-oriented rural population", which uses a sample of 1,070 respondents, in 2015. Developing the social entrepreneurship was one of the specific objectives of a wider investigation methodology of this project.

An important direction to which might guide Romanian social entrepreneurship in the next future and which meets a large rural population requests would be the creation of agricultural banks or financial institution that compete to the modernization of the current farms so that they can become commercial. Analysis of the results of the investigation showed the reluctance which farmers have towards the Romanian banking system. A significant percentage (64%) of those who want to develop a business in 2015 does not 104

intend to access a bank loan for business development on their own, some of them relying more on themselves. This perception is related to the uncertainty of success of their business and hence the impossibility of returning the credit. Those who intend to access a bank loan represent only 7% of respondents, and a 3% would access a loan, but with some conditions (lower interest rate, availability of grants, etc.)

The same investigation showed that the main difficulty for those planning to develop a business is the lack of access to credit facilities (22% of respondents). Currently, Romanian farmers cannot access credit through classical system because they cannot afford the repayment of loans at high interest rates charged by banks in Romania, thus being difficult for them to buy equipment/pay agricultural works or to buy land (given that 38% of respondents do not have agricultural land as ownership). Solving such problems is not only economic, but above all, social and it is vital for the development and modernization of farm, for the diversification activities and development of the non-agricultural sector.

Developing such activities depends largely on the possibilities offered to farmers to acquire the necessary tangible and human resources. Creating a suitable bank would allow Romanian farmers the acquisition of land (according to the investigation, Romanian farmers have about 2.4 hectares per farm on average which is quite below to the requirements for practicing a commercially agriculture), of modern equipment and the possibility of payment agricultural works without access toa supplier credit system such as the one practiced today. On the other hand, this issue would contribute to a balance of opportunities between Romanian farmers and foreign investors in agriculture benefiting from more advantageous loans and low interest rates when calling a credit to their country of origin. Other obstacles resulting from the investigation relate to „lack of support from the authorities" (17%) burden „high taxation " 15% and insufficient of various forms of financial support from the state (12%). An important aspect highlighted by 14% of respondents is the lack of skilled workers and the skills required. (Figure 1).

Figure1: What do you see as the major challenges would face a person who intends to develop a business / own business in your village?

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Source: authors processing/authors calculation on the basis of the statistically investigation results of the project ”System of measures to increase employment of the rural population, 2015”, Coordinator D. Pașnicu.

Another important economic-social direction that would contribute to the modernization of the Romanian village is to ensuring appropriate standards of public utilities. Farmers' access to gas, water, sewerage and public roads is a prerequisite for any development project peasant farm. Among the issues considered most serious in the village where they live, most of the answers, 37%, focus the infrastructure utility and the road, given that only 11% of respondents have access to heating gas, 39% of tap water in the home and 20% connect to the public sewer system, according to the same investigation. Also, social entrepreneurship might arise in the gap coverage represented by „the lack of economic agents, investors in the area" (18%), "insufficient capitalization of the products produced in the village" (7%). Another significant social problem felt in the village is the aging population. Social entrepreneurship could help attract young people and the development of activities in which to involve both young people and seniors through a beneficial intergenerational contract.

Conclusions The analysis presented allows authors to draw some conclusions regarding the Romanian Social Business: - Promoting and developing social entrepreneurship in Romania was done timidly without substantial achievements, focusing on peripheral social activities without contributing significantly to solving important social needs, this is more evident in rural areas; - Given the scale of the economic and social problems, social entrepreneurship intervention should address the developing of rural infrastructure in support of chain’s activities, beginning to the farm to the processing, distribution and marketing, as well as supporting the non-agricultural activities, trying to absorb in their activities the vulnerable people from the labor market: inactive people, including young people and housewives; people with low levels of education and training skills, people which are isolated and without access to resources and services, or limited access, etc.

In conclusion, social entrepreneurship should not be regarded as a panacea, it is only a spearhead of measures to test and innovate, starting from the premise of social, developing economic activities, pursuing social purposes, but working in the same competitive economy as economic entrepreneurship. The desirable solution would be that social entrepreneurship act in complementarily with the economic environment to achieve the objectives of modernization of the Romanian village.

Acknowledgement:This work was done through NUCLEU Programme, developed with the support of ANCSI, project no. PN 16-440106.

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References [1] Cukier W., Trenholm S., Carl D., Gekas G. (2011) Social Entrepreneurship: A Content Analysis George, Ryerson University, Journal of Strategic Innovation and Sustainability vol. 7(1) [2] Drucker, PF (1985), Innovation and Entrepreneurship, Collins Business, New York.

[3] Durieux, Mark B.; Stebbins, Robert A. (2010), Social Entrepreneurship for Dummies, Wiley Publishing, Inc., Indiana; [4] Ghenţa M., Rolulsectorului non-profit înfurnizareaserviciilorsociale, pg. 267, ColecţiaPuterea de a fi, EdituraDidacticaşipedagogica, ISBN 978-973-30-3757-6.

[5] Muhammad Y, Bertrand M, Laurence L-O (2010) Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning, col 43, issues 2-3,pg 308-325.

[6] Paşnicu D., Tudose G., The Main Structural Deficiencies on the Rural Labour Market and Employment Quality, The European Proceedings of Social & Behavioural Sciences EpSBS, ISSN 2357-1330.

[7] Stiglizt J. (2009)Moving beyond market fundamentalism to a more balanced economy, Annals of Public and Cooperative Economics 80:3, pp. 345–360, CIRIEC., Published by Blackwell Publishing Ltd. 9600 Garsington Road.

[8] Commission Européenne, (2014),Approchesproposées pour la mesure de l’impact social dans la législation et dans les pratiques de la Commission européenneconcernant: les FESE et le programme EaSI Sous-groupe du GECES sur la mesure de l’impact social, l'Europesociale.

[9] Programmatic documents: National Strategy for Employment of Labour (NSLEP 2014-2020); National Competitiveness Strategy 2014 - 2020, Romania's National Strategy on Climate Change, 2013 - 2020; Government strategy for development of small and medium enterprises and improving the business environment in Romania.

[10] The Law 219/2015 on social economy.

[11] Project "System of Measures to encrease employment of the rural Population, 2015," developed under the financing agreement no. 6/2015, within the Sectorial Plan, developed by INCSMPS, CURS partner, Daniela Pasnicucoordinator.

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Lambda Calculus Expressions Reduced with REGEX Luminița PISTOL1, Radu BUCEA-MANEA-ȚONIȘ2 1 SpiruHaret University, Bucharest, Romania Tel: + 4021 455 10 40, Fax: + 4021 316 97 93, Email: luminita_pistol@yahoo.com Abstract: The paper aim is to demonstrate the usefulness of the lambda calculus in programming. In this respect we used javascript alongside with regular expressions to accomplish the substitutions. Firstly there are presented the structure and syntax of the lambda calculus. After that, we provided examples of substitutions on the most popular lambda functions: successor, plus, multiply and the Y combinator. For each example we providedthe equivalent code in javascript for each rule of substitution we had used.

Keywords: lambda, redex, alpha/beta reduction JEL classification: M15

Introduction on lambda calculus TheLambda calculus is the smallest Touring complete programming language designed by Alonzo Church in 1930s as part of an investigation into the foundations of mathematics [www1]. The structure of the language comprises:[www4] 1.

Lambda expression ↔ term

2.

Lambda abstraction – λx.t, where:

a.

x – variable;

b.

t – term.

3.

Application – t s, where:

a.

t – term;

b.

s – term.

The language syntax is made up of three symbols: 12

Stefanini ADC , 10A Dimitrie Pompei Blvd. Cladirea Conect 3, Sector 2 020337 Bucharest, Romania Main: +40 378 600 400, Email: radub_m@yahoo.com

1.

λ, used for expressions like: λx.x;

2.

., used to separate variables/parameters from terms/arguments;

3.

(), used for better emphasis on application/reduction order.

For instance, applying 5 to λx.x2,we get 25: (λx.x2) 5 = 52, where: a.

x – parameter;

b.

5 – argument.

1. Lambda substitutions The α-conversionis uniquely rename bound variables during substitution, in order to make proper distinction between bound and free variables. For instance, in the expression λx.x y, x is bound and y appears free so it must not be substituted.

The β-reduction means for an application with a lambda abstraction on the left hand side, to substitute the right hand side for the argument of the lambda. This reducible expression is called “redex”, and corresponds to a single computation step.

Further on, we’ll do the substitutions without any renaming by keeping track of lexical scopes of the variables so we’ll substitute x only if it’s defining scope is the scope of the left hand side lambda in the application.[www2] Example 1. succ := λnfx.f(nfx) ≡ λn(λf(λx.f(nfx)))

[1]

For the successor function [1], we can continue applying β-reduction until there are no more redexes, obtaining a new Church numeral: succ 1 = (λnfx.f(nfx)) (λfx.fx) ≡ λfx.f(λfx.fx)fx ≡ λfx.f(fx) which equals 2, given 0 := λfx.x, 1 := λfx.fx, 2 := λfx.f(fx), 3 :=λfx.f(f(fx)), and so on.

The β reduction equivalent to \\([a-z]+)\.\1\1REGEX can be translated into JS this way: var re = /\\([a-z]+)\.\1\1/; varstr = '\\fx.fx \n'; var m; if ((m = re.exec(str)) !== null) { if (m.index === re.lastIndex) { re.lastIndex++; } } functionreplaceAll(newstr, needle) 109

{ var temp = newstr.replace(needle, 'f'); if (newstr.localeCompare(temp)===0) { alert(temp); return; } else replaceAll(temp, needle); } replaceAll(str,'x');

Example 2. plus := λmnfx.mf(nfx)

[2]

For the plus function [2] , we are going to use the λx.x x → x substitution rule recursively: plus 1 2 = (λmnfx.mf(nfx))(λfx.fx)(λfx.f(fx)) λfx.(λfx.fx)f(λfx.f(fx)fx) ≡

≡

(λnfx.(λfx.fx)f(nfx))(λfx.f(fx))

≡

λfx.(λfx.fx)f(f(fx)) ≡ λfx.f(f(fx)) = 3.

The β reduction corresponding to \\([a-z])\.[a-z]+\1regular expression could be implemented in JS this way: var re = /\\([a-z])\.[a-z]+\1/; varstr = '\x.fffxx\n'; var m; if ((m = re.exec(str)) !== null) { if (m.index === re.lastIndex) { re.lastIndex++; } } alert(str.substring(re.lastIndex+2, str.length-m[1].length-1));

Example 3. mul := λmn.m(nf)

[3] 110

For the multiply function [3], we use the λxλy.xy x → λy.xy substitution rule once: mul 2 3 = λmn.m(nf)(λfx.f(fx))(λfx.f(f(fx))) ≡ λn.(λfx.f(fx))(nf)(λfx.f(f(fx))) ≡λf.(λfx.f(fx)) (λfx.f(f(fx)))f ≡ λf.(λfx.f(fx))(λx.f(f(fx))) ≡ λf.(λx.(λx.f(f(fx)))((λx.f(f(fx)))x)) ≡ λf.(λx.(λx.f(f(fx)))(f(f(fx))) ≡ λf.(λx.f(f(f(f(f(fx)))))) ≡ λfx.f(f(f(f(f(fx)))))) = 6. [www3] The Second β reduction translated to JS code, using the equivalent \\([a-z])+\.[a-z]*\1 regular expression is the following: var re = /\\([a-z])+\.[a-z]*\1/; varstr = '\\fx.fffx '; var m; if ((m = re.exec(str)) !== null) { if (m.index === re.lastIndex) { re.lastIndex++; } } alert(str.replace(m[0].substring(1,3),m[1]))

Example 4.

Y = λf.(λx.f(x x))(λx.f(x x))

[4]

In the case of Y combinator [4], we must consider possible ways to write programs for which β-reduction does not terminate: Y = λf.(λx.f(x x))(λx.f(x x)) ≡ λf.f((λx.f(x x))(λx.f(x x))) ≡ λf.f(f((λx.f(x x))(λx.f(x x)))) ≡ λf.f(f(f((λx.f(x x))(λx.f(x x))))) ≡ … ≡ λf.f(…(f(f((λx.f(x x))(λx.f(x x)))))…)

This is a way to control an infinite loop by using the passing argument of the function as a counter in a recursive call: var fact = function(no) { if(no == 0) { return 1 } else { return no * fact(no - 1); } } alert(fact(3));

111

Conclusion This paper investigates new techniques of improving lambda expressions parsing by using REGEX. We’re aiming to build in the near future a stateless machine able to perform lambda reductions efficiently, in order to understand propositional logic common to any natural language, in the form of predicates. We assume that without a solid strategy of substitution, based on a complete formal definition of the substitution itself [Church, 1932], our efforts will be futile.

References [1] Church, A., A set of postulates for the foundation of logic part I, Annals of Mathematics 33 (1932), pp.

346–366, http://www.jstor.org/stable/1968702 Electronic Edition.

URL http://www.jstor.org/stable/1968702 [www1] https://en.wikipedia.org/wiki/Lambda_calculus [www2] https://zeroturnaround.com/rebellabs/what-is-lambda-calculus-and-why-should-you-care/ [www3] http://math.stackexchange.com/questions/595518/how-to-multiply-in-lambda-calculus [www4] https://www.youtube.com/watch?v=j6lkjd9woMw

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

WEB-Marketing Strategy for SMEs Luminița PISTOL1, Manuela EPURE2, Rocsana ȚONIȘ (BUCEA-MANEA)3 1 Spiru Haret University, Bucharest, Romania Tel: + 4021 455 10 40, Fax: + 4021 316 97 93, Email: luminita_pistol@yahoo.com Abstract: Based on the current trend of WEB-marketing stategy the article presents a Romanian SME case study. During the case study are detailed all the steps taken by the SMEs in the process of assuring an online presence (development and establishment of the SME’s online portal). The literature review shows that without WEB-marketing techinques the company and its services remains unknown. The portal developement makes use of web 3.0 tools, such as bootstap technology, open source software and paradigm and cloud services Qlik Sense business intelligence (BI). The BI interface offer wide capabilities of data extracting, manipulation and complex analyzes Keywords: e-marketing, pillars of internationalization strategy, SMEs JEL classification: O31, M15

1. WEB 3.0 Revolution With the web 3.0 revolution appeared new technologies, tools and models of web-marketing, adapted to the globalization trend. Some of technologies available at convenient costs or free of charge refer to semantic web and databases, bootstrap technologies, cloud technologies and open source paradigm. We are moving with quick steps towards Web 4.0, dominated by intelligent personal agents in the years of 2020-2030 [www1].

Nowadays no company could afford to avoid an online presence. Even SMEs that target a small area of market, they realize that have to launch their business online, in order to win the struggle of high competition. The online offer is also very rich. That is why e-marketing is not an option, but a must.

“The relationship between e-marketing strategy and internationalization process success is moderated by e-marketing tactics - website design and firm’s orientation towards technologies” [Skudiene, 2015] 2, 3

Spiru Haret University, Bucharest, Romania, Tel: + 4021 455 10 40, Fax: + 4021 316 97 93, Email: mepure@yahoo.com, rocsanamanea.mk@shiruharet.ro

E-marketing is an expanding and dynamic field that needs a skilled workforce. E-marketing education is going through a transitional period at different levels [Shaltoni, 2016].

In order to to conduct their business online any SME assumes 4 essential pillars of e-marketing internationalization strategy: 1) access of accurate, current, and utile information and the ability to process and fructify it, 2) organizational culture towards globalization mindset, 3) business networking and communication based on Blue Ocean Strategy [Tonis, 2016], 4) sustainable open innovation [Tonis, 2016].

Based on these pillars one SME can set up e-marketing strategies with coherent e-marketing tactics to add significant value in the successful internationalization process.

Given the continuously growing importance of digital marketing it had been illustrated how companies characterized by complex selling processes can harness Web analytics to demonstrate how digital marketing activities benefit their businesses [Järvinen, 2015].

2. Case Study - Elements of WEB-marketing Strategy for a Romanian SMEs It has been demonstrated how important for Romanian SMEs is to be connected in a digital ecosystem as Network Business Environment (NBE) [Tonis a, 2015]. Thus, a portal for Romanian SMEs, available online at: http://smesonline.eu, is proposed. Below are presented the steps taken for the development and establishment of the portal.

2.1. Platform Name It has been done a complex analysis with Google Keyword Planner regarding the keywords: “IMMonline”, “mediu virtual de afaceri”, “digitalizeaza afacerea”, “dezvoltaredurabila”, “inovare”, “smesonline” having Romania as target. For these keywords, the competition is low. This analysis returned 658 keywords and the average monthly searches, the competition and suggested BID, which reveals that Romanians uses a lot of English words in their internet search, such as “start up”, “entrepreneur”, “lean startup”. For these words the competition is medium. In their online search Romanian uses frequently the keywords ”afaceri”-2900 avg. monthly searches, ”afacere” and ”afacerea ta online”. This means that the site has to have an English version, too and that in the metadata site keywords it has to be used both Romanian and English word with low, or medium competition, as search engines to be able to return the site on the first page resulted.

An interesting conclusion is that the suggested BID is higher for other keywords, such as: “dezvoltare durabila”, ”start up business”, ”startups”, ”entrepreneur”, that means that the site will receive more impressions using these words, but the price is also higher. In the SEO campaign of the site it is recommended to use these words, in order to increase the traffic on the site, even is more expensive.

A similar research had been done with phrases such as: “IMM Online”, “IMM digital”, “IMM Virtual”, “IMM inovativ”, “IMM sustenabil”, “sme online” and “smes online”.

From all above keywords, only "immonline", "immvirtual",“sme online” and “smes online” have the average monthly searches value equal to 10. The others are not used in the Romanian internet search. The competition is low for "immvirtual" and “sme online” is low, but "immonline" has no competition. It has been chosen “IMMOnline”, because the platform is dedicated to Romanian - 114 -

SMEs that collaborate online within a NBE and it seems to be a niche market, having no competition.

2.2. Web Hosting Provider There are a lot of Romanian web hosting providers among which: web365.ro, hostvision.ro, romarg.ro, gazduire.com.ro, m247.ro, hostingweb.ro, xservers.ro.

There are other international web hosting providers, such as: eHost.com, iPage, web.com, bluehost, justhost.com, inmotion, 1&1, ideahost, hostgator, GoDaddy.

Comparing their provided services, it has been chosen ”xservers.ro”. Their offer is: 3 GB SSD storage, unlimited domains number, unlimited databases, cPanel 11 Free, hosting with free dedicated IP, free R1Soft professional backup, unlimited internet traffic, free hardware firewall, unlimited e-mail.

Checking the online domain availability was an important step of this process, because not all the providers have available the domain “smesonline.eu”.

2.3. Platform Content Diagram On the “Home” page, the portal offer access to information on founding a startup, such as documents needed, business plan, marketing plan, procurement process and the Young Entrepreneur Guide.

On the portal, there are links to sites that offer entrepreneurs the possibility to meet other entrepreneurs and specialists who can provide advice from his own experience, such as: UP GLOBAL'S, THE LEAN STARTUP, LEAN STARTUP IN BUCHAREST, GOOGLE LEAN STARTUP ROMANIA. On the first page there are, also, links to sites where everybody can look for an online job, such as: Elance, Top 10 Sites Like Elance, How to get a job on sites like Elance?.

The actual entrepreneurs have to take into account the sustainable development. In this regard, they were recommended trustful partners, such as Greenpedia and Ceres. Other important information for entrepreneurs is available at: IMM Romania (containing data published by the CNIPMMR – NGO-National Council of Private Romanian SMEs), Agency for SMEs implementation projects and Projects Development Centre UNION. For accessing structural founds the SMEs can read the calls on the site www.fonduri-structurale.ro On the “Services” page(services), the portal presents different services dedicated to SMEs that might be provided, such as follows.

1) Online marketing services mail marketing using MailChimp; optimizing web-sites for search engines: choosing appropriate keywords for indexing, site indexing in the main search engines, SEO campaign, designing the site-map; designing pages for social media in the main channels, such us: Facebook, LinkedIn, ResearchGate, Twiter, etc; web pages visibility analysis and site traffic analysis using Google Analytics; designing, publishing and interpreting only survey data using Survey Monky, Lime Survey or Google Forms.

2) Software integration - 115 -

ELTA (Extract, Load, Transform and Analyze)services using XML (DOM / SAX), CSV, etc; custom object relational mapping (ORM) or hibernate (JBOSS); reports development using BIRT, Microsoft, Crystal reports, Qlick View reports, etc; scripting developments on Windows (VB script, DOS SHELL) and on Linux: Perl, Python, Bash.

3) Web and mobile application development web design using HTML5, CSS3; PHP/ MariaDB (Drupal, Joomla, Wordpress) Android applications Design and optimization for SQL databases designing SQL databases; optimization on databases regarding queries, indexes, clusters.

On the page “Financing”, financing, there are presented information structural and European funds, which might be accessed by SMEs. On the portal, there are links to sites that offer entrepreneurs the possibility to meet other entrepreneurs and specialists who can provide advice from own experience, such as: UP GLOBAL'S,THE LEAN STARTUP, LEAN STARTUP IN BUCHAREST, GOOGLE LEAN STARTUP ROMANIA. The portal offer information regarding software with free licenses such as Open Source Software: Freereporting, Eclipse BIRT Report Designer BI, Palo (OLAP database) BI, BI, GnuCash - Financial Accounting, Linux – OS, Apache - Web Server, PHP - Script Server, MySql - management system database, Open Office: Office program. This software are widely used in developed countries such as Germany, even in state administration institutions. Using these solutions SMEs can decrease the cost of business.

The database regarding SMEs activities is published on the page “Cloud database”. The data is processed and displayed through Qlik Cloud Sense online services.

The SMEs can request for services on the information presented on the “Contact” page.

2.4. Platform Design Technology In a first stage, the site was developed using PHP – CSS technology. In the second stage, after a thorough study on web technologies available, it has been chosen Bootstrap 3 technology (Figure 1) due to the furnished advantages [Gimmer, 2015]: - the speed of development, because of different blocks of code already written; - responsiveness for mobile devices, due to fluid grid layout that dynamically adjusts to the proper screen resolution; - consistency, that refers of the results which are uniform across platforms so output remains the same whether using Firefox, Chrome or Internet Explorer; - facile customization, that refers of the fact that developers have just choose the features that are needed for the project; - support offered by a well developed support community.

- 116 -

Figure 1: Portal for Romanian SMEs - Dedicated to Mobile Devices

2.5. Logo and Motto There were designing different logos containing “IMMOnline� collocation, meaning Online SME. There has been used especially green color, thinking about youth, rebirth and green environment, maintained by SMEs sustainable open innovation. Some examples of logos are presented in Figure 2. Some of the logos were found appropriate and they are found in the dynamic banner of the site. The best of all logos was considered the second in the first row, thinking of two SMEs that collaborate in a NBE.

Figure 2: Different Logos for Romanian SMEs Portal - 117 -

There have been proposed several variants of motto, i.e.: - Together we are stronger!

- Join us for a better future through sustainable open innovation!

- Let’s innovate bright!

- Sustainable open innovation is SMEs future!

- Innovate with us!

- Innovate for next generation!

- Digitises your business!

- Digitises your business and innovate bright!

Among the options proposed, the last one was considered suitable as supports the idea of innovation within a NBE, and had been chosen as motto.

2.6. Content on the Web Publishing content, organized in the first step, is associated with the site optimize techniques for search engines, On-Page SEO [Tonis b, 2015].

On-page SEO refers to a better site optimization for search engines and to the techniques used for this purpose. This approach is often known by web developers and can be improved without a big effort, if it meets certain strict rules by which search engines work. On-page SEO can gain about 25% of the score of 100 points.

To optimize the web pages can take into account several factors, as follows: URL, page title, metadata description, headings, images.

An audit powered by Web CEO Ltd. www.webceo.com regarding the www.smesonline.eu shows that the On-page SEO was in high proportion well implemented, as it may be observed in the Figure 3.

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Figure 3: On-Page SEO audit powerd be Web CEO Ltd. For the Romanian SMEs Portal

2.7.Workflow Management System using QlickView Cloud Solutions The workflow data source was uploaded on QlickView Cloud Solutions and there have been designed some reports as SMEs be able to access the information. One example of report designed in the cloud is presented in Figure 4. The SMEs have to create an account and log into the cloud as to access the information shared. Case studies that tested and confirmed the consistency and the importance of the application are presented in [Tonis, 2016].

The SMEs have to take advantage of applying the data mining techniques in the phase that it corresponds to satisfy the necessity of enrich the data and add value according to better information about the client [Gerrikagoitia, 2015].

Figure 4. Report Regarding SMEs Turnover, CA, grouped on JUDET, CAEN, AN - 119 -

An example of synthetic dynamic report that can be visualized in QlikView Cloud is presented in Figure 5.

Figure 5. Synthetic Dynamic Report Regarding SMEs Turnover, CA, grouped on county, JUDET

2.8. Technical Procedures to Index the Platform in the Principal Search Engines Indexing the platform in the principal search engines is closed linked to Off-page SEO [Tonis b, 2015].

Off-page SEO refers to a picture on the web site, which is determined by the "opinion of other sites" and can be done through links between sites, called inbound.

The site was indexed in: Google using the form available at http://www.google.ro/ intl/ro/add_url.html, BING using the form available at: http://www.bing.com/toolbox/submit-site-url, Yahoo using the form available at: https://search.yahoo.com/info/submit.html, and ASK through Attracta software.

In their activity, the search engines and the users look up for the site-map. In this regard, we have used a free tool and created the site-map available at http://www.smesonline.eu/sitemap.xml.

For the search engines “robot.txt� files are very important, because hide those parts of the site that is preferable not to be accessed by search engine crawlers. We have created a robot.txt file available at http://www.smesonline.eu/robots.txt.

Another method to develop this approach is to include the site in many web directories. A list of free web Romanian directories can be found at http://www.dirpedia.ro/directoare-generale.html. Other web directory can be chosen from the list http://freewebsubmission.com/.

The site was indexed in director-web.ro, DMOZ, Scrub The Web, Websquash, Jayde Online, Rediff.com, Entireweb.com, AxxaSearch, Active Search Results, ExactSeek, Geona, Amidalla. DMOZ is the largest, most comprehensive human-edited directory of the Web, being an Open Directory Project (ODP).

The portal will use free enrolment with mutual backlinks.

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Figure 6. CEO Ltd. audit regarding the competitor link profile

The CEO Ltd. audit regarding the competitor link profile shows that Moz page authority for SMEs portal is equal to a very important competitor LinkedIn page, although the competitor is on the markert since 2014 compared to SMEs portal which entered the market this year. There are other important competitors on the market, but with countinuos improvement of content and real comunication with the visitors could improve the statement of the site, as to be able to catch with the competitors (Fig. 6).

2.9. Configuring the Social Media Channels [Tonis b, 2015] Assigning Social Media Channels to the portal has the aim to be contact with SMEs and to increase the traffic on the platform.

Using this portal, the SMEs can even benefit of Social Media as a marketing strategy to get online visibility.

It had been created a LinkedIn account, available at https://www.linkedin.com/company/imm-onlinemediu-virtual-de-afaceri, and a Facebook account, available at https://www.facebook.com/ SMEs-OnlineNetwork-Business-Environment-1606855336299190/, as social media channels.

It has been created a project on Research Gate, available online at: https://www.researchgate.net/ project/SMEs-Online-Network-Business-Environment_572cb5a33d7f 4b976555de61.

The considered social media channels allow SMEs to promote mouth-to-mouth recommendations and interactions with other SMEs. In Facebook network, if one SMEs associates "like" to a brand, the other SMEs innopreneurs friends can see this information as the News Feed and on the right side of the screen. An innopreneur trust in a product/ service/idea, if his friends tested it and tells him that is trustful.

SMEs can increase their online visibility using social tools offered by social media. They can also increase the popularity, page rank and therefore online visibility receiving as many links from YouTube.

- 121 -

Conclusion The article has the aim to present and spread information regarding the SMEs Portal, the friendly business intelligence, Qlik Sense BI, interface associated that provides unlimited possibilities of data extracting, manipulation and complex analyzes, without extensive IT&C knowledge for SMEs innopreneurs, such as What-If, clustering, classification, filtering support SMEs innopreneurs [Tonis, 2016] decision process. It also presents all the steps of desinging and implementing the portal.

The SMEs dedicated portal, developed with bootstrap technology, available online at http://www.smesonline.eu/, answers to modern SMEs information request, no matter if uses classical desktop PCs or modern mobile devices.

Acknowledgements - This work is supported by the Romania’s Operational Program for Human Resource Development (POSDRU), financed from the European Social Fund and the Romanian Government under the contract number POSDRU/159/1.5/S/134398.

References [1] Lifeboat fondation Safeguarting Humanity https://lifeboat.com/ex/web.3.0, 2015 [2] Gerrikagoitia Jon Kepa, Iñigo Castander, Fidel Rebón, Aurkene Alzua-Sorzabal, New Trends of Intelligent Emarketing Based on Web Mining for E-shops, Procedia - Social and Behavioral Sciences, Volume 175, 12 February 2015, Pages 75-83 [3] Gimmer C., Top 5 Reasons to use Bootstrap, https://bootstrapbay.com/blog/reasons-to-use-bootstrap/ (accessed on 15.07.2015).

[4] Joel Järvinen, Heikki Karjaluoto, The use of Web analytics for digital marketing performance measurement, Industrial Marketing Management, Volume 50, October 2015, Pages 117-127 [5] Shaltoni Abdel Monim, E-marketing education in transition: An analysis of international courses and programs. The International Journal of Management Education, Volume 14, Issue 2, July 2016, Pages 212-218 [6] Vida Skudiene, Vilte Auruskeviciene, Laura Sukeviciute, Internationalization Model Revisited: E-marketing Approach, Procedia - Social and Behavioral Sciences, Volume 213, 1 December 2015, Pages 918-924 [7] Tonis Rocsana (Bucea-Manea) – Own Phd Thesis: "Study and Developments on SMEs Support System", 2016, Faculty of Engineering and Technological Systems Management University POLITEHNICA of Bucharest, 2016.

[8] Țoniș (Bucea-Manea) Rocsana, Catană M. G., Tonoiu S., Network Business Environment for Open Innovation in SMEs, Applied Mechanics and Materials, Vol. 760 (2015), pp 751-756 © (2015) Trans Tech Publications, Switzerland, doi: 10.4028/www.scientific.net/AMM.760.751 (7th Int’l Conference on Advanced Manufacturing Technologies, ICAMaT 2014, Bucharest, Romania, 23-24.10.2014).

[9] Țoniș (Bucea-Manea) Rocsana, Social Media as a Web-Based Marketing Tool for Romanian SMEs, Review of Applied Socio-Economic Research, Volume 9, Issue 1, 2015, 79-89.

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

The Romanian Health and Social Care System Funding Arrangements and Approach to Social and Medical Care Delivery 1

Bertha SÄ‚NDULEASA1 National Scientific Research Institute for Labour and Social Protection, 6-8 Povernei Street, Bucharest, 010643, Romania Tel: +40-21-3124069, Fax: +40-21-3117595, Email: sanduleasa@incsmps.ro Abstract: Demographic ageing brings us opportunities, but it also affects important issues of social sustainable development such as social assistance system or medical care system [Wang, 2010]. As a European Union member state, Romania experiences a slow but steady demographic ageing process. According to Eurostat, 17% of the total population was represented by elderly (65 years and over) in 2015.

Given the multitude of factors generating demographic ageing (the decline in birth rates, the rise of life expectancy, the external migration flow), this looks like an inevitable trend for which Romanian policy makers must take appropriate measures to promote sustainable development, knowing that the total need for elder care (both social and medical) increases with the number of older people. National statistics show that, among the eight social protection functions, disease and old age have the highest shares in GDP (gross domestic product). The paper describes the health and social care system in Romania in terms of public expenditure and relations developed between different providers of medical and social care services within the system, in the context of budgetary austerity generated by the global economic crisis. The analysis reveals a series of weaknesses concerning both the financial resource allocation within the system, and the relations developed between providers of social and medical care services in Romania.

Keywords: Ageing of population, Health and social care system, Public expenditure, Budgetary austerity, Sustainable development.

JEL classification: I15, I18.

1

National Scientific Research Institute for Labour and Social Protection, 6-8 Povernei Street, Bucharest, 010643, Romania, Tel: +40-21-3124069, Fax: +40-21-3117595, Email: sanduleasa@incsmps.ro

Introduction It is known the fact that European population is on a steady demographic ageing process which began several decades ago. The ageing process is reflected in the increasing old-age dependency ratio, i.e. the number of elderly people (aged 65 or over) as a share of those of working age (15 to 64 years old). According to the population projections produced by Eurostat using data for 1 January 2013, in 2054 the old-age dependency ration will reach the value of 50% at EU28 level, and the share of the working-age population in the total population is projected to fall below 60% in 2035 and maintain this level by 2080 [Eurostat, 2016a].

It is also expected that population ageing will have a major impact on the public spending at European level, according to the budgetary projections presented in the 2015 Ageing Report [European Commission, 2015]. The global economic crisis already diminished governmental expenditure for the development and provision of social protection measures, with direct impact on the ability of public institutions to provide the financial support for social programs [GhenĹŁa et al., 2015].

On the other hand, there is a close link between social and medical care, which is why social services are often addressed in conjunction with healthcare services [GhenĹŁa, 2015].

With regards to future demand and supply of health care, it is hard to make projections of spending as it is hard to identify which socio-demographic variables have the strongest effect on health care spending: the number of people over a certain age, the number with given levels of disability or illness, or the number in the final years of their lives [Gray, 2005].

Public expenditure on both social and medical care depends on factors affecting supply and demand [European Commission, 2015]. Demand-side determinants include: population size, age distribution, health and disability status, individual and national income, rules regulating access to services. Supply side determinants include: availability of social and medical care services, distance to such services, technological advances, and the institutional framework regulating the provision of social and medical care services.

Overall, spending generally increases with the age of a person, which is why population ageing may pose a risk for the sustainability of health care financing from at least two perspectives: increased longevity, accompanied by a deterioration of health status leads to increased demand for social and medical care services, which further leads to increased public expenditures; since in most EU Member States, including Romania, public health care is financed by social security contributions of the working population, ageing translates into an increase in the old age dependency ratio which means fewer contributors to the service users. Analysing the population ageing trend is important for the governments, in order to take appropriate measures to promote sustainable development, even in a context of budgetary austerity generated by the global economic crisis.

1. Population Ageing Trend The population of Romania on 1 January 2015 was estimated at 19,9 million people. Young people (0-14 years old) made up 15.5% of Romania’s population, while persons of working 124

age (15 to 64 years old) accounted for 67.5% of the population. Older persons (aged 65 or over) had a 17% share in 2015 [Eurostat, 2016b]. Between 1995 and 2015, the share of population aged 65 or over increased by 5.2 percentage points in Romania (Figure 1). The old-age dependency ratio also constantly increased in the last 20 years, from 17.6% in 1995 to 25.2% in 2015. This means that in 2015 there were around four persons of working age (15 to 64 years old) for every person aged 65 or over [Eurostat, 2016c]. On the other hand, the young-age dependency ratio constantly decreased in the last decades in Romania, from 30.9% in 1995 to 23% in 2015. So, the increased longevity lead to the growth in the relative share of older population (ageing at the top of the population pyramid), while the low levels of fertility conducted to the decline in the proportion of young people in the total Romanian population (ageing at the bottom of the population pyramid).

Figure 1: Increase in the share of the Romanian population aged 65 years or over, 1995-2015 (%) Source: Eurostat, online data code: [demo_pjanbroad], 2016

Even Romania was among the European countries with the lowest life expectancies in 2013, this country is expected to have one of the largest increases in life expectancies at birth in 2060 [European Commission, 2015]. According to Eurostat’s population projections, in 2053 the old-age dependency ratio in Romania is projected to be higher than the EU28 average, reaching the value of 50.4%. Thus, the value of this indicator is projected to double between 2014 and 2050, indicating that population ageing will continue in future decades. The need for elder care, both social and medical, increases with the number of elderly. Since the pattern of population ageing is already being experienced in Romania, this will have a consistent impact on public expenditure, such as pensions, healthcare and long-term care costs.

In 2013, social protection benefits in Romania amounted to an equivalent of 14.5% of gross domestic product (GDP). Expenditure on benefits within the “Old age” and the “Sickness/Health care” functions predominates. Thus, in 2013, these benefits represented 125

50.1% and 26.9% respectively of total expenditure on total social protection benefits, equivalent of 7.3% and 3.9% respectively of GDP [Eurostat, 2016d]. However, expenditure on these functions grouped together (old age and sickness/health care) relative to GDP were one of the lowest in Romania comparative to other European Member States.

Figure 2: Expenditures by function as percentage of GDP and of social protection benefits in Romania in 2013 Source: Eurostat, online data code: [spr_exp_sum], 2016

2. Health and Social Care Expenditure The health and social care systems from Romania face common challenges generated by the budget cuts since the global economic crisis. According to the data centralized by the National Institute of Statistics from Romania, within the period 2008-2014, the total public expenditure with health and social assistance sector (both state budget and local budgets) increased slightly in 2009-2010, and in 2014 returned to the level from 2008.

Since 1999, Romania is based on a system of health insurance to finance most of its health care services. Thus, the National Health Insurance Fund, administrated by the National Health Insurance House, represents the main financial source of the health system in Romania. With some exemptions from payment (such as children up to 18 years of age, disabled, war veterans, patients covered by the national health programmes), social health insurance is compulsory for all persons residing in Romania. Also, in 2013, the Romanian government introduced the co-payment for certain medical services accessed during hospitalisation. Supplementary and complementary health insurance offered by private companies are available, but only for persons paying the mandatory health insurance: the supplementary insurance covers services not included in the basic benefit package; the complementary insurance covers the co-payments charged for the services included in the basic benefit package.

According to statistics delivered by WHO Regional Office for Europe [European Health for All database, 2016], Romania spent 5.34% of the gross domestic product for healthcare in 2013, after almost reaching 6% of the gross domestic product in 2010 (5.95%). Analysing 126

the healthcare expenditure by financing agent, statistics show that approximately 80 percent of total public health expenditure are provided by the National Health Insurance House (CNAS), while the remaining 20 percent of total expenditures come from the private sector [Eurostat, 2016e]. One can say that Romania has a low rate of expenditure from private funds in the health sector, well below other European countries in terms of share of revenue collected from private sources.

Health-care supply network in Romania is strongly polarized towards hospitalization, since the communist era. Despite governmental policy over the last decade to reduce hospital services and increase the use of family doctors and ambulatory services, there is a small progress regarding the implementation of this change. In 2010, ownership of most hospitals has been transferred to local councils. Hospital expenditures are reimbursed by CNAS and the Ministry of Health for about 95 percent of their operating costs, and local councils have to cover 3 to 5 percent of the operating costs of the hospitals from their jurisdictions. The Ministry of Health is also funding, and in some cases co-funding with the National Health Insurance House, a number of national health programs. In terms of healthcare expenditure from the National Health Insurance Fund by types of medical services, there is a constant pattern over the years regarding the allocation of financial resources between different segments of the healthcare system, with a dominant share of funds directed to medical services provided by hospitals (around 41% in 2014) and a small percentage of funds directed to ambulatory healthcare services (13% in 2014). The second largest expenditure from the CNAS budget is allocated to medicines and other medical goods - 45% in 2014 [Annual activity reports of the National Health Insurance House, 2008-2014].

Fighting against poverty and social exclusion represents a national priority given the European Union 2020 Strategy targets regarding poverty and employment. Through the National Strategy on Social Inclusion and Poverty Reduction 2015-2020, Romania opts for an integrated approach regarding the provision of social, health care, educational and employment services. One of the objectives comprised by the Strategy for Social Services 2006-2013 referred to the development of a national network of good quality social services with adequate coverage in the territory and accessible to all beneficiaries nationwide. According to Low 292/2011, local authorities have the responsibility to develop social assistance services in order to implement the national policies and strategies in the field. Yet, over one third of the rural communities and 10 percent of the small towns lack the public social service [Romanian Government, 2015]. The lack of financial resources at local level represents one of the main impediments in assessing the need and developing adequate social services.

Between 2008 and 2010, public expenditure with social assistance sector experienced an increasing trend, followed by a downward trend in the last years. According to World Bank, public spending on social assistance programs represented only 3.1% of the gross domestic product in 2012 [World Bank ASPIRE database: The Atlas of Social Protection Indicators of Resilience and Equity, 2016]. The state budget consumes the majority of its financial resources on passive welfare measures (cash benefits). The share of expenditure on social assistance and socio-medical institutions in total expenditure with benefits and social services financed from the state budget ranged from 0.4% in 2008 and 0.2% in 2014, 127

the highest fall being recorded in the years 2011 and 2012, under the impact of global economic crisis [National Institute of Statistics, 2016].

3. The Relationship between Institutions Providing Health and Social Care Services People who find themselves in a double risk (social and medical) are entitled to receive socio-medical care. According to the national legislation, socio-medical care services are provided in collaboration with healthcare providers, as a result of complex individual social needs assessment, conducted by multidisciplinary teams using standardized tools and techniques typical for their field of activity. Hosting a person in a social assistance institution is only possible when keeping the person at home is not possible. Thus, supporting the person at risk socio-medical should be done primarily through home care services. However, home care services are underdeveloped and limited to housekeeping and food supply and less to medical assistance [National Council for the Elderly, 2014]. The National Health Strategy 2014-2020 indicates that community services, including home care services for dependent patients, are offered in a volume far below necessary, they are insufficiently organized, coordinated, controlled and funded [Romanian Government, 2014].

The organization of social and socio-medical services is the responsibility of local councils, directly or under arrangement with NGOs, religious units recognized in Romania or other natural or legal persons. NGOs provide home care services, but most do not operate under a contract with the County social assistance directorate, which means that public-private partnership is not sufficiently developed at national level. This translates into the perpetuation of the dysfunctions in terms of care needs coverage and disparities between cities/regions within the country. The system of outsourcing/contracting services in Romania is over-regulated, making difficult the relationship between the entities involved in providing social and socio-medical services in the process of concluding public-private partnerships. To avoid bureaucratic procedures, some local public authorities prefer to fund NGOs providing social services on the basis of partnership protocols. This prevents auctions that may cause a malfunction such as those related to the discontinuity of services provided to beneficiaries. The legislation in financial field from Romania does not encourage financial transfers to the non-profit and private sectors, requiring a better correlation of normative acts from the social and health care sector for a common coordination and financing.

On the other hand, focusing on socio-medical home care services requires good communication and collaboration among institutions activating in the medical and social sectors. In Romania, health services are provided under the legal regulations on social health insurance. Providers of medical home care services must contract with territorial health insurance houses. When providing home care services to a person with sociomedical risk is not possible, based on the social and socio-medical assessment, the person is hosted in a social welfare institution or in a socio-medical assistance unit. The sociomedical assistance units can be set up either as residential or as day care centres, providing medical and social care services. According to the national legislation, in cases 128

requiring specialized interventions, assisted individuals are transferred to hospital facilities. Collaboration of such units with the medical system is rather deficient, as not all socio-medical institutions operate under a contract with the territorial health insurance houses. For this reason, socio-medical units have limited capacity to provide and support financially the medical care for the assisted persons. Legislation in the medical field does not encourage health care providers to contract with the territorial health insurance houses, and the amounts disbursed by the health insurance houses are considered insufficient to cover all the costs [National Council for the Elderly, 2009]. On the other hand, socio-medical units are faced with inadequate funding for maintenance and functioning, especially since most of them are subordinated to the local councils and are set up in rural or urban small areas whose local poor budgets cannot financially support their activity. In this context, there is a tendency to develop the private sector, with high costs for a person in need, favouring access to those who are able to pay for socio-medical care services [Zaman, 2014].

Conclusion The paper provides basic details of how the Romanian health and social care systems work in the context of population ageing trend, by briefly describing the health and social care expenditure, approach to delivery and the relationship between institutions providing health and social care services.

The health and social care systems from Romania face common challenges generated by the budget cuts since the global economic crisis. Health-care supply in Romania is strongly polarized towards hospitalization, despite governmental policy over the last decade to reduce hospital services and increase the use of family doctors and ambulatory services.

With regards to the social care system, there is clear evidence that the national policy focuses on cash benefits (passive measures) rather than on social and socio-medical care services that are active measures to overcome a social need. Development of social and socio-medical services is determined primarily by the availability of financial resources of communities and less by the real need of specialized support. The lack of financial resources has negative effects in terms of professional human resources (social workers, doctors) who should assess people initially and periodically and make recommendations for drawing up individual intervention plans.

NGOs’ participation in the provision of social and socio-medical services financed from public resources can provide an alternative, given the fact that neither the central nor the local government can provide these services, and public-private partnership is recognized internationally as a solution to the social problems of any kind - healthcare, education, social security, etc.. NGOs are important players in the market of social services in Romania, both in relation to their number and diversity. However, the non-governmental organizations are not evenly distributed in Romania, there are counties where the number of NGOs is very low as against the needs, especially in terms of services for adults in need of long term care.

129

Acknowledgements This article is published under the national Nucleu Programme, implemented with the support of National Authority for Scientific Research and Innovation, project no. PN 16-440107.

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care.

Available

at

Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Economic and Social Analysis of Economic Gaps, between 1990 – 2014 and the Influence Factors Raluca ZORZOLIU, Elena GURGU Spiru Haret University, Faculty of Economic Sciences Ion Ghica, no. 13, Bucharest, 030045, Romania, Tel: +40214551000, Fax: +40213143900 raluca_zorzoliu@hotmail.com, elenagurgu@yahoo.com Abstract: The population migration from rural to urban areas, and especially in remote rural areas or to settlements located near the cities, even in urban centers, is a phenomenon found in almost all countries, even in the developed ones.

The internal migration has contributed to reduce the gaps - temporary migration for employment. But external migration has led to increased disparities, because many there were many people who left the rural areas for other countries (for a better paid job), but the money that entered the country, from this category of population have been used - mostly for their own consumption and in a very small percentage for investment.

Keywords: the gaps, internal migration, external migration, agrarian economy JEL classification: J11

Introduction In this thesis I try to do a brief overview of the main changes occurring in the demographic and employment profile of the rural population (in the period 1990-2010, 2011), highlighting the representative elements for the contemporary rural world.

Demographics rural of Romania has three features: a) declining birth rates and low local values in 20 counties birth values are below average in rural areas; b) relatively high mortality, as evidenced by the number of counties where mortality exceeds 14‰ (19 of the 42 counties of Romania)

c) negative natural increase in most counties.

1. The evolution of Population and Labour Force, by Sex, Economic Activities in the Period 1990 - 2014 Internal migration growth in the rural relocation in 2007 was positive (de 3,9‰), indicating that the Romanian rural started don`t lose population trough migration. In the period 2000 – 2008 the rural population decreased by 502, (502 thousand) persons by two components: natural increase and migration growth. The loss was mainly achieved due to natural decrease (302 000 people), the rest of the population loss was due to administrative changes by transforming the common 168 cities. (Characteristics of the demographic evolution of rural population, INS, 2008, pp. 15,16,17-) Table 1: Population structure by areas - % -

Year

Urban

Rural

1930

20,60

79,40

1940

22,80

77,20

1950

24,70

75,30

1960

32,10

67,90

1970

36,90

63,10

1980

45,80

54,20

1990

54,30

45,70

2000

54,60

45,40

2001

54,60

45,54

2002

53,21

46,79

2003

53,45

46,55

2004

54,83

45,17

2010

53,91

46,90

2011

53,72

46,28

2012

54,00

46,00

2013

53,89

46,11

2014

53,89

46,11

Source: INSSE, “România în cifre”, 2005; Anuarul Statistic al României, 2011 http://hymerion.ro/wp-content/uploads/2014/09/Populatia-stabila-a-Romaniei-la-1-ianuarie-2014.pdf

132

Analyzing the data in the table above we can see the evolution of the Romanian population in the two areas: urban and rural, from 1930 until 2010 as follows: in 1930 the country was 79.4% of the population compared to 44.9% in 2010, and the urban population increased in the range of 2.67, times remembered. Although there has been a dramatic increase in urban population, it is quite significant proportion of the countryside, just 10 points in the first category. The largest increase in urban population reached during 1970 - 1980, representing an increase of 2.7 million people, or 36%.

With the enlargement of the EU in 2004 and 2007 with 12 new States, migratory movement from the new Member States to the EU-15, also known as immigration flows – turns – internal mobility.

2000-the main feature of internal migration was continuing migration to urban growth – rural, mainly through reverse migration. (Features of the demographic evolution of the population in rural areas, INS, 2008, pp. 18, 56, 57) Table 2: Share of employed in fields -% Field Agriculture Industry Constructions Services

2000

2001

2003

2004

2008

2010

31.12.2013

40

42,32

35,7

31,62

27,51

29,14

27,9

25,4

22,23

25,19

25,96

22,64

20,70

20,8

4

4,02

4,61

5,23

7,91

7,5

7,5

30,6

31,45

34,5

37,19

2,48

2,43

-

Source: INSSE, “România în cifre”, 2005, Anuarul Statistic al României, 2011

Romania had in 2010 almost 30% of the population engaged in agriculture, while in EU Member States, only Greece and Portugal exceed 10%.

As you increase the number and share of population employed in agriculture, this sector's contribution to gross value added decreases dramatically. If in 1990, the 29% employed in agriculture realized about 22% of GVA in 2002 - over 40% of Romania's labor force, working in agriculture brought only 12.5% of GVA. Internal migration known a pronounced maximum in 1990 when they recorded a number of changes 786 471 home.

If in 1970 the largest share had a change of residence from rural areas in urban areas (37.5%), in 2014 the largest share is held by the changes of address in urban areas throughout the urban areas (30.0%), followed by those from urban to rural areas.

2. Internal and External Migration Phenomenon; Causes and Effects “Geographical mobility refers to the spatial dimension, move the individual to take up a new job in another city, region, country or in different countries and continents. This size allows reducing the mobility demand-supply imbalances in the labour market and economic development influencing, the geographical mobility of the workforce represents a powerful tool for stimulating rapid economic adjustments and to ensure economic 133

growth. ...If this motion involves change of residence we can already speak of migration. It is important to make the following distinction: any migrant is a mobile person, but not every mobile person is a migrant.”

Table 3: Types of migrations Permanent migration

Local migration

Cross-regional migration

International migration

Temporary migration

Switch/commuting

Cross-regional commuting

International commuting

(rural – urban) Mobility on small distances

Long range mobility

“Although there is often a temptation to consider short-distance migration as a form of mobility, what differentiates them link to access to places, people and resources, migration by placing the individual in a new context while allowing continued mobilitysometimes lacklustre comeback." (Cucuruzan, R., 2009, pp. 20) Declining birth rate and maintaining it at low values in rural areas for a long period of time, together with preferential immigration for work (a situation which affected in particular young people), and had the track variations in the age structure of the population, with implications in demographic and economic plan.

Decreasing the rural population led to changes in the age structure of the population, bearing the imprint of a demographic ageing process, caused by declining birth rates, and selective migration, causing decreased absolute and relative of the young population (aged 0-14 years) and increased the share of population aged (65 years and over).

Table 4: Internal migration flows with the change of domicile, in the period 2000-2012 2000

2001

2002

2004

2005

2006

2007

2010

2012%

Total, of wich:

244.507

284.332

320.819

369.892

272.604

334.025

374.156

458.995

100,0

Urbanrural

82.631

79.327

96.624

117.495

80.732

93.924

118.237

133.052

29,8

Urbanurban

57.921

78.229

82.873

96.506

76.645

100.825

95.431

140.301

30,0

Ruralurban

47.693

69.837

71.928

77.941

60.195

75.275

80.235

96.201

20,6

Ruralrural

56.262

56.939

69.394

77.950

55.032

64.001

80.253

89.441

19,6

Source: (Particularităţi ale evoluţiei demografice a populaţiei din mediul rural, INS, , pp. 57, Anuarul Statistic al României, 2012, pp.76)

In 2010, compared to 2005, the population of which has migrated from urban to rural areas has increased by 65%, pretty close in value to those who chose the opposite – 60% 134

who leave the countryside for the urban-type settlement. The number of those who chose to change a city with another was higher by 83% and those who changed a rural commune with each other have increased by 62%.

"The four meanings of migration had oscillating evolutionary trajectories in the last period (2000-2010): - rural-urban migration, with the exception of a peak in 2001, has seen a decline in the past six years, while the 3rd place – constant, in the structure of migration flows; in 2007 the share of rural-urban flow was equal to that of rural-rural flow (13.3%).

- rural-rural migration has oscillated throughout the period, but its values were not brought forward the urban-urban flows and, especially on the urban-rural; in 2007, the number of those who have moved from rural areas in the countryside has increased with 16.3 thousand persons, compared with 2006.

- urban-rural migration has seen a positive trend in 2000, reaching a maximum of 33.8% of the total change of domicile. In 2007, urban-rural flow continued to be mostly (31.6%), those from urban to rural away with 24.3 thousand more than in 2006; - urban-urban migration are an upward trajectory, but not enough to overcome the urbanrural flow values. In 2007, urban-urban migration, urban-rural flow being dominant again (25.5% urban-urban, compared to 31.6% urban-rural flow).

If in 1991 more than half (50.3%) of the internal migration back flow of rural to urban areas over the next nine years (until 2000) the share of this type of migration has decreased considerably from one year to another up amounted to 19.5% in 2000, while the share of flows from urban to rural increased from 10.1% in 1991 to 33.8% in 2000.

Since 2001, population movements from rural to urban areas and vice versa, from urban to rural, remains approximately constant, represent around 20% 30% of the total migration flows.

Whether you are leaving or coming from/into it, the village was and remains involved in the processes of internal migration.

The dynamics of urban migration balances and in rural area (difference between inputs and outputs), in recent years show that the urban, although the values are unequal, they are negative in every year, which indicates more entries than departures. However, the village has a positive migration balance.

In rural areas there are only negative migratory balances youth from age groups 20-29 years. The departure of young people in rural areas contribute to the deprivation of a human capital apt to lead to the perpetuation and development of rural communities.

The population returns to the village is made up of adults and older people, because most of those who return from the city to the village are retired or unemployed, who can no longer survive the financial constraints imposed by the city life and opting for the return to the village from which they fled or were born – reverse migration. " (Features of the demographic evolution of the population in rural areas, INS, 2008, pp. 58, 60,61) 135

Table 5: The natural movement of the population on average, counties and in the first nine months, in 2010 and 2011

- rates per 1000 inhabitants County

urban Birth rate

Mortality

rural

Natural increase

Infant mortality

Birth rate

Mortality

Natural

Infant mortality

increase

Romania

9,1

9,7

-0,4

7,4

9,4

14,0

-4,6

11,3

Bistriţa

10,4

6,9

3,5

7,6

10,3

12,0

-1,7

5,9

Caraş-

8,2

11,0

-2,8

10,0

7,0

15,8

-8,8

10,9

Constanţa

9,5

9,9

-0,4

8,1

11,5

11,3

0,2

11,6

Dolj

9,0

9,1

-0,1

5,9

8,6

19,0

-10,4

7,8

Olt

8,5

8,6

-0,1

3,3

6,3

16,9

-10,6

11,6

Suceava

10,9

9,2

1,7

2,8

12,0

11,4

0,6

12,6

Timiş

9,7

10,3

-0,6

7,0

9,9

11,4

-1,5

8,8

Bucharest

9,7

11,0

-11,3

6,0

-

-

-

-

Severin

9 months 2010 Birth rate

Mortality

Natural increase

9 months 2011 Infant mortality

Birth rate

Mortality

Natural increase

Infant mortality

Romania

10,0

12,0

-2,0

9,5

9,3

11,6

-2,4

9,2

BistriţaNăsăud

11,2

10,3

0,9

8,6

10,3

10,1

0,3

6,5

Caraş-

8,5

13,2

-4,7

11,2

7,6

13,1

-5,5

10,4

Constanţa

11,4

10,7

0,7

11,4

10,1

10,4

-0,2

9,3

Dolj

9,0

14,2

-5,3

4,3

8,8

13,6

-4,8

6,7

Olt

7,8

13,8

-6,0

10,2

7,2

13,5

-6,3

7,6

Suceava

11,5

10,5

1,0

11,6

11,6

10,5

1,1

8,6

Timiş

10,3

11,4

-1,1

10,2

9,8

10,7

-0,9

7,7

Bucharest

11,2

11,1

0,1

5,6

9,7

11,0

-1,3

6,0

Severin

Source: data processed in the Bulletin – Informaţii statistice, nr. 3/2011, INS

The first 9 months of this year, compared with the first nine months of 2010 were characterized, in terms of population by decreasing birth rates in all counties of Suceava County-by abstraction, and in 27 counties natural increase continued to decline and/or become negative.

The mortality rate has been the highest values in Teleorman and the biggest negative natural increase. There are several counties in which the mortality rate in rural areas is 136

twice higher than that in urban areas. The highest natural increase (positive) was registered in 2010 – in Ilfov, and in 2011 in Suceava.

Demographic aging deepened last year in Romania, on 1 January 2016 pointing out a slight decrease compared with 1 January 2015, the share of young people (0-14 years) and an increase of 0.4 percentage points of share elderly population (65 years and above), according to the National Statistics Institute (INS).

Demographic aging was emphasized elderly population 65 years and over population exceeding 210,000 young people aged 0-14 (3.48 million to 3.27 million people), the statement says.

Compared to January 1, 2015, it noted a slight decrease in the share of young people (0-14 years) and an increase of 0.4 percentage points the share of the elderly (65 and over).

Demographic aging index increased from 103 (1 January 2015) 106.4 100 young elderly (1 January 2016).

The average age of the population was on 1 January 2016 of 40.9 years, 0.3 years older than 1 January 2015. The median age was 40.4 years, up 0.4 years compared to January 1, 2015.

On 1 January 2016, after the home population in urban areas was 12.55 million people, down 0.3% from 1 January 2015 1 January 2016 female population was 11.39 million people, down 0.3% compared to the same time last year.

The largest share in the total population possessed on 1 January 2016 age group 35-39 years (8.5%). Share group 0-4 years was 4.5%, lower than the 5-9 years group (5.2%) and the 10-14 years (5.1%).

Population mobility analyzed from the perspective of development in the region that has established residence confirmed a migration of population towards areas with high degree of economic development or to rural areas. Thus, the main regions where population and took up residence opting to migrate were Bucharest-Ilfov - region with high economic development through labor market offering higher earnings and employment opportunities - and Nord- East - the poorest region of Romania, the population has a large proportion opted to establish rural residence. Therefore, in the period 1990-2011, 15.9% of total arrivals were registered in Bucharest-Ilfov and 15.0% of them found themselves in the Northeast region.

When changing the direction of migration flows from rural to urban-rural-urban elements which have transformed contributed Romanian economy and society the early postcommunist: the privatization of industry, land restitution consequent on the implementation of Law no. Land Law 18/1991, and failure reintegration of certain categories of the population redundant due to restructuring of industries.

Thus, rising unemployment in urban areas, and restitution of agricultural land have favored the current trends of increasing the share of those working in urban areas.

137

Conclusion In the period 1990-2008, the rural population decreased by over one million people (from 10.8 million to 9.6 million – INS Statistical Yearbook, 2008) as a result of continuing negative natural increase and migration and foreign.

As a result of social changes in Romanian society in the period 1990-2010, the countryside was characterized by a series of socio-economic processes, such as the restructuring of the economy of the migratory movement, urban-rural migration, intense development of communities located near major towns or localities isolated depopulation. The Romanian village is much different than the reality recorded by more than 20 years ago.

Of all counties-24 have over 50% of the populations in rural areas and only three were between 20 and 30% of the population in rural areas.

"In Romania live more than a third of the farmers in the EU, in contrast, the value of agricultural production represents only one-tenth of the production recorded in the Union States (World Bank, 2005). Low-productivity agricultural activities are given by the sheer number of holdings with small surfaces, small scale use of modern technologies and, last but not least, over occupation (overloading) in agriculture of the rural population.

Most of the villages, which continue to be the subject of specific agricultural subsistence activities or semi-subsistence activities of the population, are in different stages of economic underdevelopment, which is the critical point of the rural space.

Subsistence farming and the semi-subsistence, defined most often as representing the activities of exploitation of the land by the restricted area with peasant ways, most of the time, rudimentary, for household consumption. The economic literature in this field refers to the three criteria for the definition of subsistence agriculture: agricultural farm, production area and the extent to which the products are sold on the market.

Of the more than 14.7 million hectares of agricultural land available to Romania, 63% is arable land and 22% is occupied with the grasslands area (Alexandri Ĺ&#x;i Luca, 2008, 162).

Most of those areas is owned by individuals, economic operators holding ownership of less than 9% of the total.

Of the total of 4 million people are employed in rural areas in early 2008, only 1.56 million were employed, compared with 4.6 million in urban areas. At the same time, the number of people from rural areas occupied in agriculture is more than 80% greater than that of workers in other economic sectors.

When changing the direction of migration flows from rural to urban-rural-urban elements which have transformed contributed Romanian economy and society the early post-communist: the privatization of industry, land restitution consequent on the implementation of Law no. Land Law 18/1991, and failure reintegration of certain categories of the population redundant due to restructuring of industries.

Thus, rising unemployment in urban areas, and restitution of agricultural land have favored the current trends of increasing the share of those working in urban areas.

Data on economic activity and living conditions of the rural population indicate the different degrees of development to rural areas. Many of the rural areas in the vicinity of 138

large cities have developed in recent years, in residential areas and have taken advantage of what investments were concentrated in these areas, developing into an accelerated pace, which was reflected in the standard of living of the population. At the same time, as a result of these conversions, socio-demographic profile of the population has changed as a result of increasing the attractiveness of living in these cities and towns, which has generated immigration (mainly from urban to rural areas).

At the other pole is less distant localities of major urban centres or geographically isolated locations, or lacking modern infrastructure (Mărginean, 2006). These areas appear on the many dimensions of socio-economic life, as being forgotten by history. Underdevelopment of settlements are reflected both on the level of economic and social life, the living standards of the population, and population and demographic details of population (in these areas meet population ageing and feminized, high mortality and morbidity, etc.).

They're practically dying villages. (Mihalache Florentin Flavius, 2010, pp.9, 10, 12 ,15,16)

References [1]. Alexandri, C., Luca, L., Romania and CAP reform, in Agricultural, în „Economics and Rural Development”, no. 3–4, 2008, pp. 161–180 [2]. Cucuruzan, R. (2009) - Migraţia şi mobilitatea forţei de muncă din România în contextul integrării europene, EFES Publishing House, Cluj-Napoca, 2009 http://www.euro.ubbcluj.ro/studenti/licenta2012/mie/migratia_Ro_in_contextul_integrarii.pdf [3]. Mărginean, I., Condiţiile de viaţă ale populaţiei din mediul rural, în „Calitatea Vieţii”, nr. 1–2, 2006.

[4]. Raluca Zorzoliu – Politici economice şi sociale pentru dezvoltarea populaţiei din zonele rurale, Editura Universitară, Bucureşti, 2011 [5]. Buletin statistic al judeţelor, 8/2008 şi 3/2012, INS, Bucureşti [6]. Anuarul statistic al României, 2010, INS, Bucureşti [7]. Anuarul statistic al României, 2012, INS, Bucureşti [8]. Statistică teritorială, 2009, INS, Bucureşti [9]. Particularităţi ale evoluţiei demografice a populaţiei din mediul rural, 2008, INS, Bucureşti [10]. Evoluţia principalelor fenomene demografice în primele 9 luni ale anului 2011, Informaţii statistice, INS, Bucureşti

Electronic sources [1]. Mihalache Florentin Flavius - Schimbarea profilului demografic şi ocupaţional al populaţiei rurale: 1990– 2009; Calitatea vieţii, Revistă de politici sociale, Anul XXI, Nr. 1-2, 2010, http://www.revistacalitateavietii.ro/2010/CV-1-2-2010/CV-1-2-2010.pdf [2]. http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/1-24022011-AP/EN/1-24022011-AP-EN.PDF [3]. http://www.insse.ro/cms/files/Web_IDD_BD_ro/index.htm [4]. http://www.cnp.ro/user/repository/prognoza_regiuni_2011_2014.pdf [5]. Statistics in focus, nr. 30/2012, eurostat , http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF12-030/EN/KS-SF-12-030-EN.PDF [6]. http://hymerion.ro/wp-content/uploads/2014/09/Populatia-stabila-a-Romaniei-la-1-ianuarie-2014.pdf

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Evolution of Active and Inactive Population in Romania Raluca ZORZOLIU, Associate Professor, PhD; Spiru Haret University, Faculty of Economic Sciences Ion Ghica, no. 13, Bucharest, 030045, Romania Tel: +40214551000, Fax: +40213143900 raluca_zorzoliu@hotmail.com Abstract: For having a competitive agriculture in a market economy, it’s necessary for the labor market to have special importance, not only to that part working only in agriculture but also for those who work only partially in this economic sector. It is necessary to take into account the uneven distribution of labor in the territory and the seasonal migration both from the same county and the migration between different counties. " (Raluca Zorzoliu, 2011, pp. 45) Keywords: active population, inactive population JEL classification: J120

Introduction The prospective estimation of working population by sex and age design requires a prior projection of population by gender and age and a choosing one or a series of activity rates, also, by sex and age. (International Labor Organization, 2011); Loichinger, 2015.

The objective of this prospective approach is examining how major changes in birth rates will put their mark on the size and age structure of the working population and the use of constant activity rates, the 2013 is what is required.

Some ascertainment can be drawn from examining curves activity rates by sex and age: • the participation in economic activity was and remained higher for men of all ages; • the activity rates had the highest values in men and women between 30 and 50 years; however, differentiation can be noticed having peaks age: the age of 30 years for men and at the age of 45 years for women; • - and men and women participation in economic activity is reduced in our country at all ages young and adult, the exception being an age group 65 and over, already mentioned and commented; the gap is more important to women; the differences are more important at ages younger than 25 years, and the population of 50-64 years; lower average retirement age in our country could explain the latter case;

• a moderate inflection of the curve can be observed of the activity rates in women around the age of 30 years, motivated by a parental interruption (observed for a long time in European populations).

1. Labor Resources At the beginning of 2014, labor resources were 13.997,9 thousand persons representing 65.8% of the total population of the country, decreasing by 35.8 thousand persons compared to the previous year.

The majority quota within labor resources was held by men (51.6%). In 2013, the population suitable for work had a share of 99.3% in total labor resources. The ratio of men exceeded that of women by 5.0 percentage points. People under and over the working age who were active represented 4.1% of labor resources; within this category, women were the majority (68.0%).

Table 1.1: The population by participation in economic activity, in the period 1993-2012 - thousand personsIndicators Total active population

1993

1999

2001

2002

2003

2008

2010

2012

-

-

11.447

10.079

9.915

9.944

9.965

9.759

Active employed population

10.062

8.420

10.697

9.234

9.223

8.747

9.240

9.019

Unemployed

1.164,7

1.130,3

750

845

692

575

725

454,5

10,4

11,8

6,6

8,4

7,0

5,8

7,3

5,1

Unemployment rate %

Source: INSSE, “România în cifre”, 2005, Anuarul Statistic al României, 2011

Between 1990-2012, the active employed population decreased by 10%, but gratifying aspect is that the number of unemployed decreased by 60% over the same period referred.

After 1990, the privatization process that took place in Romania led to the sharp decline in the number of employees and halted the rural population access to jobs in the cities, through a comprehensive process of layoffs, primarily those who had landed property.

Thus, agriculture was the only sector of the economy that could absorb excess labor, the effect being: widespread underemployment and lower labor productivity.

Unemployment in 2010 has reached the level in 2006, after three years of declines, in 2010 rose to 7.3 percent, in urban areas a value of 9.1% and 5.0% in the countryside, this indicator is one of the few, along with the employment rate, activity rate, which bring benefit rural areas.

141

Figure 1: Rates of activity on sex and age in 2013 in Romania and avarage for UE http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

The resident population projected at the mid 2013 (almost 20 million) and the assumptions on three components that determine the annual inputs and outputs are the following (details in Gheţău, 2014): • the total fertility rate will remain at the same value as the last 20 years - 1.3 children per woman; but the age structure of fertility change will continue in the latter half of the 1990s, the reduction in fertility ages below 25 years, and even at 25-29, and increased fertility after age 25 years and in greater fertility after the age of 30 years; structures were used fertility in developed European countries where the age at marriage and childbirth were installed and developed earlier; life expectancy at birth will continue its upward trend and the mid-century values will be the ones of the 2012 revision (published in 2013) of World Population Perspectives developed by Population Division of the UN (United Nations Population Division, 2013).

• It is not included a hypothesis about external migration; the external migration evolution is today unforeseeable, it will depend on the economic and social context in the country but also in developed European countries towards which the massive emigration of Romanians has oriented so far; recovering from recession and returning to high and stable economic growth of the developed countries in the European Union will encourage immigration.

2. The 2040 Perspective: Where Does the Conservation of the Current Activity Go. The Number and Structure by Sex and Age of the Working Population Choosing the 2040 perspective is motivated by the long-term effects of large variations of birth rates in the 1960s and 1970s on the age structure of the population, including the working population. It was used as a mid-century milestone, where developments of the years 2040 and 2050 describe the particular development.

In line with the assumptions mentioned, the population residing in Romania would reach 17.1 million inhabitants in 2040 and the economically active population would reach 7.2 million. In general, reducing the size of the active population in a population in decline for several decades firmly occurs automatically and enter into the logic of population trends.

142

The smaller rebound in absolute value of the active population and the modest altering of its proportion of the total population can be explained by resorting to analyze the comparative dynamics and the structural element.

The active population rebound would be 20%, two times higher than the economically inactive population, which means a deterioration in the economic dependency ratio of inactive people. There are now 121 inactive and of 100 active and this will reach 137 in 2040 (with a well installed perspective of reaching a ratio of 150 by mid-century) (Fig. 2).

Figure 2: Ratio of economic dependency of inactive persons 2013-2050 http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

143

Reducing the number of the economically active population will come from the expected contraction of the population with ages with the most important participation in the economic activity - between 25 and 50 years of age at the older generations from 1967 to 1970 will still be active but only temporarily, which is increasing, has a low participation in the economic activity. Young generations born after 1990 will play a major role in the numerical evolution of the active population.

At the age group level, the rebound of working population is and will continue to be the most important as the dimension to young active population, under 40 years, the population is composed in ascendant proportion by generations born after 1990, in the low birth rates context. (Figure 3).

Figure 3: Active population on age in 2013 and forecast for 2014-2050 http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

The 1967-1970 generations will increase the active population aged 40-50 years until 2017, but at this age will younger generation will penetrate which will diminish the active population aged 40-50 years. The same large generations will have the same positive effect, but temporary (during 2018-2026), on the active population at 50-60, installing its decline afterwards. A modest upward trend will only have the active population of 60 years and over. The regress of the number of working population will automatically lead to increasing the proportion of inactive population and increasing economic burden (Figure 6) of the population aged 15 and over.

We approached the economically active population perspective and not perspective of people engaged in economy.

In 2003, the employed population represented 93% of the active population, the difference representing the working unemployed population. Increasing the size of the active population segment, a central objective of the employment policies can have two sources - the active population unemployed, the active unoccupied population, the unemployed and recruitment of the inactive population.

144

The strategies for employment differ by choosing the source of recruitment based on a multitude of criteria and I will mention just the qualification in relation to the job needs and requirements, complexity of activity, age, in some cases - marital status, health status, previous, the company's prospects, the general economic situation, the government economic policies.

Figure 4: The % of inactive population on total population http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

Addressing together the two components of the economically active population may be an option and because it covers a larger ratio of a national population and studying the way the structural changes that are taking place in the whole population put their mark on the working and unemployed economic population has more relevance.

The active population represents almost half of the country population and a comparative look on how active population by sex and age overlaps the entire population by sex and age in the years 2013 and 2040 is relevant on the relationship between the two populations. To a smaller total population corresponds naturally with a smaller working population (Figure 5).

The dimension that is visibly lower of the female working population after the age of 55 in 2040, comes from younger generations at this age compared with those in 2013, combined with lower activity rates at those ages. Pyramids also show at what age could increase the participation in economic activity through higher rates.

145

Figure 5: Total population and active population on sex and age in 2013 and forecast for 2014 http://cursdeguvernare.ro/populatia-activa-economic-a-romaniei-o-perspectiva-dincolo-de-datele-ins-si-ocomparatie-cu-tarile-ue.html

With the rates of activity from 2013, the workforce, as offer, it is about reach a rebound of the number by changes they will occur in the number of population by age. With a population significantly lower, other things being equal, the working population shrinks in size. It is a negative development? If activity rates by age are high, very high, and they remain in context of the declining population, the decreasing of working population does not affect the population's wealth, as long as this participation in economic activity determines the wealth. An increase in activity rates increases wealth and the overall economic and social state of society.

Conclusion The level of participation in economic activity is relevant for measuring the extent to which people contribute to the production of wealth in society and we can associate valences that refines knowledge on the development of a country and the way in which labor is used.

The target for 2020 is, for our country, is to achieve an employment rate of 70% of the population of 20-64 years. The annual rate value was 64% in 2013.

The demographic aging is visible in both populations and the pyramids for 2040 it can be observed a deteriorating relationship between the active population and the elderly, 146

economically inactive, even if, in parallel, it is diminished the ratio of economic dependency of children in the bottom of the pyramid, by younger generations. the total fertility rate will remain at the same value as the last 20 years - 1.3 children per woman; but the age structure of fertility change will continue in the latter half of the 1990s, the reduction in fertility ages below 25 years, and even at 25-29, and increased fertility after age 25 years and in greater fertility after the age of 30 years; structures were used fertility in developed European countries where the age at marriage and childbirth were installed and developed earlier; life expectancy at birth will continue its upward trend and the mid-century values will be the ones of the 2012 revision (published in 2013) of World Population Perspectives developed by Population Division of the UN (United Nations Population Division, 2013).

• It is not included a hypothesis about external migration; the external migration evolution is today unforeseeable, it will depend on the economic and social context in the country but also in developed European countries towards which the massive emigration of Romanians has oriented so far; recovering from recession and returning to high and stable economic growth of the developed countries in the European Union will encourage immigration.

Reaching the target rate involves significant changes in economic policies, in education, in training programs, professional reconversion. Without a considerable increasing the participation in economic activity, particularly in the young population, proximity to the average values of major economic and social indicators in the European Union, is not possible. And considering the effects of the expected changes of number of population structure by age can only be beneficial for establishing the growth programs and policies.

References [1]. Comisia Naţională de Prognoză (2015) Proiecţia principalilor indicatori macroeconomici pentru perioada 2014-2018.

Prognoza de iarnă 2015. (http://www.cnp.ro/user/repository/prognoza_2014_2018_varianta_de_iarna_2015.pdf).

[2]. European Commission. 2015. Country Report Romania 2015, SWD(2015) 42 final / {COM(2015) 85 final}, (http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_romania_en.pdf).

[3].

Eurostat. 2014a. European population projection base year (http://ec.europa.eu/eurostat/cache/metadata/en/proj_13n_esms.htm).

[4].

Eurostat.

2014b.

Proportion of (http://ec.europa.eu/eurostat/data/database).

[5].

Eurostat.

2015.

Active population by sex, age http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lfsa).

population

aged and

201365

EUROPOP2013 and

nationality

over, (1

000)

[6]. http://hymerion.ro/wp-content/uploads/2014/09/Populatia-stabila-a-Romaniei-la-1-ianuarie-2014.pdf

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN:2392-8166, ISSN-L:2392-8166

Assignment of Tax Receivables – a Possible Solution to Increase the Public Budgets Revenues and to Counteract the Growth of Tax Arrears?

Analyzing the History and Application of Tax Receivables Assignment in Romania Elena-Doina DASCĂLU, Dragoș Mihai UNGUREANU1 1 Spiru Haret University, Faculty of Economic Sciences, 46 G Fabricii Str., District 6 Bucharest, Romania, Tel: 021 3169785, Email: dragos.ungureanu@yahoo.com, doina.dascalu@rcc.ro Abstract: The article analyses the manifestation of the assignment of tax receivables in terms of finding a solution regarding the growth of public budgets revenues, and counteracting the alarming increase in tax arrears.

Also, the article presents an analysis of the historical data recorded in terms of applicability of tax receivables assignment in Romania.

In terms of functional market economy, the Romanian tax administration bears the responsibility and burden of accumulated debts, of which a considerable amount is considered irrecoverable. Considering this, a significant proportion is represented by arrears that are at least one year old, which is why consistent growth of debts not received by the due date, often over one year old, imposed the need to identify urgent solutions and measures to counteract this phenomenon.

Keywords: receivables assignment, tax arrears, taxpayers, tax registration certificates, irrecoverable debts, tax administration.

JEL classification: E60, E61, H60, H61

Introduction Difficulties in recovering historical debts led to the identification of practical solutions in market economy, tailored to the needs of creditors. In this regard, we refer to the difficulties faced by the banking sector (the main private creditor of the economy) and to the solutions for the assignment of receivables (bad debts) by specialized companies, these practices becoming common in the current economic context.

The owner of the largest volume of bad debts in the Romanian economy is he Romanian state itself. An analysis of the volume of uncollected tax liabilities reveals that by the end of 2014 in the Romanian tax administration records there were due and uncollected receivables amounting to about 78.8 billion lei. Of these, more than three quarters (61.8 billion lei) accounted as receivables deemed by the National Agency for Fiscal Administration (ANAF) itself as irrecoverable, namely receivables from debtors for which regular enforcement measures could not be taken anymore, such as insolvency and bankruptcy situations.

Highly relevant for this analysis is the worrying trend of continuous increase of the level of irrecoverable arrears, observing that in the last 6-7 years, amid the deepening of global economic crisis, an increasing number of large companies went into payment default, initiating the special insolvency/bankruptcy procedure. Besides, as shown in the graphic representation below, the volume of tax receivables with an extremely low recovery rate (unrecoverable arrears), coming in most cases from insolvent taxpayers, registered a significant increase from about 24.5 billion lei in 2007 to 61.8 billion lei (approx. 14 billion Euros) at the end of 2014.

Evolution of tax arrears recorded by legal persons in 2007-2014 (mil. lei) 90,000 80,000 70,000

40,000

10,000

73,308.7

47,266.1

53,109.6

58,366.9

78,822.3

48,145.8 36,381.0

39,785.9 38,801.3

61,834.0

30,914.8

30,000 20,000

71,018.5

59,498.5

60,000 50,000

68,424.6

24,519.0

26,781.3

11,862.0

13,004.6

17,231.0

20,697.2

21,158.5

17,908.9

14,941.8

16,988.3

2007

2008

2009

2010

2011

2012

2013

2014

0

Arierate recuperabile

Arierate nerecuperabile

TOTAL ARIERATE

Figure 1: Recoverable arrears Non-recoverable arrears Total arrears Source: Own processing of information extracted from the ANAF activity reports and the annual public reports of the Court of Accounts

Thus, the Romanian tax administration bears the responsibility and the burden of accumulated debts amounting to more than 18 billion Euros, of which about 14 billion are deemed irrecoverable. It should be stressed that a significant proportion of these arrears are at least one year old, and the figures for 2014 show that more than 70 % of the receivables from ANAF records are at least one year old [1].Constant growth of these debts not received by the due date, often over one year old, imposes the need to identify urgent solutions and measures to counteract this phenomenon.

149

In this context, when comparing the position of the banking sector or other private entities that have recorded receivables difficult to recover, to the current situation faced by the Romanian tax administration, considering the budgetary imbalances and the state's pressing need for liquidity, a natural question arises: the assignment of tax receivables could be a way to increase the efficiency of collecting tax arrears? Further, taking as a starting point the conclusions about the situation of tax arrears, we will make a presentation on the history and recent experiences which concerned the implementation of tools to allow the assignment of tax receivables in Romania.

1. Analyzing the History and Application of Tax Receivables Assignment in Romania According to the general definition from the new Civil Code[10], the assignment of receivables is a convention by which the assignor transfers to the assignee a receivable against a third party. The receivables assignment means the transfer of property right to a value, including to the others guarantees of the right, from a person called assignor to an assignee.

Regarding the receivables of a fiscal nature, namely those rights arising from the obligation imposed by the state to all natural and legal persons to pay taxes to the public budgets, the assignment of tax receivables consists of the transfer by the tax body of his right to claim over the taxpayers’ debtors.

For most of the tax specialists, the assignment of tax receivables represents a less known subject, even more since the current tax legislation, but also the tax administration practice in the last years does not contain many information and landmarks on this subject.

2008 – The year when the possibility to assign tax receivables was first introduced in Romania Based on the general principles of the Civil Code, the tax legislation first introduced in 2008 the possibility that the tax authority, namely ANAF, transfers claim rights arising from taxes owed by taxpayers to the state budget. Thus, by Emergency Ordinance no. 19 of February 27th 2008 amending and supplementing Government Ordinance no. 92/2003 regarding the Tax Procedure Code, a new Article 175^1 was inserted, which grants ANAF the right to assign the receivables it manages.

It should be noted that the applicability of article was limited exclusively to the receivables managed by ANAF, so that arrears resulting from local taxes managed by territorial administrative units could not be subject to assignment of receivables. Although at the time of the legislative amendment (early 2008) Romania was still undergoing a period of "economic boom", major economic imbalances and significant evolution of tax arrears in the next period have led to a situation where this legislative amendment could be considered as an anticipation of future problems of tax administration in Romania.

Moreover, the law's preamble stated that changes were imposed by "the need to regulate payment of amounts owed to budgets through bank cards and the assignment of tax receivables as means of extinction of tax claims, in order to attract additional funds to the general consolidated budget."

Although the regulation is rather brief, without getting into too many procedural details, by adding the new Article 175^1 to the Tax Procedure Code certain rules and principles applicable to the assignment of tax receivables were set, as follows: 150

ANAF could only assign tax receivables based on debt securities and tax registration certificates confirming the existence of the claim in question; it was not possible to assign tax receivables (principal and accessories) at a price lower than their nominal value, and in case of several bidders an auction had to be organized; although the tax receivable assignee was assuming all the assignor's rights, they were not acquiring the quality of budgetary creditor. the debtor had to be notified by ANAF when intending to assign tax receivables; although ANAF was legally responsible for the existence of the claim determined by the tax registration certificate and included in the assignment contract, after signing the assignment contract ANAF was discharged from any warranty obligation.

Thus, this form of the law clearly indicates the intention to protect the state interests, any assignment being possible only in the context of full payment of the debt nominal value.

As it can be observed, the legislator's aim was not to give ANAF the opportunity to capitalize on large amounts of receivables with low recoverability level, whereas according to economic reasoning, receivables arising from hardly recoverable arrears could be sold only at a price below the nominal value of the receivable.

In this context, we consider that the text of law introduced in early 2008 has set up an alternative possibility for recovery of debts, but only for special situations. Basically, the circumstances in which a third party would want to take over the receivable at nominal value can be substantiated either by seemingly subjective reasons (such as financial support between related companies, etc.) or by the will of a third party to ensure or strengthen its creditor position against a debtor.

However, although the procedure does not appear attractive and widely applicable, making unlikely to capitalize on the nominal value of a large portfolio of receivables, it should be noted that the main target of this text of law introduced in early 2008 was to defend the state interest, by preserving the receivables levels and recovering them only if the debt principal, as well as the accessories are paid in full. This procedure has the advantage that it ensures an increased protection of the state interest, with practically no risk of fraud by capitalizing a receivable at under values. On the other hand, since all debts could be capitalized only at nominal value, it is obvious that this form of assignment of receivables could not be a solution for the bulk of older arrears.

Based on additions to the Tax Procedure Code, in August 2008 ANAF issued Order no. 1173 approving the Procedure regarding the assignment of tax receivables administered by the National Agency for Fiscal Administration. This legal act complemented Article 175^1, by explaining the categories of claims and the actual procedure of achieving the assignment of tax receivables, as follows: the cases when tax receivables can be transferred were exhaustively listed, as follows: "a) writs of execution arising from converting debt securities tax (tax statements, tax decisions, final decisions in the system of administrative appeals); b) final or irrevocable court decisions, as appropriate; c) final framework of receivables, approved according to the Law no.64/1995 regarding the procedure for judicial reorganisation and bankruptcy, as subsequently amended and completed, or of the Law no.85/2006 regarding the insolvency procedure, as subsequently amended, as appropriate; d) other writs of execution."

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a tax registration certificate should be issued for amounts for which the tax receivables assignment procedure is initiated; the tax receivables assignment procedure was carried out by a commission specially created for this purpose; for debts accumulated up to 10 million lei, the implementation of the procedure is under the jurisdiction of subordinated structures (county directorates of public finances); cases of debts exceeding 10 million lei and large taxpayers fall under the jurisdiction of ANAF's central commission; the contract for tax receivables is assigned by call for tenders, and in case of multiple bidders an auction is organized in order to delimit the best offer; a period of 15 days was set for notifying the debtor of the intention to transfer the debt; a period of minimum 30 days was set for advertising the assignment, by a notice in a national and local daily newspaper, as well as on the website of the National Agency for Fiscal Administration; a participation fee or a bank letter of guarantee was set, covering the equivalent of 2 % of the nominal value of tax receivables; an obligation was set, requiring that future assignees of claims should have no outstanding tax obligations and should not be in an insolvency procedure; a creditworthiness letter was requested, claiming that the bidder has the financial capacity to buy tax receivables; the financial offer could not be lower than the nominal value of tax receivables, specifying the amount offered, the deadline and method of payment; it was specifically mentioned that if no qualified bidders or if as a result of the auction the value obtained is not at least equal to the nominal value of tax receivables, the commission shall not assign the contract for the transfer of tax receivables, and the procedure shall be resumed within a period set by the commission; the ownership right on tax receivables, including the guarantees associated to it, are transferred only when the price is paid in full; on the payment date, the tax authority issues to the assignee the writs of execution and the debit securities, in original; the possibility to pay the assignment price in installments was granted, up to 6 or 12 months, according to the amount of debt, if the tax receivables transferred come from a debtor that is undergoing an insolvency procedure.

The abovementioned provisions, mentioned in OPANAF 1173/2008, have been subsequently completed by OPANAF no. 1600 of November 27th 2008.The new law brought only some explanations and nuances of the old text; the most important change is that the procedure for the assignment of receivables may be initiated by the tax body also upon notification from third parties. Other changes were related to the creditworthiness letter, namely that it was mandatory to be issued by a financial institution, and to the deadline for advertising the procedure, that was shortened from 30 days to 15 days.

Thus, regarding the procedure for the assignment of tax receivables, one can note that during 2008 both the primary legislation (through additions to the Tax Procedure Code), and the secondary legislation (through ANAF approving the procedure) were completed. It should be stressed that although setting the legal foundations for achieving the assignment of tax receivables, the restrictive conditions due to the fact that the state did not want to outsource the activity of irrecoverable debts liquidation led to a situation where, in practice, cases of tax receivables assignment were quasi-inexistent.

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Attractiveness of such procedure for third parties is proportional to the profit that can be achieved, which means that the imposition by law of a price of the transfer at least equal to the nominal value of tax receivables (including principal and accessories), kept away from ANAF the onerous business seekers.

The extremely cautious attitude of the legislator, manifested by requesting a very high price compared to the risks assumed by the assignee, entitles us to believe that the operation of tax receivables assignment, according to the regulations in 2008, should not aim for profit (which would have led to the transformation of the assignment in a commercial transaction), but rather represented just a facility that could be granted to a third party who would have expressed their willingness to take over the state's quality as creditor.

In that case, the assignee could have either an interest to protect the debtor against any possible enforcement action by the state (as in the case of related persons or other persons with strong commercial ties, whose economic interests would have been strongly affected by the onset of enforcement against the debtor), or the interest to obtain the quality of creditor and to influence the further activity of the debtor (as in the case of third parties who would have wanted to obtain the quality of creditor in order to initiate the enforcement themselves, which would have given them the opportunity to dispose of some assets of the debtor taxpayer).

Looking from both perspectives described above, we consider that the original purpose of the law, namely the implementation of assignment of tax receivables as "means of extinction of tax claims, in order to attract additional funds to the general consolidated budget" was lacking pragmatism, being extremely difficult to achieve under that law.

2009 – the year when the legal framework regarding the assignment of tax receivables became flexible Considering the abovementioned arguments, the changes made in 2009 on the text of Article 175^1 of Government Emergency Ordinance no. 19/2008 seem to be fully justified by economic logic. Thus, on May 27th 2009, when drawing up the law approving Government Emergency Ordinance no. 19/2008, which introduced the procedure for assignment of tax receivables, the Romanian Parliament has modified some aspects related to this issue[9]. So, the final text of the Law no. 194/27.05.2009 has brought some significant changes to the provisions of Article 175^1 of the Tax Procedure Code, as follows: the minimum price threshold for tax receivables assignment was calculated by reference only to the value of the principal debts, not including the value of accessories.

Although initially the requested price includes the full balance of accessories, when no bids are submitted it was possible to reduce the amount of accessories requested, in successive procedural steps, to 75 %, 50 %, or even to eliminate the accessories component from the price requested for the assignment of outstanding tax receivables; it was explicitly mentioned that after the assignment, tax receivables become commercial receivables; the procedure was initiated solely on the initiative of the tax body, and the tax receivables could not be alienated to persons related to the debtor. If it was found that a tax receivable was acquired by a related person, the latter was required to pay the full amount of the debt transferred.

If the law applicable in 2008 can be deemed as extremely restrictive, not allowing the assignment of tax receivables at a price below the cumulated value of the principal and 153

accessories, the amendments made by the Parliament in 2009 introduced an extremely flexible approach on the price obtained by the tax authority. Basically, according to the law adopted in 2009, if as a result of successive auctions there were no bids for purchasing the debt, this could lead to the situation of fully eliminating the equivalent of accessories from the price of debt capitalization.

Regarding this extremely permissive form of the law, the following notes should be made: the lack of more stringent limitations in terms of situations, categories of debtors and tax arrears was allowing approaches that were abusive or contrary to state's interests; there was a risk to show a speculative interest for the purchase of a certain debt portfolio, especially in the case of debtors whose obligations had a high level of recoverability; the law did not require minimum measures should be taken before the assignment of tax receivables for recovering the debt; thus, it opened a loophole for the transfer of the entire portfolio of receivables (both current and historical ones), basically supporting the outsourcing of the enforcement activity; there were certain categories of debtors for which, for objective reasons, not all enforcement measures have been applied, and for which the tax authorities have shown some indulgence, as in the case of companies with state capital; for this reason, the application of the procedure for the transfer of debts without any restriction, regardless of the debtor's status, might have led to greater damage to the state's interests; the freedom conferred by law and the theoretical possibility to tender any tax receivable, regardless of the chances of recovery (guarantees in place, etc.)was representing a huge risk and a major responsibility being placed on the shoulders of tax administration; although the law adopted by the Parliament in 2009 can be interpreted as extremely courageous and visionary, the local economic contact, the inefficiencies in the management of arrears and collection of tax revenues, as well as the low level of financial discipline are arguments claiming more rigorous regulation regarding the assignment of tax arrears.

Last but not least, it should be stressed that in the context of an underperforming collection system, in which arrears have accumulated in cascade, the measure of liberalization of tax receivables assignment could be a boomerang with extremely harmful effects over medium and long term. More specifically, the possibility of lowering the payment obligations by redemption of debt through intermediaries to lower values could lead to moral hazard, a situation in which many taxpayers might appreciate as more favorable the situation of deferring the payment of due tax liabilities.

Although the amendments made in 2009 could have meant a new chapter in terms of tax arrears management in Romania, the reality was that tax authorities could not manage such a high level of responsibility, so in the absence of detailed regulations the effect was quite the opposite. Although paragraph (14) of the new Article 175^1 of the Tax Procedure Code expressly provided that "the procedure and conditions of achieving the assignment of tax receivables approved by order of the National Agency for Fiscal Administration", the Order no. 1173/2008 has not been amended and completed anymore, in order to be in line with the new regulations of the primary law. In fact, in the absence of detailed secondary legislation, ANAF officials did not know how to handle the freedom conferred by the amendments made in 2009 on article 175^1, and did not take responsibility to start the new procedures, so that the assignment of tax receivables remained a quasi-inexistent phenomenon for the years 2008-2009.

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2. Examples of Tax Receivables Assignment Procedures: the case of the company Nicolina SA Iaşi – unfortunate experiment of applying the procedure for tax receivables assignment The only information that can be found in public with reference to a procedure performed under Article 175^1 of the Tax Procedure Code relate to the assignment by ANAF of tax receivables from the company Nicolina SA Iaşi. This case was widely covered in the media as an attempt of a group of private companies to take under control a former industrial enterprise, for the purpose of interruption of business, alienation of assets, decommissioning of location and development of real estate projects. [13] The situation of Nicolina SA has been checked by several state authorities, the procedure for assignment of receivables being the subject of many disputes between ANAF and the assignee of the debts. Also, the assignment of receivables has been the subject of a parliamentary investigation, and finally even the criminal prosecution bodies were notified.

The examination of the Final Report of the Parliamentary Commission of investigation to check the situation of S.C. Nicolina S.A. and the manner in which the Authority for State Assets Recovery managed its assets in the period January 2005 – December 2008[14], adopted in the plenum of the Commission dated 21 October 2009, shows the following main aspects regarding the method of assignment of tax receivables in case of Nicolina SA Iasi: selling the tax receivables of ANAF over S.C. Nicolina S.A. was carried out under OPANAF no. 1173/2008, in an auction held on 08.01.2009.The value of receivable was 15,660,617 lei, awarded by one of the companies interested in the assets of S.C. Nicolina S.A. Thus, after the takeover of tax claims, a group of private companies has gained control of decision on the further development of SC. Nicolina S.A.; assignment of receivables was characterized by multiple procedural flaws, such as alienation of debt by an assignee who was recording in turn tax obligations not paid to the state budget, or by the fact that there were significant delays in the payment of installments by the assignee, delays that did not lead to immediate termination of the operation, according to the terms of the contract of assignment of debts; the Parliamentary Commission appreciated as obvious the common interest and the concentration of actions of the private companies group, regarding asset sales and purchase of receivables, which led to delay measures necessary for the financial recovery of the company with state capital.

Although the purpose of the assignment procedure was to recover tax arrears at a rate as high as possible, in practice it has been shown that the procedure involves many risks that could not be handled objectively by the public authorities. Basically, the procedure applicable in 2008 (selling debt at nominal value) raised multiple questions about the real purpose of the assignee, the situation exemplified above demonstrating that assignees have shown their interest especially for claims from businesses with state capital, situations where there is an imminent risk of harm to the interests and assets of public entities.

On the other hand, the flaws and scandals generated by the procedure in 2008 ended with a long institutional blockage in 2009, so that the flexibility initiated of the conditions of debts transfer (by introducing the possibility of alienation receivables to the principal 155

amount, eliminating the accessories component), initiated by the Parliament, remained with no result in practice, as the secondary legislation and ANAF internal procedures necessary for the assignment of tax receivables were not adapted anymore.

So, the lack of accountability from decision makers and the factual situation which emphasized that procedures for the transfer of receivables were quasi non-existent, in conjunction with the fact that the few procedures initiated were flawed and obviously conducted against the state's interests, led to the idea that the assignment of tax receivables shows many risks hard to manage by the Romanian authorities, so that keeping such an instrument in the legislation was inappropriate.

2010 – The year when the assignment of tax receivables was abandoned Although in a relatively short period successive changes have been made to the legal framework in order to identify solutions for the recovery of tax debts, it appears that flexibility of the legal framework, a necessary solution in the context of the significant increase of arrears and the need to improve the degree of recovery of tax arrears, was in fact a loophole through which interested persons could speculate weaknesses of the Romanian administrative apparatus.

In this context, considering the recommendations of the technical assistance mission of the International Monetary Fund (IMF),given to the National Agency for Fiscal Administration in 2009, and taking into account the recommendation of the regional representative of the IMF for Romania and Bulgaria, not to use the debts transfer procedure because of the risks that might arise regarding the management of arrears [9],in 2010 the legal provision that allowed the assignment of tax receivables by ANAF was removed from the Tax Procedure Code , the Article 175^1 being repealed in its entirety.

Consequently, the experience of assignment of tax receivables in Romania represented only a passing episode, both in terms of the existence of the regulatory framework, and the manner of implementation by the tax authority.

Conclusions The analysis of the state opportunity to use the assignment of tax receivables as an alternative and complementary tool to ensure an increased efficiency of budget revenues collection should be closely related to the analysis of the country's economic situation, viewed from the perspective of budgetary equilibrium, evolution of revenues and tax arrears, tax administration performance and immediate need for financing the budget deficit.

Obviously, a judicious management of state's interests and a high level of responsibility of public servants should be the guarantee that the assignment of tax receivables can be a tool in support of protecting the financial interests of the state. On the other hand, having in view the lack of very strict primary regulation and the high level of financial indiscipline in the Romanian economy, including in the local and central public administration, it is extremely difficult to avoid suspicions of fraud and to successfully implement this alternative method to recover (at least partially) the state's tax receivables.

Naturally, the assignment of a claim results in incurring a cost, respectively assuming a loss caused by the impossibility of full recovery of the claim, and such situations reveal the creditor's inaction or wrong actions in the past. In this context, cascade accumulation of irrecoverable tax arrears, leading to values over 60 billion lei at the end of the year, raises serious questions about the performance of tax collection in Romania.

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Applying the tax transfer procedure, according to the real economy practice (for example, in the banking system), would mean that the tax authorities admit the institutional inability to collect taxes and duties and assume responsibility by renouncing to a certain part of the debt. Basically, the assignment of the receivable can be interpreted as an admission of lack of performance, which in the context of managing public funds may attract liability of public servants. However, a fair and balanced approach, with a view to protect the financial interests of the state, means that the assignment of tax receivables should be regarded as a tool to minimize losses, not at all as the fault of the fiscal body.

It is obvious that the tax administration show some gaps, the level of tax arrears is continuously increasing, and collection performance cannot be significantly improved in a very short time. From this point of view, the assignment of tax receivables and the tools regulated during 2008-2009 represented alternatives, each with its advantages and disadvantages. The procedure of tax receivables assignment, regulated in 2008 (which involved selling the debt at nominal value), was a first step and a solution for isolated cases. At least in theory, assuming that the debtor would not have state capital and that the assignee would not have any hidden intentions, selling the debt at nominal value presents the guarantee of fully observing the state interests. However, considering the accumulation of arrears and the current problems faced by the tax administration, the assignment of tax receivables at nominal value is far from being a solution to increase the performance of tax collection.

On the other hand, the Parliament's initiative in 2009, namely the assignment of tax receivables at least at the amount of the debt principal, seems to be justified in situations where the tax authority cannot undertake more specific measures for enforcement, such as insolvency or bankruptcy of debtors. However, we emphasize that accounting for the fact that a part of arrears have not been cashed and accessories have been cancelled must entail a very high level of responsibility from civil servants in the context of secondary legislation and framework extremely detailed procedures, which eliminates subjective decision process selection of tax arrears subject to "outsourcing".

However, if we look carefully at individual cases of assignment of debts (e.g. Nicolina SA IaĹ&#x;i), we can conclude that the Romanian tax administration has not reached the level of maturity and responsibility necessary to achieve these types of operations. Moreover, the problem should not be viewed only from the perspective of ANAF, but of the general climate and the level of suspicion generalized in the Romanian society. For these reasons, giving up the assignment of tax receivable procedure by completely eliminating from the Tax Procedure Code might represent the most prudent approach, both in terms of the tax authority and of taxpayers whose debts could be transferred to third parties.

So, in the context of a lower performance of the Romanian's tax administration collection system, assignment of tax receivables still remains a possible alternative, but the implementation of such a solution should be done with utmost responsibility, especially as any "outsourcing" of public services involves substantial risks in terms of quality of public finances management.

References [1] Court of Auditors, Annual Report 2014 [2] Doyle J., W. Ge and S. McVay, Determinants of weaknesses in internal control over financial reporting, Journal of Accounting and Economics, 2007

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[3] Fooken J., Hemmelgarn T., Herrmann B. – Improving VAT compliance – random awards for tax compliance,Taxation papers, Working paper, 2074514, [4] Gheorghe D. Bistriceanu, Lexicon de finanţe-bănci-asigurări, Vol.II , Editura Economică, Bucureşti, 2001 [5] Hansen A. – Lotteries and State Fiscal Policies, Tax Foundation, Background Paper, no.46, 2004, [6] Harold M. Groves, Financing Government, sixth edition, Holt, Rinehart and Winston, New York, Chicago, San Francisco, 1964 [7] IMF (2014) Global Financial Stability Report, IMF World Economic and Financial Surveys.

Laws: [8] Law 287/2009 regarding the new Civil Code – Chapter I Assignment of receivables (Articles 1566-1592) [9] Law no. 194/2009 approving Government Emergency Ordinance no. 19/2008 modifying and completing the Government Ordinance no. 92/2003 regarding the Tax Procedure Code [10] Tax Procedure Code as of 2016 (Law no. 207/2015) – updated on 28.06.2016 [11] Government Decision no. 34/2009 regarding the organization and functioning of the Ministry of Public Finances, published in the Official Gazette no. 52 of 28.01.2009, as subsequently amended and completed.

[12] Extract of Government Emergency Ordinance no 39 of 21 April 2010 amending and completing the Government Ordinance no. 92/2003 regarding the Tax Procedure Code.

Site-uri: [13]http://www.ziaruldeiasi.ro/economic/fiscul-tine-la-secret-firma-care-a-cesionat-creantele-nicolina sa~ni56mg [14] http://www.cdep.ro/bperm/2009/F19534-Raport_Nicolina.PDF

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Global Financial Cycle and International Production Networks. International Investment Position of Romania through its Main Ingredients Elena GURGU1, Aristide COCIUBAN2 Spiru Haret university, , Faculty of Economic Sciences, Ion Ghica, no. 13, Bucharest, 030045, Romania, Tel: +40214551000, Fax: +40213143900, Email: elenagurgu@yahoo.com 1

Abstract: In this article we intend to approach global financial cycle and international production networks and international investment position through its main ingredients. The targets relate to: global financial cycle and the recent experience of emerging economies, describing global production networks, the implications of extending international networks of production, trade integration influence on economic development. Also, we approach the evolution of investments in our country in 2015, with reference to international reserves, gross external debt and net external debt. Conclusions drawn refer to mitigate the effects of contagion to the increasing global financial integration..

Keywords: global financial cycle, international production networks, emerging economies, gross external debt, net external debt, financial integration, international investment position.

JEL classification: E2, E6, F4

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Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Romania's Role in the Current International Economic Context through Domestic Macroeconomic Developments Elena GURGU, Raluca ZORZOLIU Spiru Haret University, Faculty of Economic Sciences, Ion Ghica, no. 13, Bucharest, 030045, Romania, Tel: +40214551000, Fax: +40213143900 raluca_zorzoliu@hotmail.com, elenagurgu@yahoo.com Abstract: The purpose of this article is to get relief Romania's role in the current international economic context. Analysis herein refers to domestic macroeconomic developments of our country in 2015, which will influence the future evolution of Romanian economy. In this article we treat the current international position of Romania, Romania's external position, developments in the labor market in Romania, and the international context in which our country is.

Keywords: macroeconomic indicators, inflation, deficit, financial sector, banking sector, foreign direct investment, current account, growth, internal and external balances.

JEL classification: E2, E6, F4

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Available online at www.icesba.eu Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Frauds and Errors in the Audit of Financial Statements 1,2

Cicilia IONESCU1, Cornel IONESCU2 SpiruHaret University, Ion Ghica, no. 13, Bucharest, 030045, Romania Tel: +40214551000, Fax: +40213143900 Email: cicilia.ionescu@yahoo.com , caragea21@yahoo.com

Abstract: The practice and the academic literature on financial audit methodology emphasizes that fraud risk analysis is a fundamental step in the audit engagement. While internationally there is an established practice regarding the detection of fraud risk within the mission of financial auditing, in Romania this issue remains so far insufficiently tackled. Given the signal indicators of the risk of fraud, the auditor should use the best procedures through which to obtain sufficient and appropriate audit evidence. This evidence supports the audit opinion on the accuracy of audited statements and helps estimate the risk of fraud at company level.

JEL classification: M42 Keywords: fraud, error, audit risk, professional skepticism, financial statements, misstatement, audit

Introduction The purpose of any financial statements audit is to enable the auditor to express an opinion on the financial statements, whether they are prepared and presented, in all material respects, in accordance with the applicable financial reporting framework. In accordance with the relevant regulations, the auditor must act in accordance with the requirements of the ÂŤCode of Ethics for Professional AccountantsÂť, issued by the International Federation of Accountants (IFAC), to carry out audit in accordance with International Standards on Auditing (ISA), to plan and perform an audit with an attitude of professional skepticism recognizing the idea that in certain circumstances the financial statements may be materially misstated.

Misstatements of the financial statements can arise either as a result of fraud or of an error.

The factor that distinguishes between fraud and error is whether the action that led to the distortion of financial statements is intentional or unintentional.

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1. Fraud According to the auditing standard 240, the term fraud refers to an action with intentional act by one or more individuals among management, employees or third party action which results in an erroneous interpretation of financial statements.

In practice, there can be identified two types of intentional misstatements, which should be covered by the auditor: misstatements resulting from fraudulent reporting and misstatements resulting from misappropriation of assets. Whatever form it manifests, fraud requires the existance of certain incentives or pressures to commit fraud and a certain awareness of the operation. a.

Deliberate distortion of accounting reports could be done by several means, including:

- Manipulation, falsification or alteration of accounting records or supporting documents on which financial statements are prepared; - Distortion or intentional omission from the financial statements of events, transactions; - Intentional misapplication of accounting principles, methods of measurement and calculation of earnings b. Distortion of assets involves the theft of assets of a company in various ways, such as: embezzling receipts, stealing tangible and intangible assets, payments to fictitious employees or customers, sale at overestimated prices etc.

1.1. Regarding the deliberate distortion of accounting reports, we consider that since the planning phase of the audit, the auditor must assess the risk of errors or fraud that can generate a significant impact on the financial statements. Thus, based on risk assessment audit, the auditor should develop programs of auditing procedures with which to obtain reasonable assurance that for the financial statements, in their entirety, all significant errors and fraud will be identified.

But it is not expected that auditors implement procedures that would lead to the discovery of errors or fraud without significant impact on the financial statements and can not be held responsible for the failure to detect such irregularities. Usually, if the auditor suspects any fraud or errors with significant impact, he resorts to the extention of the scope of the audit procedures, until he reaches the belief that the irregularity was either corrected or fairly reflected in the audited financial statements .

The International Auditing Standard "auditor's responsibility related to fraud in an audit of financial statements '' ISA-240" - rephrased – states the following requirements: In planning and performing audit procedures, as well as in the measurement and reporting of the results of the audit, the auditor should consider the risk of occurence of significantly misstated statements in the financial reporting, as a result of committing antisocial acts or actions. "Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the underlying action that results in distortion of financial statements is intentional or unintentional" (240-6). The same standard, article 10, makes the following reference: "Fraudulent financial reporting can be caused by management's efforts to manipulate earnings to deceive financial statement users by influencing their perceptions on the performance and profitability of the entity. Such manipulation of revenue can start with small actions or inappropriate change assumptions or changes in management's 162

judgment. Pressures and incentives can increase these shares until reaching the stage of fraudulent financial reporting."

1.2. Regarding the distortion of the results by misappropriation of assets, we consider that the risk factors associated with this type of fraud can be grouped into two categories: 1. The vulnerability of assets against the risk of theft (large amounts of cash at home or high volume of cash transactions; the existence of easily salable assets, certain features of the property - small size allowing easier sale); 2. The absence of control mechanisms designed to prevent or detect assets thefts, such as supervision or monitoring of assets disposed in widely separated locations.

The audit is subject to the unavoidable risk (audit risk) that some misstatements in the financial statements may not be detected. The risk of not detecting a significant recording misstatement caused by fraud is greater than the risk of not detecting a significant recording misstatement caused by error, because fraud usually involves actions aimed at their coverage, such as: association for committing fraud, forgery, deliberate failure to record transactions, an incorrect statement given to the external auditor. Accordingly, the auditor carries out audit with professional skepticism, recognizing that conditions or events may be identified to indicate the possibility of fraud and/or errors.

If the auditor believes that fraud or error may have a significant effect on the financial statements, he applies appropriate additional procedures, use of which depends on its assessment of the type of fraud or error indicated, the likelihood of fraud or errors, the likelihood that a particular type of fraud or failure have a significant effect on the financial statements.

Typically, performing additional procedures enable the auditor to confirm or refute the suspicion of fraud or error. Where suspicion of fraud or error does not dissapear, the auditor discusses the matter with management and consider whether this problem is corrected or properly reflected in the financial statements.

Reporting fraud and error is made by management, users of the audit report on the financial statements and the regulatory and supervisory activities.

The auditor has the obligation to communicate his findings to management if he suspects there may be a fraud, even if the potential effect on the financial statements would be negligible or if the existence of a significant fraud or error was discovered.

Lately, in Romania, the phenomenon of financial fraud is superseeded by the bureaucracy and corruption in finance and accounting. Accounting, as a means of highlighting the economic situation and financial performance at a given time, can become a field of manifestation of bureaucracy and corruption, the more so since legislative changes regarding national accounting are produced with a relatively high frequency, a high level of taxes is maintained and bureaucracy manifests itself fully in the production, administration and management of financial and accounting documents.

Specialists in the field (L. Ionescu, research presented at the conference MAMIS 2013, Corruption in the financial-accounting field) identifies the practice of parallel accounting by Romanian companies (double accounting, triple accounting), "embellished" for their economic and financial interests, individuals and/or entities. This situation exists with the complicity of corrupt management and accounting staff in preparing the financial statements, speculating 163

the mechanisms and means of non-operational identification and counteraction, deficient and insufficient for the use of parallel accounting. From those presented above, in addition to the proposals made for this purpose, we support the increase of management accountability, financial control and financial audit in carrying out the tasks entrusted.

2.

Error

The term error refers to an unintentional mistake occurred in the financial statements, such as math or accounting mistakes in the accounting records and data related; oversight or misinterpretation of facts; misapplication of accounting policies. Practitioners in the field of financial audit identified a number of errors in the audit, among which (Oana Bendovski, 10 common errors identified during the statutory audit of financial statements, Financial Audit Magazine No.7/2014): a. Erroneously transferring the reserve from the Reevaluation Reserve Account (105) to the reserve account representing surplus from reserves revaluation (1065) b. Registration of costs/revenues from services provided in a different financial year from the one in which the service was provided c. Registration of purchase/delivery of commodity in a different financial year from the one in which the actual transfer of rights and obligations for the commodity occurred d. Incorrectly reducing accounts payable balances with debit balances on advances granted e. Presentation of performance guarantees as commercial debt f. Omissions in the distinct presentation of related party transactions in the financial statements g. The errouneous cancelation of provisions and adjustments for depreciation h. The erroneous registration of received trade discounts i. The revaluation of receivables and payables in foreign currencies at the end of the fiscal year j. Omissions in the formation of adjustment for receivables depreciation

3.

Responsibilities to Prevent and Detect Fraud and Error

Responsibility for the prevention and detection of fraud and error rests with the entity‘s management through the implementation and ongoing operation of adequate accounting and internal control. Such systems reduce but not eliminate the possibility of fraud and errors.

The auditor is not and can not be held responsible for preventing fraud and error. However, the fact that audit is performed annually can act as a way to prevent/deter them. The auditor assesses the risk of significant misstatements in financial statements due to fraud and error and requires management information related to any fraud or significant error discovered.

In addition to deficiencies in the design of the accounting and internal control systems and inconsistencies with identified internal controls, conditions and events that increase the risk of fraud and errors can include:

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Table 1 : Conditions and events that increase the risk of fraud and errors

Conditions Events Doubts on the • Management is dominated by a single person (or small group) and there is integrity or no effective oversight board or committee competence of • There is a complex comparative structure and complexity does not seem to management be guaranteed • Major gaps can be seen in correcting deficiencies of internal controls, where such corrections can actually be made • Rapidly changing of important accounting and financial departments personnel can be observed • There is a significant and prolonged underdimensioning of the accounting department, in terms of number of staff • There are frequent changes of legal or auditors Unusual pressures • The activity sector is in decline and bankruptcy cases are growing in number within or on the • An inadequate level of working capital is due to declining profits or too organization rapid development • The quality of earnings is deteriorating, for example, by increasing credit risks assumed in sales, modification or conducting business using alternative accounting policies that improve income levels • The company needs an increasing trend of profit to support the market price of the shares, due to a proposed public offerings, takeover or any other reason • The company has made a significant investment in an industry or product line characterized by rapid change • The company is dependent, to a significant extent, on one or a few products or customers • Financial pressures on top managers • Pressures on accounting department staff to perform financial statements in an unusually short time • Unusual transactions, especially near the end, which have a significant Unusual effect on revenue transactions • Transactions or complex accounting treatments • Related parties transactions • Payments for services (for example, lawyers, consultants, agents) that seem too high compared to the services provided Problems in • Inadequate records, for example, incomplete files, excessive changes in obtaining sufficient accounts and records, unrecorded transactions in accordance with normal and appropriate procedures and control accounts with balance audit evidence • Inappropriate documentation of transactions, such as a lack of proper authorizations, supporting documents, changes to documents • An excessive number of differences between accounting records and third party confirmations, divergent audit evidence and unexplained changes in operational activity indicators • Evasive or unreasonable responses by management during the audit Computer • Inability to retrieve information from computer files due to lack of information documentation about the content of records or programs systems specific • A large number of changes to the program that are not documented, factors that relate approved or tested to conditions and • A report mismatch between databases and computerized transactions, on events described the one hand and financial accounts, on the other hand above Source : M, Boulescu, Fundamentele auditului, Didactic and Pedagogical Publishing House, 2001

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The fraud character of an operation can only be established in court. Thus, since the auditor has no responsibility to prove fraud, his concern is rather directed to actions suspicious of fraud, than to the fraud proven ones. Therefore, the auditor must distinguish between a "suspected fraud" and "proven fraud". It is considered "suspected fraud" when there are circumstances that suggest a fraudulent action and which reach the auditor's attention during the audit mission. [Mircea Boulescu, M. Mares, M. Ghita - "Fundamentals of audit", 2001, pg. 54].

The audited company's management is responsible for organizing, implementing and permanently supervising, the accounting systems and internal control. However, the auditor should be aware that the existence of such systems reduce, but not eliminate, the possibility of fraud and error, due to inherent limitations. In this regard, the audit is subject to the unavoidable risk that some significant misstatements in financial statements might not be detected, even though the audit is properly planned and conducted in accordance with Auditing Standards.

4. Professional Skepticism In the exercise of audit, the auditor has the obligation to maintain an attitude of professional skepticism, as there is always the possibility that the financial statements present a significant misstatement due to fraud, even if they have extensive experience and a good knowledge of both the entity and the individuals responsible for management and governance, with the conviction of honesty and integrity. Professional skepticism is an attitude which involves a critical assessment of audit evidence, and a more accurate appreciation of honesty management.

In order to comply with the auditor's rules and recommendations imposed by the International Standard on Auditing 240, its series of incumbent obligations are as follows: • Performing procedures that provide the information necessary to identify risks of significant misstatement due to fraud; • Identifying and assessing risks of significant misstatement due to fraud in financial statement and assertion level, and for the assessed risks which could result in a significant misstatement due to fraud, to evaluate the design of organization internal controls, including relevant control activities and establish whether they have been implemented.

• To design and perform audit procedures to respond to the risks of avoidance of controls by management.

• Determine responses to address significant risks regarding misstatement due to fraud; • Obtain responses from management regarding fraud whenever deemed necessary; • To ensure proper communication with management and those charged with governance.

European regulations in the field (Directive 2014/56 / EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43 / EC on statutory audits of annual financial statements and consolidated financial statements) insist on maintaining an attitude of professional skepticism in the exercise of statutory financial audits, estimating that (article 5) "although the primary responsibility to provide financial information should rest with the management of the audited entities, statutory auditors and audit firms should actively draw the attention of management to issues from a user 166

perspective. Thus, to improve audit quality, it is essential to reinforce the professional skepticism of statutory auditors and audit firms from the audited entity. Statutory auditors and audit firms should admit the possibility of a significant misstatement due to fraud or error, regardless of the previos experience of the auditor regarding the honesty and integrity of the audited entity's management. "

4.

EU Recommendations on the Audit of EU Funds

The treaty on the functioning of the European Union and the Regulation on common dispositions [Regulation (EU) no. 1303/2013 of the European Parliament and of the Council from 17.12.2013] stipulate the requirement of sound financial management regarding the use of the EU budget by member states and provide "control and audit obligations of member states in the implementation of the budget as well as responsibilities which arise therefrom". For the 2014-2020 period, the adherence to "internationally accepted audit standards" is required when conducting audits. There are three main sets of international audit standards: 1. Standards of the Council for International Auditing and Assurance Standards (IAASB) of the International Federation of Accountants; 2. International Standards of Supreme Audit Institutions (ISSAI), issued by the International Organization of Supreme Audit Institutions; 3. Standards of the Institute of Internal Auditors.

All three sets of standards provide similar guidance on auditors' obligations regarding fraud detection.

Among the standards issued by the IAASB, ISA 240 is of particular importance and refers to “the auditor’s responsibilities regarding fraud in a financial statements audit", setting out the following principles: 1. It is expected from auditors to discover fraud only if it is above significance levels; 2. If the auditors suspected fraud, they must take further measures; 3. Auditors should take into account specific fraud risk factors when planning the audit. In this sense, the concept of significance should include qualitative aspects; 4. When reasonable assurance is obtained, the auditor is obliged to maintain professional skepticism throughout the audit. This includes the need to think and act with ingenuity; 5. Particular attention should be paid to the communication and documentation of cases of suspected fraud.

In accordance with ISA 330, "Auditor's Procedures in Response to Assessed Risks", the auditor should determine the appropriate overall response to the assessed risks of significant misstatement due to fraud in the financial statements. However, there still is an inevitable risk that some significant misstatements may not be identified, especially in cases where these result from fraud.

In Romania, the national audit authorities and the anti-fraud Department (DLAF) have signed a cooperation agreement which includes: • bilateral consultations on drafting new legislation on issues related to fraud which have an impact on the main activities of the audit authorities and that of DLAF; 167

• organising meetings, conferences and joint training activities; • notifications to DLAF sent by the audit authorities regarding potential cases of fraud; • exchange of information on fraud cases, in order to assess the risk of fraud; • access to the DLAF database (and especially to the Irregularities Management System) by the audit authorities, on the basis of a written request; • DLAF biannual transmission to audit authorities of the list of audited bodies.

On the other hand, in case of audit missions, it is in the public interest that members of audit teams are independent from audit clients, so that they can reach a conclusion without being affected by influences which compromise professional judgment, as well as to avoid facts and circumstances that are so significant that a third party which is reasonable and informed, considering all facts and circumstances, would conclude that the integrity, objectivity or professional skepticism of the auditor or a member of the audit team have been compromised.

Conclusions Seen as a virus, financial fraud can take many forms, committed against or for the company, from simple theft committed by an employee, up to complex schemes of fraudulent reporting and corruption acts which led to the famous high scale financial scandals, which shook the economy. These frauds are carried out by those in charge with managing the company and target financial information manipulation or falsifying reported statements in order to deceive investors and business partners on the creditworthiness of the company.

From those presented in accordance with the provisions of the Treaty on the Functioning of the European Union (TFEU) we opt for strengthening internal control mechanisms in order to streamline fraud risk management and the development/implementation of internal policies and procedures to enable an effective response to fraud.

References [1] Ioan Bogdan Robu, Mihaela Alina Robu, Audit Procedures for Estimating the Fraud Risk Based on Indexes for Detection of Accounting Manipulation, Finanacial Audit Magazine, nr. 10/2013, p.5 [2] Boulescu Mircea, Audit financiar –repere normative naționale, Economic Publishing House, Bucharest, 2003 [3] Boulescu Mircea, Fundamentele auditului, Disactic and Pedagogic Publishing House, 2001 [4] Federația Internațională a Contabililor, Manual de Standarde Internaționale de Audit și Control de Calitate –Audit Financiar 2009, Irecson Publishing House, Bucharest, 2009 [5] Cicilia Ionescu (coordinator), Gheorghe Zaman, Mihai Ristea, Cornel Ionescu, Eugeniu Țurlea, luminița Ionescu, Floarea Georgescu, Lucian Ilincuță, Ramona Chivu, Provocări actuale în contabilitatea firmei, Compendiu de contabilitate, Fundației România de Mâine Publishing House, Bucharest, 2015 [6] Cicilia Ionescu, Audit Of The Adequacy Degree For The Principle Of Activity Continuity, International conference KNOWLEDGE-BASED ORGANIZATION. Volume 21, Issue 2, Pages 325–330 [7] Mihăilescu Ion, Responsabilitatea auditorilor de a avea în vedere fraudele şi erorile într-un angajament de audit – suport de curs pregătire auditori financiari, 2006, http://www.cig.ase.ro [8] IFAC, ISA 240, http://www.ifac.org/system/files/downloads/a012-2010-iaasb-handbook-isa-240.pdf [9] http://eur-lex.europa.eu/legal-content/RO/TXT/?uri=CELEX%3A32014L0056 [10] https://ec.europa.eu/.../Handbook%20the%20role%20of%20member%20...

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[11]http://www.scrigroup.com/afaceri/economie/RESPONSABILITATEA-PENTRU-DETEC82493.php [12] https://www.ecb.europa.eu/ecb/legal/1341/html/index.ro.html

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The Role of the Professional Accountants in Business Administration Luminița IONESCU1 Spiru Haret University , Ion Ghica Street, no. 13, Bucharest, 030045, Romania Tel: +40214551000, Fax: +40213143900, Email: lionescu.mfc@spiruharet.ro 1

Abstract: In the last decades the role of the accountant became very important not only for corporate or public entities, but also for small business. The consequences of the financial crisis of 2008 reveal the role of professional accountants in businss administration and the importance of accounting for the modern society. In my oppinion, accounting profession contribute to transparency in financial reporting system and may improve the business comunication.

This research is based on the analysis of the data collected through two questionnaires given to 100 entrepreneurs from Bucharest and other cities in Romania. It is well known that the small and medium-sized enterprise (SME) sector is a major employer of the professional accountants.

In the last part of this research the results will indicate the importance of accountants in Romanian society and business administration.

Keywords: accountancy entrepreneurship.

profession,

government,

accounting,

auditing,

JEL classification: H70, M41, M42, L26

Introduction Professional accountants are specialits in economics and business, working in commerce, industry, financial services, education, and the public and private sectors as independent expert or advisers. Many accountants are running their own businesses or are in a position of strategic or functional leadership for important companies and public institutions.

Professional accountants support the businesses in a wide range of functions, such as: finance assistant, accounts assistant, cash accounting analyst, financial accountant, payroll accountant, management accountant; finance manager, accounting team leader, financial controler and chief executive officer.

The role of professional accountants in business grew after the recent economic crises. In a dynamically evolving profession, professional standards are continuously updated by the international accounting organisations aimed at increasing consistency, comparability and transparency among financial reports. Thus, IAS 1 Presentation of Financial Statements has seen several revisions in the last 6 years to assist users of financial statement in predicting the entity’s future cash flow, their timing and certainty. But, in the last years we noticed growing bureaucracy in the public sector accounting and public administration due to the weak institutions of EU member states ( Ionescu, L., Caloian, F. 2014).

Capable of not just working within the finance discipline, professional accountants can be found across all levels in administration, sales, marketing, information technology, operations and manufacturing. Professional accountants are competent in the management of financial information, financial reporting, budgetary control processes and governance arrangements.

Effective accounting and finance communication is important in business dealing with all users of accounts, from the internal employees, managers, debtors; to the external vendors, clients or bankers. Most of the professional accountants have good communication skills since internal reports, payroll and financial statements or business plans need to be presented properly to management and shareholders.

1. Accounting Profession in Romania Romanian acccounting profession is related to The Body of Experts and Licensed Accountants of Romania (CECCAR), one of the most important organisations in Romania being represented in all 42 counties of our country by means of territorial branches with 60.000 members (acordingly CECCAR) . The acounting profession in Romania has a long established history ( Mutiu A., Tudor Tiron A. 2007) with the first significant moment in Romanian accounting represented by the appearance of Organic Regulations and the Accounting Report adopted after the Adrianopole Peace in 1829.

Officially, established on September 21, 1921, The Body of Experts and Licensed Accountants of Romania (CECCAR) developed in a few years and recorded a remarkable progress on the national and international level. The law adopted in 1921 stipulated that all private businesses with a turnover higher then 300,000 lei, should only be carried out by professional accountats.

Sadly, during the Communist era, the profession of the Romanian chartered accountant experienced drastic contractions, being restricted by the State to perform only the mimimal legal basic accounting. Most accountants had been absorbed into the existing economic structures of the socialist planned economy. (Bunget O.C et al, 2009) But the most important watershed moment of the Romanian accounting profession occured after 1995, due to a remarkable European and international activity. Thus CECCAR was accepted in 1996 as ordinary member of the International Federation of Accountants (IFAC), headquartered in New York, and in December 1996 was admitted ‘in the first wave’ as member of the Federation of European Accountants (FEE), headquartered in Brussels [13].

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The legislation adopted at the begining of 1994 in Romania established the qualification of expert accountant and licensed accountant, the requirements and responsibilities.

According to the Government Ordinance no.65 of August 1994 republished, an expert accountant is the person having obtained this qualification and has the professional competence to organize and manage the accounting activity, to oversee the management of trading companies, to prepare the financial statements and to perform accounting expertise operations. The licensed accountant is that person having obtained this qualification, having the competence to provide the bookkeeping and do preliminary work prior to the preparation of the financial statements . Expert accountant in Romania is an important specialist called upon to provide financial consultancy, accounting services, valuation services and accounting expertise services, in order to support managers in legal dispute in court. We could observe in table no. 1 the lists of services provided by the professional accountant in Romania: Table 1: The list of services provided by professional accountants

Supervising the bookkeeping, preparing or approving the financial statements; Providing assistance for the accounting management and bookkeeping; Performing economic and financial analyses and asset appraisals; Accounting examinations required by judiciary bodies or demanded by natural or legal entities, according to legal requirements; Managment accounting, administrative or IT management nature; Providing technical expertise for the creation and restructuring of trading companies; Other accounting-related professional services to individuals, public or private entities.

Source: www.ceccar.ro

There is a strong link between professional accountants and business administration and some accountants transformed into business partners as a natural progression; and because most of the companies offer this opportunity to their loyal advisers. The association between government bodies and culture is centred arround state funding for activities and public funding creates demands for accountability (Jeacle I, Miller P., 2016) and professional accountants are seen as protectors of public interest and they respect the values of integrity, objectivity, professional competence. The internet has opened up a space of infinite possibilities and professional accountants could offer more services for their business partners (Jeacle, I., & Carter, C. 2014).

2. The Perception of Professional Accountants in Romania In order to understand better the perception of accounting profession in Romania and the professional accountant, we developed our research based on the survey over more than 100 entrepreneurs and managers and employees of small business organizations in Bucharest and other cities in Romania. The questions were referring to importance of accountancy in Romania and the role of the professional accountant. About 85% of the participants were entrepreneurs and 15% managers, with good and solid education background. Thus, on the first question, we wanted to know if according to their opinion is good to have a strong accounting profession in Romania. The results were: 85% of respondents said YES (strong professional accounting body), 13% of respondents said NO 172

and the difference of respondents said they do not know. We present the results in the figure below:

2% 13%

YES NO I don't know

85%

Figure 1: Perception of Accounting Profession in Romania 2016 Source: Data collated by author

It is interesting to observe the ethical behaviour of individual accountants, ethical questions associated with the practice of accounting, and the complex mixture of factors that may influence how individual accountants engage with ethical dilemmas in practice( Ionescu L. 2010). Thus, on the second question, we wanted to know according to their business experience how will be the role of professional accountant in the near future and the results were: 75% of respondents said the role of professional accountant will grow, 25% of respondents said that other specialists will be more important in the near future.

The results could be observed in the figure below: The Importance of Professional Accountants in the Future

25%

Important Not important

75%

Figure 2: The Importance of the Role of the Professional Accountants Source: Data collated by author

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According to this survey it is important to mentioned that most of the respondents admitted the significat role of the professional accountant in business administration and the positive evolution of the accounting profession in the future. In my oppinion, the role of professional accountant became more visible in business administration especifically after the late 2000's financial crisis and factors such as independence, expertise, and qualification influenced the quality of financial statements. Thus, accounting could be an efficient instrument in fighting against corruption(Zaman G, Ionescu L, 2016).

Conclusion This paper presented the role of professional accountant in business administration, the accounting profession in Romania and representative organism of the accountancy profession in Romania The Body of Experts and Licensed Accountants of Romania (CECCAR). The CECCAR’s mission is to serve the public interest, strengthen the accountancy profession and contribute to the strong development of the national economy.

In this analysis of the perception of accounting profession, the results indicated that most of the investors and managers understand the role of the professional accountants and they think that the role of professional accountants will be important in the near future.

References [1] Bunget, O.C. et al. (2009) The accounting profession and professionist in Romania, MPRA Paper No. 18408, posted 6 November 2009 [2] Cox, D.(2012) An Introduction to Money Laundering Deterrence, Editor John Wiley&Sons, London [3] Dunn, J. (2002) Auditing.Theory and Practice, Editor Prentice Hall, 2nd Edition [4] Dutescu, A., Olimid L. (2004) Financial Accounting, Editura CECCAR, Bucharest [5]. Ionescu, L., Caloian, F. (2014) Bureaucracy and Corruption in Public Sector Accounting, Annals of Spiru Haret University Economic Series, Volume 14(1), p.17-23 [6]. Ionescu, L. (2010) Exploring the Ethics of Accounting, Journal Contemporary Readings in Law and Social Justice, Volume 2(1), pp. 158 [7]. Jeacle, I., & Carter, C. (2014) Creative Spaces in Interdisciplinary Accounting Research, Accounting, Auditing & Accountability Journal, 27(8), paces in Interdisciplinary Accounting Research. Accounting, Auditing & Accountability Journal, 27(8), 1233-1240 [8]. Jeacle I, Miller P.(2016) Accounting, Culture, and the State, Journal Critical Perspectives on Accounting, Volume 37, June 2016, pp.1-4 [9]. Mutiu A., Tudor Tiron A.(2007) The arise of the accounting profession in Romania – an overview of the key factors, The Annals of the University of Oradea, Economic Sciences, vol. 2, 2007, p. 472-475 [10]. Zaman, G.,Ionescu, L. (2016) Fighting Corruption Generated by Accounting. Case Study Romania, ECOCYB, Volume no. 2/2016, ASE ,Bucharest [11]. www.ifac.com – IAS 1 Presentation of Financial Statement, electonic version 2016 [12]. www.ifac.org - Roles and Importance of Professional Accountants in Business [13] www.ceccar.ro – History of CECCAR [14] www.ceccar.ro – Government Ordinance no. 65 of 19 August 1994, on the Organization of the Accounting Expertise and Licensed Accountants’ Activity, republished

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Macroeconomic Variables Affecting Bist30 Index Value in Turkey Özge KORKMAZ1, Eşref Savaş BAŞCI2, Süleyman Serdar KARACA3 Abstract: In finance literature, main financial stock indices are important to determine country’s financial development and it’s behavior against the effect of macro-economic conditions. These conditions can listed as interest rate, inflation rate, money supply, exchange rate, industrial production index, and etc. In changing world economy, macro economic conditions can affect to the financial stability and capital markets. Some economies have a financial vulnerability, and it is important to measure for the affect on the economy. It can be explained that is seems to impossible to determine financial vulnerability with only one variable. It need to support other variable to evaluate how is effect on the economy. In this study we examined impact of macro-economic variables on ISE 30 Index returns in Turkey. We prefer to use ISE 30 Index to represent stock indices in Turkey. We analyzed regression model with ISE 30 Return Index as a depended variable and some macro-economic variables as independent variables between 2005 and 2015.

We found two variables are strongly related with BIST 30 Index both exchange rate and inflation rate in negative way.

Keywords: Macro-economic Variables, ISE (BİST) 30 Index, Financial Vulnerability JEL classification: E44, G10, G17

Introduction With regard to literature, it can be said that basic economical variables, other investment tools returns, political and social events and datas about companies have effects on share index. Especially, the effect of vulnerability in any country’s economy that is on share

1

Assistant Prof. Dr., Bayburt University, Faculty of Economics and Administrative Science, Department of Economics, okorkmaz@bayburt.edu.tr 2 Assistant Prof. Dr., Hitit University, Faculty of Economics and Administrative Science, Department of Banking and Finance, esavasbasci@hitit.edu.tr 3 Associate Prof.Dr., Gaziosmanpaşa University, Faculty of Economics and Administrative Science, Department of Business Administration, suleymanserdar.karaca@gop.edu.tr

index return can not be neglected. Also, it is impossible to calculate the vulnerability in economy with only one variable.

As a result, it is thought that the effect of macroeconomic indicators as a whole on the prices of shares should be cared. By seeing this, in this study, it has been wanted to research the effects of macroeconomic variables on share returns.

BIST30 index value has been chosen as share returns in the studyand for the period of 2005-2015, BIST30 index value, interest rate, inflation rate, money supply, industrial production index, exchange rate variables were studied. By those variables and regretion analyses, the factors that effect BIST30 index value will be revealed.

1. Literature Review In her study, Seviç (2014) studied the relationship between share returns that are in 20032013 period and some macroeconomic varaibles. As a result of thee study, the effects of macroeconomic variables on share returns have been seen as meaningful and it is pointed out that this can be done with Arbitrage Pricing Model.

In his study, Albayrak (2012), by using a 370 weeks time serie that belongs to 2005-2012 perio, analyzed the effect of macroeconomic variables on İMKB (BIST) 100 index. As a result of his study, it has been concluded that USD dollar and golden prices have effect on İMKB 100 index.

In his study between 2002-2012, Kaya (2013) used IMKB 100 index return as dependent variables and he used interest rate, money supply, industrial production index and exchange rate as independent variables. Consequently, it has been detected a positive relationship between share return and M2 money supply and a negative relationship with exchange rate.

In their study in which they studied 1999-2006 period, Sayılgan and Süslü (2011) studied the effects of macroeconomic factors on share returns in terms of Turkey and developing countries. According to the results of the study, it is pointed out that developing countries returns are effected by exchange rate and inflation rate, but they don’t effect interest rate, gross domestic product, money supply and petrol prices.

In their studies, Ayaydın and Dağlı (2012) analyzed macroeconomic factors that have effect on share returns in deevloping markets. This study includes the period between 1994-2009 and 22 developing country markets including Turkey. In the study, it’s detected that share returns are effected by S&P 500 index positively, but it is effected negatively by exchange rate, 1997-1998 East Asia Crisis and 2008 Global Financial Crisis.

In their studies based on Tehran market, Samadi vd. (2012) analyzed the effect of macroeconomic variables on share returns by GARCH model. In the study, exchange rate, inflation rate, oil, golden prices and liquidity degree were used as variables. Consequently, exchange rate, inflation rate and golden prices have effect on share returns, but oil prices and liquidity have no effect.

Osamwenyi and Eubayiro-Osagie (2012) analyzed the period of 1975-2005 and used share index, interest rate, inflation rate, exchange rate, budgetary deficit, GDP and money supply as variables. They tried to reveal the relationship between share index and 176

macroeconomic variables in a relatively short time by Vector Error Correction Model. As a result, macroeconomic variables effect share market.

Ali (2011) analyzed the relationship between Daka market index return and some macroeconomic variables and with the aim of revealing the relationship among variables, he used Vector Error Correction Model and Coentegration test. As a result, it is detected that there is a nondirect relationship from causality analyze, consumer price index and foreign transfer to share share price, but there is a reciprocal relationship between importation payoff and share prices. Also, no causality has been found between GDP and share price.

2. Data Set and Method Because the variables that will be used in the study are monthly, variables about Moving Average Methods are purified from seasonality. The variables that will be used in study are summarized in the table below.

Table 1:Variables Used in the Study

Variables BIST30 DOVIZ FAIZ LNM2 SUE ENF

Explain Borsa Ä°stanbul 30 Index Dolar/TL Exchange Value Interest Rate M2 Nature Log of Money Supply Industrial Production Index First Lag of Nature Log of Inflation

Zivot and Andrews (1992) analyzed the results of unit root test developed by Perron (1989) and they criticized its exclusively detecting breakage date in Perron test. In ZivotAndrews test, it is supposed that the time is not clearly known when the breakage occurs under the control of alternative hypothesis. Zivot and Andrews (1992) developed the procedure by which Perron used to detect breakage points and they transformed Perron test to unconditional unit root test. In Zivot-Andrews test, breakage dates aren’t known in advance and these dates are detected internally.

Zero hypothesis for trend and both trend and fixed models are like below. y Âľ y e

(1)

It it supposed that zero hypothesis series integrate without any internally structural breakage. It is conditioned that alternative hypothesis emerges in a trend that is in a unknown point in the serie and it should be showed with one break trend-fixed process. In this process, the main aim is to predict the breakage point that mostly concentrate on alternative hypothesis that says trend-fixed.

Breakage point is chosen by minimizing one-sided t statistic for Îť, Îą 1 i A, B, C .

Because, much smaller values of statistic cause the rejection of zero hypothesis. For Îť model, it shows minimized value. In this situation, 177

t Îť inf

!" t Îť ,

i A, B, C

(2)

by watching Perron’s ADF test strategy, the regretion balances which are used to test unit root are like below: y Âľ#$ θ $ DU (Îť ) β $ t Îą$ y ∑/-0 c#-$ ∆y - e#

(3)

y Âľ#1 β 1 t Îł#1 DT 4 (Îť ) Îą1 y ∑/-0 c#-1 ∆y - e#

(4)

Îą5 y ∑/-0 c#-5 ∆y - e# y Âľ#5 θ 5 DU (Îť ) β 5 t Îł#5 DT 4 (Îť )

(5)

Here, if it is t 6 78, DU Ν 1otherwise, it is 0; if it’s t 6 78 , DT 4 Ν t 9 TΝ , otherwise, it’s 0.

In Zivot-Andrews test, breakage points are determined by minimizing Îť and t values :1 TÎť . ( Zivot-Andrews, 1992: 253-254) with T

3. Findings In the study, it is wanted to decide whether series include unit root or not and it was researched whether level values are stable or not. In the study, Zivot – Andrews unit root test that cares constructive breakages was used and results that were handed have been given in the Table 2 below.

Table 2: I(1) Zivot – Andrews unit root test results Constant Trend Constant and Trend Variables Test Statistical Break Date Test Statistical Break Date Test Statistical Break Date BIST30 -3.6629 (0) 2007:12 -3.0614(0) 2008:11 -3.7215 (0) 2007:12 DOVIZ -3.2371 (0) 2014:11 -3.1283 (0) 2012:11 -3.6577 (1) 2011:11 FAIZ -3.4679 (1) 2008:12 -3.0543 (1) 2010:08 -3.7029 (1) 2009:06 *** ** LNM2 -3.7239 (0) 2015:10 -6.8733(0) 2006:05 -5.6836 (0) 2006:07 * SUE -4.6876 (1) 2008:08 -3.3100 (1) 2009:03 -4.5694 (1) 2008:08 ENF -10.6449 (0)*** 2011:05 -10.4432(0)*** 2016:02 -10.6212 (1)*** 2011:05 Lag lengths has been determined by Schwarz (SIC) Information Criteria. Maximum lag length settled 12. In the table * ** *** parenthesis represent optimum lag length. , and represents respectively at 0.10, 0.05 ve 0.01 level statistically significant.

When you analyze Table 2, it has been observed that the series whose level values are stable are only INM2, SUE and ENF. For industrial production index value, while it has been decided as stable, it has been concluded that it is not stable according to the results of trendy unit root balance, trendy and fixed terms. Therefore, the graphic of series has been analyzed and according to this, it has been decided to care fixed terms and unit root test.

Similarly, for M2 money supply variable, while it has been encountered to the finding that series is not stable according to the results of fixed term unit root test. It has been observed that according to the results of fixed term, fixed term and trendy unit root test results, the series is stable. As a result, the graphic series has been analyzed and it has been seen that it is necessary to care the results of fixed term, trendy and fixed term unit root test .consequently, in the study, it has been decided that except for SUE and LNM2 variables, all variables that were handed are not stable according to the their level values.

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For mentioned variables’ first period differences unit root analyze results that were handed are showed in Table 3 below.

Table 3: I(1) Zivot – Andrews Unit Root Test Results Constant Variables BIST30 DOVIZ

Test Statistical

Test Statistical

***

2008:01

-11.3253(0)

***

2008:10

-10.3870 (0)

-11.4657 (0) -11.4560 (0)

***

FAIZ

Trend

Break Date

-11.84313 (0)

2006:06

-9.8296 (0)

***

SUE

Constant and Trend Break Date

***

2016:01

***

2015:10

***

2009:09

Test Statistical

Break Date

-11.4502 (0)

***

2008:10

-11.5205 (0)

***

2008:10

-11.7627 (0)

***

2006:06

***

***

-27.5537(0) 2014:09 -27.1591 (0) 2008:09 -27.5792 (0) 2014:09 Lag lengths has been determined by Schwarz (SIC) Information Criteria. Maximum lag length settled 12. In the table * ** *** parenthesis represents optimum lag length. , and represents respectively at 0.10, 0.05 ve 0.01 level statistically significant.

When you analyze Table 3, it has been concluded that the series that isn’t stable at its level value are stable in their first period differences. After this step, in the study, the process will be continued with the analyze of level/differences of series’ stable positions.

Firstly, correlation matrix has been wanted to use to detect relationship among variables and the results that belong to Pearson Correlation Matrix are showed in Table 4 below.

Table 4: Correlation Matrix Results DBIST30 DBIST30 DDOVIZ

DFAIZ

***

1

**

0.2401***

1

-0.5546

-0.2088

DFAIZ

DDOVIZ

LNM2

DSUE

LNM2

-0.0207

0.1323

0.1784**

1

DSUE

-0.0891

-0.0384

0.0038

-0.0079

1

-0.0358

-0.0336

-0.2112

ENF * **

ENF

1

**

0.1259

0.1972

**

1

***

, and represents respectively at 0.10, 0.05 ve 0.01 level statistically significant. Starting with “D” variables mean first difference form of the variable.

When you analyze table 4, it has been observed that there is positive relationship between BIST30 index value and exchange rate; interest rate and inflation rate. Similarly, there is also positive relationship between exchange rate and interest rate, interest rate and M2 money supply; inflation rate and BIST30 index value and interest rate and inflation rate. By seeing those results, it can be said that all variables can be handed in detecting factors that affect BIST30 index value. Because, as it is seen, it’s been detected that there aren’t strong relationship among independent variables and that’s why, it’s been decided that all independent variables can be included in the same balance in the same time.

In the study, some issues like whether faulty terms range normally or not, autocorrelation and the existence of different variance problems are researched4 and according to the 4

In the model, faulty terms that show normal range have been researched by Jorgue –Bara test and JB test has found statistic value as 6.7255 and for its %1 importance level, it has found critic value as 9.21 As a

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diagnostic test results, the model has been predicted with the aim of having trustworthy results by using resistant standard predictor. According to this aim, findings were handed are showed in table 5 below.

Table 5: Model Results

Dependent Variable: DBIST30 Variables Coefficient Robust Standard Error Constant DDOVIZ DFAIZ LNM2 DSUE ENF * **

-7702.09 -42732.85 -31600.82 475.2987 -96.2144 -128025.9

t-statistical value

11619.32 -0.66 6196.452 -6.90 26346.4 -1.20 578.5505 0.82 68.1598 -1.41 70713.04 -1.81 R2= 0.3466;= 13.68 (0.0000***)

Probability value 0.509 0.000*** 0.233 0.413 0.160 0.073*

***

, and represents respectively at 0.10, 0.05 ve 0.01 level statistically significant. Starting with “D� variables mean first difference form of the variable.

When you analyze table 5, it has been concluded that there are only 2 variables that effect BIST30 index value. As a result, it can be said that an increase in exchange rate can reduce BIST30 index value as much as 42732.85 and an increase in inflation rate can decrease BIST30 index value as much as 128025.9 as well.

Conclusion In this study, share returns and interest rate, inflation rate, money supply, industrial production and exchange rate were analyzed. It was tried to reveal macroeconomic variables that effect regression analyze and share returns (BIST30 index value).

Consequently, it has been seen that some of the used macroeconomic variables, exchange rate and inflation rate, effect BIST30 index value negatively and meaningly. Also, the effect of interest rate, industrial production index and Money supply has been seen on BIST30 index value.

According to results, we found two variables are strongly related with BIST 30 Index both exchange rate and inflation rate in negative way. It means the two variables are significantly affected to BIST 30 index. But their effects are negative ways. In other words, it can be said that an increase in exchange rate can reduce BIST30 index value and an increase in inflation rate can decrease BIST30index value.

result, it has been pointed out that faulty terms range normally for its importance value. By using BreuschPagan-Godfrey test, whether there is different variance problem or not has been researched and its statistic has been found as 22.5360 and critic value has been found as 15,08 for its importance value. By seeing those results, it can be said that there is different variance problem in the model. Lastly, in the model, the existence of problem of autocorelation has been researched with the help of LM test. The statistic for LM test has been found as 133.27 and for the % 1 importance level, critic value has been found as 3.84. By this view, it has been decided that there is also autocorelation problem in the model.

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Investors who want to invest to capital market are affected by macroeconomic indicators.

As you see in our study, potential investors of capital market may prefer the low rate of variables like exchange rate and inflation. In such situations, the hope of decrease in exchange and inflation may direct investors to capital market. In other words, the decrease tendency of those two variables directs investors’ expectations to capital market.

References [1] Albayrak, A.S.; Öztürk, N.; Tüylüoğlu, Ş. (2012). “Makroekonomik Değişkenler İle Sermaye Hareketlerinin İMKB-100 Endeksi Üzerindeki Etkisinin İncelenmesi”, Ekonomik ve Sosyal Araştırmalar Dergisi, Cilt:8, Sayı:2, pp.1-22 [2] Ali, M.B. (2011). “ Co integrating Relation between Macroeconomic Variables and Stock Return: Evidence from Dhaka Stock Exchange (DSE)”, International Journal of Business and Commerce, Vol. 1, No. 2, pp.

25-38 [3] Ayaydın, Hasan ve Hüseyin Dağlı (2012). “Gelişen Piyasalarda Hisse Senedi Getirisini Etkileyen Makroekonomik Değişkenler Üzerine Bir İnceleme:Panel Veri Analizi”, Atatürk Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, Cilt:26, Sayı:3-4, pp.45-65 [4] Kaya, V.; Çömlekçi, İ; Kara, O. (2013). “Hisse Senedi Getirilerini Etkileyen Makroekonomik Değişkenler 2002-2012 Türkiye Örneği”, Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, Sayı 35, pp.167-176 [5] Osamvonyi, I.O.; Esther I.O. (2012). “The Relationship between Macroeconomic Variables and Stock Market Index in Nigeria”, J Economics, 3(1), pp. 55-63 [6] Perron, P. (1989). ”The Great Crash, The Oil Price Shock, and The Unit Root Hypothesis”, Econometrica, 57(6), pp.1361-1401 [7] Samadi, S.; Ozra B., Meysam G. (2012). “The Relationship between Macroeconomic Variables and Stock Returns in the Tehran Stock Exchange”, International Journal of Academic Research in Business and Social Sciences, Vol. 2, No. 6, pp. 559-573 [8] Sayılgan, G. Ve Süslü, C. (2011) “Makroekonomik Faktörlerin Hisse Senedi Getirilerine Etkisi: Türkiye Ve Gelişmekte Olan Piyasalar Üzerine Bir İnceleme”, BDDK Bankacılık ve Finansal Piyasalar, Cilt:5, Say :1, pp.73-96 [9] Sevinç, E. (2014). “Makroekonomik değişkenlerin, BİST-30 endeksinde işlem gören hisse senedi getirileri üzerindeki etkilerinin arbitraj fiyatlama modeli kullanarak belirlenmesi”, Istanbul University Journal of the School of Business, Vol:43, No:2, pp. 271-292 [10] Zivot, Eric; Andrews, Donald W. (1992). Further Evidence on the Great Crash, the Oil-Price Shock,and the Unit-Root Hypothesis. Journal of Business Economic Statistics, 10(3): 251-270

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN:2392-8166, ISSN-L:2392-8166

Reforming the European Monetary Policy, a Necessary Action?

Dragoș Mihai UNGUREANU, Elena-Doina DASCĂLU1 Spiru Haret University, Faculty of Economic Sciences, 46 G Fabricii Str., District 6 Bucharest, Romania, Tel: 021 3169785, Email: dragos.ungureanu@yahoo.com, doina.dascalu@rcc.ro

1

Abstract: It is important that central banks are held accountable for their performance since money is the central nervous system in a modern economy. The European Central Bank has contributed to the money disorder in the Eurozone by creating a huge asset bubble and current account imbalances before and during the financial crisis. There is a big and emerging debate in most parts of the developed world about changing the role for central banks and/or changing the rules used by central banks, but monetary policy in the Eurozone is obviously absent in that discussion. The paper aims to present and explain the need for the European monetary policy to be highly debated at the European level to recognize the vulnerabilities, and why not, reviewed where necessary in order for ECB to become a strong pillar for macroeconomic stability in the region.

Keywords: monetary policy, asset bubble, financial crisis, deflation.

JEL classification: E50, E52, E58, F45.

Introduction The economic history shows us that central banks could be involved in the majority of the financial crisis over the past century. In that context: how should the actions of the European Central Bank (ECB) – before and during the Eurozone crisis – be judged?

Nowadays, central banks from all over the world developed economies are undergoing profound changes. But the ECB has largely escaped thorough examinations of its monetary policy. While central banks in other parts of the world have been vilified for their monetary failures in the past decade, especially in fuelling the West’s housing boom, the reverence of the ECB has remained unscathed. It is an institution whose authority has not been tarnished by its performance. There is a big and emerging debate in most parts of the developed world about changing the mandates for central banks and/or changing the

rules used by central banks, but monetary policy in the Eurozone is clearly absent in that discussion.

Yet the ECB, too, has a lot to answer for. Failures in its monetary policy explain why Europe ended up in an epic crisis. It is true that Europe’s central bankers were tasked to manage a monetary union that was institutionally incomplete. They can also defend themselves against accusations of profound errors by passing blame on political leaders who were not capable of delivering the fiscal and economic reforms necessary to make the monetary union viable, neither before nor after the crises.

Undoubtedly, it is primarily European political leaders who should be taken to task for regulating the financial sector in a way that spawned an excessive risk exposure.

Furthermore, it was their fault that rules on fiscal discipline never were taken really seriously. Many countries have violated the debt or the deficit rules. Despite good economic conditions in some years, the fiscal balance of the entire Eurozone has constantly been negative. And political leaders were willing to look the other way when Greece was knowingly cooking the books to qualify for membership in the euro club.

Two grand mistakes in the ECB’s short history deserve particular attention. They both concern money and an age-old wisdom, too often neglected, about the role of money growth for asset values and economic activity. In short, the ECB fuelled a housing boom by far too expansionary monetary policy – and, once the bubble popped, the ECB reinforced the contraction by too tight monetary policy. Both episodes raise questions about macroeconomic stability in the Eurozone, especially in light of the overall direction of ECB monetary policy.

The ECB’s policy of inflation targeting should be replaced by a new rules-based policy, including new rules for instruments, that ensure macroeconomic stability, and, why not, taking into consideration that the EMU needs an architectural redesign.

1. From Loose to Tight Monetary Policy At the heart of the Eurozone’s monetary failure is inflation: the ECB’s preferred measure of inflation as well as its interpretation of inflationary and deflationary forces in the past decade or so. The ECB failed to understand the profound shift in price developments in Europe’s economies in the 2000s – especially the forces of disinflation in the 1990s and 2000s – and what it implied for monetary policy as well as market pricing mechanisms.

The ECB is in good company: many other central banks, witnessing similar trends in prices and the price mechanism, failed on this account, too. But the misreading of price developments created bigger problems of imbalances and misallocation of resources in the Eurozone, partly because of the ECB’s particular choice of inflation target.

The Maastricht Treaty, the founding document of the EMU, tasked the ECB to have price stability as the “primary objective”. This task is often considered inflexible, as if the treaty itself had laid down exactly how the ECB would operationalize its mandate in rules, targets, and instruments. But the ECB is the result of a political order that espoused the de-politicisation or de-nationalisation of money. The ECB is a non-state entity, which singles it out from most other central banks. Its independence from fiscal or political bodies is stronger than for other central banks. Naturally, as a new central bank under pressure to acquire credibility, preferably at the same elevated levels as the Bundesbank, the ECB designed what Otmar Issing, the legendary first Chief Economist of the ECB, has called a “stability-oriented monetary policy”. Yet it was never presettled that the ECB should target year-on-year inflation below 2 percent – or, as became the target a few 183

years later, a medium-term inflation at around (not below) 2 percent[5] [6] [12]. Nor is it written in stone that the treaty mandate is best embodied in an inflation-target policy. In fact, many different varieties of targets and rules could be accepted under the treaty mandate.

Inflation in the period after the EMU was constructed behaved differently from inflation in the period prior to its birth, especially the period of high inflation up to the early 1990s.

Global competition intensified remarkably. Charged by the entry into the world economy by “globalizing Asia”, especially China, and transition economies on Europe’s eastern rim, Europe’s exposure to world trade increased rapidly, much faster than in previous decades.

Local price developments in Europe became more integrated with international price trends. Consequently, inflation was naturally kept at low levels. Initially, there were no international price spikes to be imported. As long as there were no attempts to breathe inflation into the economy by the central bank, prices would remain low and stabile.

Consequently, Eurozone disinflation, driven by deflation in product markets and other tradable sectors, did not originate in monetary disequilibrium. It was the consequence of natural market processes – and, no doubt, very good ones. Yet a fear of deflation got hold of central bankers around the new millennium, and the ECB thought the appropriate response was to spread inflation into the Eurozone economy. More importantly, the failure to fully understand how profound changes in the real economy changed the nature of prices and inflation in Europe led to a monetary policy that was far too loose or expansionary for far too long. Like their colleagues in the United Kingdom and the United States, they continued to run an extremely expansionary monetary policy in 2004-2007. It prompted the ECB to effectively discharge one of the guiding norms of its monetary policy – the reference rate for money growth (M3). The ECB policy became a source of monetary disorder[3].

The ECB failed to act when mounting evidence suggested that loose monetary policy had reached its end. It had fuelled unsustainable current account imbalances in the Eurozone.

One of the consequences was a non-sustainable build up of debt. A housing bubble grew under the ECB’s watch. All this time, central banks had been almost frozen under the guidance of the ECB, with no reaction, moreover, supporting passively the increasing monetary imbalances.

How could monetary be extremely expansionary? After all, inflation was kept in the region of 2 percent and the ECB was progressively raising its interest rates between 2005 and 2007. Yet the ECB, like many other central banks, neglected a simple, but not simplistic, insight: monetary policy essentially is about money. This may sound too banal to merit attention, but inflation and nominal interest rates have been the dominant, if not only, aggregates in several economic models (theoretical and applied) of monetary policy. Many central banks pay little attention to money. But the range of relevant monetary aggregates and policy tools is much broader, and the critical one is found elsewhere. Arguably, the vortex of monetary policy is the money supply, or the quantity of money.

Major imbalances, misallocation of the resources and financial bubbles share often same origins. Banks and financial intermediaries that borrow (and create) money are hardly innocent bystanders, but unsustainably rapid credit growth, mirroring a giant misallocation of resources, requires complicit central banks.

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While the ECB successfully managed its inflation target in its first ten years, it never managed to control growth in broad money, let alone to the target of 4.5 percent. From 2004 till 2007 annual money growth deviated sharply from that rate, hitting almost 12 percent for a short period in 2007 (see Chart 1). For almost 30 months, the rate of broad money growth was above 8 percent, resembling money-supply growth in the early 1980s, a period when inflation run high.

Chart 1: Eurozone growth in M3, annual % growth Source: BCE

It was not money printing in Frankfurt that determined this exceptional growth in broad money. The money supply directly controlled by the ECB (or what can be called narrow money: currency in circulation and overnight deposits) declined from the second half of 2005 onwards. But a central bank wields significant power over broad money and can largely manage its growth (although not with the same precision as in the supply of narrow money). Yet prevailing beliefs at the time suggested the ECB to stay away from actively limiting money creation in the credit system, despite very high credit growth in the Eurozone in the second half of 2005 and in 2006, and despite evidence of substantial macroeconomic imbalances in countries with super-charged rates of credit growth. The guiding view (admittedly stronger at the Greenspan – Alan Greenspan was the chairman of the Federal Reserve during 1987–2006 and is considered the architect of the financial crisis because of the super-low interest rates Greenspan brought in the early 2000s and his long-standing disdain for regulation which are now held up as leading causes of the mortgage crisis, Fed but also visible in Europe) was rather that central banks should not actively manage the money and credit cycle through its traditional money instruments – but stand ready to act if especially assets bubbles arise from it.

Rapid money growth inflates asset values, and growing asset values allow countries to expand aggregate consumption and expand current account deficits. A good part of the past credit expansion ended up in the housing sector in Ireland, Spain, Portugal and other countries that have suffered from collapsed asset prices in the past five years – and that run substantial current account deficits when the bubble popped. In these economies, rising asset (housing) prices helped to transmit the effect of loose monetary policy to the wider economy. Growth was good. Domestic demand expanded rapidly – faster than output – and as long as money was flowing downhill from surplus countries in the 185

Eurozone into deficit-country assets, the show could go on. In other words, the adjustment mechanism in the Eurozone worked in the opposite way to hat it was intended.

2. ECB During the Crisis Monetary policy has been tight in the Eurozone in the past years and in some countries it has reinforced downward cyclical trends in the real economy. But with interest rates at the zero lower bound, you may ask, what more could the ECB have done?

To start with, it should have stopped tightening monetary policy when the economic temperature cooled. It was not preordained that the nascent economic slump in 2007 would turn into a systemic financial crisis in the West and push the Eurozone into its existential crisis. A good part of the pain could have been avoided if policy had been better designed.

Again, banks were not innocent bystanders in this development. Yet, inarguably, a good dose of the blame should be put on ECB shoulders.

What did the ECB do wrong in 2007-2009 amid the financial crisis? Let us start with what it did right. Once the full force of the crisis hit in the autumn of 2008 – after the collapses of Lehman Brothers, Merrill Lynch and the American Insurance Group (AIG) in mid-September spread panic in credit markets – the ECB reacted quickly to supply the financial market with liquidity. Liquidity support to the financial system had already been deployed a year earlier after BNP Paribas had to cancel withdrawals from two of its funds. BNP Paribas and other euro-denominated money market funds got into troubles because they could not sell their subprime mortgage papers to cover their fund withdrawals. The collapse around the same time of Northern Rock, a small British savings bank, added further stress to the financial system and reinforced the scramble for liquidity (because of a leak in the Bank of England, British media got wind of Northern Rock’s immediate problem and a bank run started once the information got public). ECB interest rates were also cut; the main policy rate moved from 4.25 percent in the summer of 2008 to 1 percent a year later. Monetary policy was rightly expansionary.

But monetary policy had been tightening rapidly since the second half of 2007. By then, previous growth in credit and lending for house purchases had sharply declined, the latter since its peak in December 2005. In the second half of 2007 it was clear that Western financial markets were in for a turbulent period and that the overall economic climate was souring. The fall in U.S. house prices had already gained speed and started to disable money and interbank markets.

Yet the ECB kept monetary policy tight and made the dreadful mistake of raising the rate in the summer of 2008 when the recession was already upon Europe and its own credit bubble was bursting. One rate increase alone cannot manufacture a crisis, and a good substance argument can be made for why changes in interest rates have little influence on the general monetary policy stance. Yet this move had a disproportionate effect because of its symbolism. The ECB seemingly ignored the evidence of declining economic activity and was determined to fight climbing inflation that Europe then was importing, primarily through its oil bill, despite rapidly growing distress in financial markets. Headline inflation (headline inflation includes also factors which can encounter unexpected and very high price increases, as food and energy sector), the preferred inflation definition for the ECB, peaked at 4 percent in July 2008. It was predominantly higher costs for food and oil that pushed interest rates up from the summer of 2007 till a year later. Core inflation (Core 186

inflation excludes factors generating high, immediate and unforeseen price increases. It is often used in the West developed economies because these are not exposed to unexpected situations in fields that can generate very high inflation, as food and energy sector) was still above the two-percent target, but there was a 1-1.5 percentage unit distance to headline inflation. Core inflation, however, would soon turn south as the economic temperature was falling.

The increase in interest rates in the summer of 2008, and the ECB’s general hawkish rhetoric about exiting its unorthodox liquidity support that had started in late 2007, had a sharp effect on financial markets as they understood policy was tightening further at the same time as they were increasingly short on liquidity. One cannot blame the ECB for not crystal-balling the crisis that hit in mid-September, but it should have given far more attention to stress in the financial market and the overall contractionary mood that summer. Slowing economic activity was bound to put downward pressure on inflation and lead medium-term inflation towards the target rate. But the ECB was viewing the economy in the rear-view mirror rather than taking decisions on the basis of its own forecasts, which signalled rapidly souring conditions. ECB policy, and statements from its President, gave the impression that Frankfurt was out of sync with the European economy.

Similarly, the ECB was too quick to raise interest rates in April and July 2011 despite clear signals of continued, and worsening, stress in financial markets and low economic temperature in the Eurozone. Again, a rise in headline inflation prompted ECB to act, but at the expense of the overall recovery. The ECB had to reverse course again in the autumn of 2011, but the rate hikes had already weighed down economic activity by slowing money creation through the financial system, the quantity of money. Two other factors pushed the Eurozone economy to the brink of catastrophy during that period. Political leaders battled over Greece’s second bailout package, which included a controversial write-down of its sovereign debt, and the shape of the European Stability Mechanism (ESM), the new structure of external support to Eurozone countries close to default. More devastating, however, was the sharp increase in bank capital ratio target decided this autumn, a colossal prudential mistake by the European Banking Authority (EBA) that pushed banks into severe refinancing problems. Banks stopped lending and ditched assets from their balance sheets, reinforcing the contraction in money supply.

This near-death experience for many banks only abated once the ECB launched in December 2011 its Long-term Refinancing Operation (LTRO). In the subsequent six months, the ECB borrowed more than one trillion euro to banks through this operation, although good part of the LTRO was based on rolling over past loans to banks. New lending to banks was consequently smaller than the headline uptake in the LTRO. While necessary to avoid a widespread financing panic in the financial system, the operation accelerated zombiebank problems. The ECB balance sheet expanded sharply, but it did not push up the quantity of money. The ECB rather became a casualty of the inability of political leaders to act decisively over banks: which banks should either be winded down in a comprehensive bank resolution programme or relieved from their bad assets? The response in Europe was that no bank should be allowed to be substantially restructured or go into resolution (for a couple of months, following a make-up meeting between Angela Merkel and the then French President, Nicolas Sarkozy, ahead of the G8 summit in Deauville, the view by European politicians was that failed banks should be allowed to default. That policy was 187

reversed at a EU summit in the autumn of 2011 where leaders said this had been a dreadful policy. Similarly, after the package to Cyprus had been crafted in March- April 2013, the Chairman of the Eurozone group said in an interview that restructung bank debt was now the way forward. One day later that policy had been retracted). In the U.S., a more determined approach to insolvent banks – through the TARP – has allowed the Fed in the past two years to use its firepower to stimulate demand rather than saving banks.

Consequently, even if interest rates have been very low for the most part of the crisis, monetary policy has still been tight in the Eurozone. Yet the ECB has not been innocent in the contraction of broad money. Simply, money expansion has not been big enough to support the economy and the contraction has happened under the ECB’s watch. The ECB has been too shy. An excessive belief in sterilising its debt-market operations has drawn money out of the economy. It has maintained a narrow focus on financing banks rather than expanding broad money with its operations. Unlike the U.S. Fed and the Bank of England, it has not engaged in outright quantitative easing (an unconventional monetary policy instgrument used by central banks tu buy bonds and securities from private banks to diminuish the long term interest rates and to increase the money supply through capital injection). The Long-term Refinancing Operation (LTRO) had qualities similar to QE, but the operations have effectively been sterilized as the banks taking up the offers of cheap loans deposited a big part of the new liquidity at the ECB. Asset values like equities increased as a consequence of the LTRO, but only temporary as the equity trading rose on perceptions rather than actual evidence of new liquidity. The LTRO did not create new money, it just redistributed liquidity. Only the 9th of March 2015, ECB released a program of quantitative easing which is foreseen to last until September 2016. Purchases in the European quantitative easing program (Public Sector Purchase Programme – PSPP), will be composed of sovereign bonds and securities from European institutions and national agencies.[1] Monthly purchases in public and private sector securities amount to €60 billion on average.

Consequently, despite the talk of a profoundly unorthodox monetary policy, the ECB’s operations have had little effect on expanding aggregate demand and not slowed the process of passive money contraction, similar to the monetary contraction in the United States in the 1930s (turning a recession into a Great Depression), that many Eurozone countries have been going through. Money supply in crisis countries like Greece, Portugal and Spain has been stagnant at best since late 2009, leading to big money supply gaps.

Only one country in the Eurozone – Germany – has experienced an increase in broad money in accordance with trend. The economic contraction in crisis countries would still have been profound even if money supply had been maintained, but the sharp drop in money supply has made the situation radically worse.

Money contraction has weighed down nominal economic activity and created a financial atmosphere unfavourable to process of debt deleveraging. Some countries have been caught in what borders to the noxious debt-deflation spiral. In such circumstances, central banks need to stimulate nominal economic growth and forcefully push growth in money supply with the view of reflating the economy.

The ECB has continued to take extraordinary liquidity actions to help banks finance themselves. Combined with a “flexible” view on asset quality, these actions have helped to avert a widespread banking crisis. But its attention to the collapse in money supply growth has not been impressive. While the ECB has put a lot of emphasis on the transmission 188

mechanism of monetary policy, it has paid far less attention to the transmission from money to the economy. Its focus on the role of the financial system as the transmission mechanism of monetary policy is understandable: that is where the vast part of money growth is created in normal times with no fragile sovereign debts and shrinking asset values. Those leaded to a dysfunctional transmission mechanism. This has been the vicious cycle: when asset values shrink, households and banks get into balance-sheet problems.

Banks contract credit stock to recalibrate with asset values. The interest rate can move into negative territory, but it will have little effect on asset values, other than in the long term. So the real issue for the transmission mechanism of monetary policy becomes in a crisis like this one of the transmission of money into the economy. And that transmission the ECB has neglected.

3. The Balance between Monetary Discipline and Flexibility Central banking is about finding the right balance between monetary discipline and flexibility. While the ECB has prided itself for having maintained price stability, it seems safe to say that it has failed in finding the balance between discipline and flexibility. The ECB’s inflation-target policy has rather been a source of monetary disorder, causing unnecessary damage in the real economy. Ultimately, the ECB was complicit in creating huge internal current account imbalances, a giant misallocation of resources, and a housing bubble in the years up to 2007. It failed to discipline the economy. But then it switched into running an overly tight policy and failed to take necessary action. When it did take action, it was often too late. Monetary policy in the Eurozone has been pro-cyclical: it first fuelled a boom and subsequently reinforced a bust.

Despite appearances, central banking is more of an art than a science. It is critical that policy is systematic – that it is based on a rule that is communicated to and understood by markets. Forward guidance through rules is necessary for the efficacy of monetary policy.

As recent history has shown, rules also reduce volatility: the 1980s and 1990s – two periods of rules-based monetary policy in most part of the West – experienced stable real economic performances when compared to the period of stop-go discretionary monetary policy in the previous decades.

But central bankers must also be prepared to act when the rules have become inoperable or clearly fail to give answers to the pressing monetary or macroeconomic questions.

Likewise, monetary policy makers must be prepared to change their rules if their usefulness has been disproven. The alternative – maintaining oral allegiance to a defunct rule and combining it with sundry discretionary activities disproving the validity of the rule – is not a viable strategy. It does not give any forward guidance. Economic agents cannot make plans for the asset balances on the basis of discretionary policy. This is where many central banks find themselves now. The ECB is no exception, even if the description may better fit the Fed. Three rounds of quantitative easing has arguably had a positive effect on the U.S. economy, but the effect has by all accounts been far smaller than envisaged because the absence of forward guidance from the Fed. Maintaining price stability is critical for a sound economy. The alternative to the current rule should not be a return to the stop-go and discretionary policy many European economies had before, or a significant step-up in inflation. Nor should a central bank target real economic variables, like unemployment or real growth, because that will raise inflation to unacceptable levels. Arguable, central banks should not target real variables at all, 189

because they cannot control them. But the inflation-targeting policy of the ECB has created macroeconomic instability and should be changed. It is right at the heart of the failures of discipline and flexibility in the ECB’s short history. A pure inflation-targeting policy does not work well in an age of supply shocks imported from abroad. When it is based on headline inflation – incorporating inflation that is not created within the ECB’s jurisdiction – it runs the risk of fighting imaginary problems. There is not much that monetary policy can do to counter a supply chock. But when central banks do just that, the effects on the real economy tend to become very strong.

Worse still, pure inflation targeting has proven to be a source of instability between countries in the Eurozone. If ECB policy instruments respond to aggregate performances in Europe, it will be a policy that will fit the German economy well but necessarily not the other and smaller economies. While the economic temperature is low in some countries it may be hot in others.

The ECB itself has recently demonstrated the “emergence and persistence” of inflation differentials between Eurozone members in the period up to 2008. This is a technical way of saying that the “one-size-fits-all” approach did not work well because the differences between countries grew too big. [3] Furthermore, prices also differ between countries: prices do not adjust at the same pace and some countries require more attention than others in order for price to move with changes in the interest rate. The difference is sometimes stark. A one percent increase in the interest rate, for example, can have a significant impact on prices in France but hardly any impact in Spain. Simply, the responsiveness of economies to orthodox monetary policy instruments differs.

These differences have been amplified by the Eurozone crisis. Monetary policy in the past years has had fragmented effects – or, to use the words of ECB President Mario Draghi: “the singleness of our monetary policy” has been contested. The fractured financial system, and an instinct against unorthodox policies by the ECB, has undermined the expansionary effects of low interest rates. There are evidence suggesting that the ECB programme of Public Sector Purchase Programme (PSPP) – a commitment, launched in March 2015 to purchase government bonds in order to drive down bond yields for crisis countries – has recovered the financial system and the transmission mechanism, but only up to a point. It may prove to be a bit too late!

Although the program has helped to lower the borrowing costs of Spain, Italy and other countries, the negative side of the PSPP is that it pushes the ECB further into fiscal policy.

This move is difficult to defend. If the policy intends to repair a broken transmission mechanism, actions by the ECB are legitimate regardless of fiscal policy in the country that is assisted. It is easy to understand that the ECB fears giving countries a blank check by driving down their bond yields and taking away market pressures for reform. Yet that concern is secondary to the broken system for monetary policy and it cannot be addressed by a central bank that bargains with countries about hat they need to do in order to be saved. Nor would it have been necessary if the ECB had acted much earlier and used policies to support money supply and nominal growth rather than sterilised operations for banks.

PSPP is neither a vote for higher inflation nor a rejection of inflation targeting. Yet it illustrates the weakness of the past monetary policy rule: the ECB has stepped into a new 190

universe because its past rule did not give answers to the pressing monetary questions.

PSPP, like the Fed’s quantitative easing, has not filled that gap; it does not build on an alternative rule or new rules for policy instruments. The new policy is purely discretionary and markets have to second-guess how it will operate. The inflation target remains unchanged, but it is obvious to any watcher of European monetary policy – for markets as well as discerning citizens – that the ECB now is far away from its home. Its authority, and the effectiveness of monetary policy, will gradually erode unless it offers a rules-based alternative to its current discretionary monetary policy and, critically important, how policy instruments behave in different circumstances.

Conclusions Central banking today is no source of envy. Even critics of the ECB, the Fed or other central banks have to acknowledge the profound difficulties facing central bankers, especially those that were dealt a bad hand from the start (like an institutionally incomplete monetary union and irresponsible political leader). The Eurozone is in such a difficult situation that no monetary policy will do wonders. All monetary alternatives are also associated with significant risks. Central banks could certainly do more to stimulate demand, but such actions are difficult to engineer without increasing the risks for higher inflation.

Nor is the problem today only one of insufficient demand. Other problems are weighing down economic growth across the world. Banks are in such a difficult shape that some of them have to be restructured; they are beyond the salvation of monetary policy.

Malinvestments, to use a term by Gottfried Haberler, during the boom years cannot be reemployed just because demand increases. New investments have to be generated and demand uncertainties are far from the only reason why business is holding back on investments. Furthermore, a simplistic view of demand expansion is also associated with risks of creating new misallocations or resources – perhaps even financial bubbles. [8] So how do we go forward from here? This should be one of the main topics for monetary policy in Europe in the next few years. It is clear that overall policy, targets, and the operation of instruments need to change. It is less clear how they should change. A couple of principles could, however, point us in the right direction: - it should be a new rules-based monetary policy. The alternative to discharging current inflation targeting is not a discretionary policy, let alone a stop-go policy (a deliberate alternance of monetary expansion and contraction) of previous decades. But a rule is necessary for the economy to get correct expectation of how the ECB will operate and how it will react to new economic information; - a new monetary policy needs to elevate the role of money and money growth. There has to be a policy (and perhaps a target) for money growth. This is even more important in a currency union that has to allow for differences between participating states; - a new policy should elevate the role of assets in monetary policy and the attention that central bankers should give to development of assets and their wider role for macroeconomic performance. Traditionally, pure inflation targeting gives attention to consumer prices and sets its main policies accordingly. Yet assets play a far greater role than purists believe for how countries macroeconomic performances evolve. Needless to say, it is asset price development is also central to overall financial stability; 191

- a new policy needs to be adaptive to changes in the world economy. Globalisation in effect means that local price systems get associated with world market prices. That generates efficiencies, but it also makes a country vulnerable for changes in the real world economy or in the monetary policy of other countries. A monetary policy in the Eurozone should have the capacity to respond to such developments, if needed. And it should certainly not have a policy that forces changes in monetary instruments simply because we are importing inflation or deflation when they don’t give effects on inflation or deflation in Eurozone factor markets; - a new monetary policy should allow for greater local variations in the conduct of the monetary policy – in how instruments operate. With a focus on the main policy rate, ECB decisions will be good for Germany but not for many other countries. Macroeconomic conditions in the Eurozone will not fully converge for many decades. Right now we are witnessing a process of divergence. This is not viable. Other instruments, however, can be more adaptable to local variations in macroeconomic conditions.

- a new monetary policy should be simple (but not simplistic), transparent, communicable, and give forward guidance.

References [1] Claeys, G, A. Leandro and A. Mandra (2015), “European Central Bank quantitative easing: the detailed manual”, Bruegel Policy Contribution, ISSUE 2015/02, 11 March. http://bruegel.org/wp-content/uploads/imported/publications/pc_2015_02_110315.pdf [2] James, H. (2012), Making the European Monetary Union, Cambridge, MA: Harvard University Press. https://books.google.ro/books?hl=ro&lr=&id=npEXme7MFCwC&oi=fnd&pg=PR5&dq=James,+H.+(2012),+M aking+the+European+Monetary+Union,+Cambridge,+MA:+Harvard+University+Press.&ots=aAkayOEfb9&sig =RYsBTmyYldtrttui_GWwHvzUPeY&redir_esc=y#v=onepage&q&f=false [3] Erixon F, (2013) - MONEY MISCHIEF IN THE EUROZONE: Reforming the European Monetary Union, ECIPE Occasional Paper , No. 1/2013. http://www.ecipe.org/app/uploads/2014/12/OCC12013.pdf [4] European Central Bank (2011), The Monetary Policy of the ECB. (2015), Annual Report 2014. http://www.ecb.europa.eu/pub/pdf/annrep/ar2014en.pdf [5] Issing, O. (2008) – The birth of the Euro. https://books.google.ro/books?hl=ro&lr=&id=1N5QyF8rsYC&oi=fnd&pg=PA3&dq=otmar+issing&ots=Xy8xZxCtHJ&sig=NLvqzWZsZXCfoWXWD4ZWgOD4z8&redir_esc=y#v=onepage&q=otmar%20issing&f=false [6] Marsh, D. (2011) – The end of the Euro: the uneasy future of the European Union. https://books.google.ro/books?id=FvGAgAAQBAJ&pg=PA47&dq=david+marsh+european+monetary+policy+20 11&hl=ro&sa=X&ved=0ahUKEwiAqdz0xKDOAhXDXRQKHXAnDtgQ6AEIIzAB#v=onepage&q=david%20marsh%2 0european%20monetary%20policy%202011&f=false [7] Merler, S. and J. Pisani-Ferri (2012) – Sudden stops in the Euro Area, Bruegel Policy Contribution ISSUE 2012/06, 29 March. http://bruegel.org/2012/03/sudden-stops-in-the-euro-area-2 [8] William White (2012) – Ultra Easy Monetary Policy and the Law of Unintended Consequences. https://www.dallasfed.org/assets/documents/institute/wpapers/2012/0126.pdf

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Available online at www.icesba.eu

Procedia of Economics and Business Administration ISSN: 2392-8166, ISSN-L: 2392-8166

Developing Factors within an Industries Cluster in Oman as a Regional Development Ghazi Nasser AL ALAWI1, Atul MISHRA2 1,2 Drake Circus, Plymouth PL4 8AA, Email: ghazix6@hotmail.com

Abstract: The concept moves away from the conventional and traditional way of thinking about economic growth which is about huge investments and massive entrepreneurial activities coming from outside the region in contrast to the new idea that regional economic growth can emerge from within the region and small enterprises can make significant economic contribution to the country, regional location and individual. ‘The success of entrepreneurial clusters in recent decades, however, has challenged this wisdom, and now many policy makers state that they want their regions to be the next Silicon Valley’ according to Aaron Chatterji et al, April 2013. And this project will very much highlight and examine the motivational forces and drives to foster an economic regional culture that will have a cumulative effect on the overall economic growth of Oman. In the words of Glaeser et al (2010): ‘The move away from smokestacks to small-scale entrepreneurship is understandable given the strong correlation between small establishment size and local economic development’. The line of thinking will be from the motivational perspective which itself is a very abstract, uncertain and at times vague concept and but holds the key to success, irrespective of empirical evidence.

Keywords: entrepreneurial clusters, policy makers state, economic development JEL classification: R11

Introduction Oman, a monarchy, with a population of 2.7 million and per capita USS 21,390 in a territory comprising of 309550 sq (Wikipedia.org/wiki/oman) and second largest country in the Gulf Co-operation Council (GCC), and one of the oldest independent country in the Arabs and Muslim world, located on the Strait of Hormuz at the entrance to the Persian Gulf and 56 kilometres directly opposite Iran. And the central theme in the project: Key Motivational Factors to Locate within an Industry Entrepreneurial Cluster in Oman, is to critically explore, investigate, research and probe with empirical evidence into the motivational factors leading to higher economic growth and performance through the

usage of the concept: industry entrepreneurial cluster.. The key question as stated by Shen, Luxi et al (2015): ‘Can a reward of an uncertain magnitude be more motivating than a reward of a certain magnitude? Research documents the motivating-uncertainty effect and specifies when this effect occurs. People invest more effort, time, and money to qualify for an uncertain reward than a certain reward.’

Now is the time to adopt and integrate the concept: industry cluster as economic policy: Industry entrepreneurial Cluster that will encourage local entrepreneurs to invest time, resources and effort in the regional economic development. What exactly is ‘industry entrepreneurial cluster mean’ or how is it defined? According to Porter (1998, p.197):‘Geographical concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions (for example, universities, standards agencies, and trade associations) in particular fields that compete but also co-operate.’ Dictionary meaning of cluster mean a group of similar things or people closely together (Oxford, Learner’s Pocket Dictionary, 2008). But a close examination of the concept ‘cluster’ opens the door to confusion and debate. The confusion may start from attaching the concept cluster to similar types of industries within a particular geographical area or what type of similar service providers form the cluster region or what level of industrial aggregation could be termed as cluster or what sort of linkages do similar organisations have to maintain or is the network important to form a cluster state of industry, large companies coming to a particular place and need not be from that particular region etc. But in the current research, cluster is taken to refer to a particular geographical area with particular emphasis on the local population’s entrepreneurial initiative to work closely together, preferably in a similar industry and form a localized economic activity.

So, what could be the motivational factors to encourage such localized economic activity?

Each factor will be researched and examined with empirical surgical tools to maximize the local entrepreneurship. According to Goss, David, (Goss, David, Fourth Edition, Organizational Behaviour, 2005, Pearson Education Limited: ‘Motivation is made up of: direction: (what a person is trying to achieve), effort: how hard is a person trying) and persistence: (how long a person continues trying).’ What is intriguing about motivation is the fact that other factors of subjective nature like attitude, perception, beliefs, values, behaviour, social perception, skills, knowledge, ability, goal, trust, actions, needs, expected rewards and reinforcements, leadership, pride and challenge play a vital role in the formation of motivation, which is an energetic force from within to do something. Motivation provides the reason to do something. Robbins, Stephen (2009) opine that the ‘performance-reward relationships need strengthening.’ This implies that in order to provide motivation or in order to critically examine motivation, the reward factors must be taken into account. By reward is meant the benefits of indulging in a certain type of activity. In the case of Oman, where local entrepreneurship needs to be encouraged, the key question: how can the local people be motivated and what could be the rewards leading to local entrepreneurial culture? At the same time, what reasons could there be for disengagement of the local people also needs to be addressed. So, basically, two key issues need to be analyzed: the motivating factors and de-motivating factors of local entrepreneurial initiatives: motivators and de-motivators 194

Trying to address the motivators and not the de-motivators will not necessarily encourage the local entrepreneurs to come forward. On the other hand addressing the de-motivators and not the motivators will also defeat the object: that is encouraging local entrepreneurs to come forward. So both the areas of motivation will need to be examined. And that examination will be done by surveys through well-designed questionnaires to understand the true facts of what the local entrepreneurs actually want and what action can be undertaken to ensure smooth transition from conventional economic growth to localized economic growth.

The three factors that will be further extensively examined are: motivators, de-motivators and culture. Culture is in simplistic terms, what one can see, feel and hear that are usually expressed through artefacts, values and the thinking of the inhabitants of a certain organisational culture. Culture is defined: is a pattern of shared basic assumptions that the group learned...that has worked will enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think and feel.’ In order to ensure a new economic culture, how people perceive, think and feel will need to be challenged in a dialectic manner which is not exclusion of the current culture but no integrate the current and the new localized economic and entrepreneurial thinking to create a synthesis. And eventually, when people see positive results, gradually, the old way will fade away, may be after some resistance at the social level.

Oman’s economic foreign policy is a synergy of a trade relation with U.S and ‘the Sultanate of Oman has been a strategic ally of the United States since 1980 when it became the first Persian Gulf state to sign a formal agreement allowing U.S use of its military facilities.’

Kenneth Katzman (February 2016). Strong literature suggests that the domestic economic policy is influenced by the foreign policy and how this impact on the government of Oman will be examined. As the US government encourages the concept of Clusters of Entrepreneurship and Innovation, it may be thought that the U.S. government will also do the same if the government of Oman thinks of utilizing the concept for greater economic prosperity. This is something that will have to be taken further as economics, foreign policy and domestic policy seem to move in a symmetrical manner.

And it is the local entrepreneurs who will bring the change that will be facilitated by Motivation and minimization of the De-Motivating factors. The De-motivating factors may also be referred to as the barriers or obstacles to entrepreneurship. Among the various factors that can act as motivators: income, control of income, being able to use experience for the greater benefit of the society, provide employment, enjoy the work and gain satisfaction. On the other hand, the de-motivating factors will include lack of economic environment, no entrepreneurship skills, lack of education, government rules and regulations not encouraging enough, the legal system is not supportive, lack of leadership skills among the population, lack of support from the financial institutions, et cetera. Also the de-motivators are referred to as Institutional Barriers as suggested by Kathy Fogel et al (2006).

So, the four areas of industry cluster in relation to Oman will be further researched: motivators, de-motivators, culture and foreign policy. These four areas of industry cluster need to be identified as having significant influences on the choice of local population in relation to entrepreneurship.

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1. The Choice of Topic and Justification of the Central Research Question The central point of discussion: Key Motivational Factors within an Industry Entrepreneurial Cluster in Oman as Regional Development. The focus of attention is on Regional Development or localized economic activity leading to regional economic development by adopting the entrepreneurial theory: Industry Entrepreneurial Cluster.

The choice of the topic is based on the reasoning that Oman is one of the fastest growing economies in the Arab world.

The key claim of the research: Industry Entrepreneurial Cluster is the answer to economic growth from the perspective of sustainability and long-term benefits.

Aaron Chatterji et al. (April 2013) opine that ‘The success of entrepreneurial clusters in recent decades, however, has challenged this wisdom, and now many policy makers state that they want their region ‘to be the next Silicon Valley.’ So wisdom is the learned scholar Aaron Chatterji referring to? The traditional wisdom of employment growth and economic growth was about attracting large firms to relocate. Now, instead of large firms coming into a new territory, small entrepreneurial and regional in nature and more localised have shown that the benefit is more in terms of employment growth and economic growth.

This research aims to examine the motivating factors to enable entrepreneurial clusters to address the regional economy as well as influence employment growth positively.

The overall purpose of the research is to show that entrepreneurial clusters will contribute to the sustainable employment growth at the regional level and at the same time add value to the sustainable economic development at the regional level leading to reduction of the overall economic growth of Oman.

A historically accelerated pace of trade liberalization in Oman since the early 1970s by spurring a veritable deluge of imports has quite significantly increased competitive pressure on SMEs in Oman. Rapidly falling cost of communications have by unifying global markets heightened the intensity of competition. Trading is widely seen as a safer, richer, smarter and bulkier career to have than manufacturing---bad news indeed for industrialization. But again, all types of entrepreneurial cluster is to be encouraged by Government of Oman formulating a comprehensive Industrial Policy by putting special emphasis for developing Entrepreneurial Cluster as a thrust sector for balanced and sustainable industrial development in the country to help deal with the challenges of ‘regional free market economy and globalization’ Faisal Hassan and Turki O Aiyaqout (January 2012).

1.1. Country Briefing and Cities Structure The Portuguese turned up in 1498, and occupied Muscat for over a century as a means to protect their sea lanes. Driven out by native tribes, who were in turn pushed out by a Yemeni tribe, Oman transitioned into a self-governing region. Long ruled by a sultanate, in 1774, Oman established a useful, long-term relationship with Britain that lasted until it ceased to be a protectorate in 1951. Shortly after Qaboos bin Said Al Said replaced his father (in 1970) and took control of the country, this ancient land completely gained its independence. Among needed changes, the new sultan's priorities were social changes, as 196

well as the modernization of the infrastructure and improving its already established oil industry. Then, in the early 1980s, this long closed country (for visitors and western businesses) partially opened its doors to the outside world.

The national flag and map of Oman as below (Fig.1)

Figure 1: The national flag and map of Oman The source of the map: http://www.infoplease.com/atlas/country/oman.html dated 10th April 2016 (the Brown part is Oman)

2. Literature Review The big importance of entrepreneurship for economic growth in modern ‘entrepreneurial’ economies is related to the increased importance of knowledge in the economic process.

In the old, ‘managed’ economies, land, labour and capital were the main factors of production. However, globalization and the telecommunications and computer revolutions have drastically reduced the cost of shifting not just capital but also information out of the high-cost locations of Europe and into lower-cost locations around the world. This means that economic activity in high-cost locations is no longer compatible with routine tasks. Rather, globalization has shifted the comparative advantage of highcost locations to knowledge-based activities, and in particular search activities, which cannot be costless, transferred around the globe. Knowledge as an input into economic activity is inherently different from land, labour and capital. It is characterized by high 197

uncertainty, high asymmetries across people and is costly to transact (Thurik and Wennekers, 2004).

Coming back to the key idea: identifying the key motivational factors that will lead to the formation of an industry entrepreneurial cluster in Oman as regional development.

In other words, what could be the key inspiring factors that the local inhabitants will take into account to invest at the local level. In order to establish the key motivational factors, 2 basic questions will need to be examined in an Omani context: Why should the local entrepreneurs and inhabitants be interested to invest at the local level as an industry cluster?

Will the outcome of the industry cluster in Oman be positive?

After a literature review of the above mentioned questions, an industry cluster model will be developed taking into account the context is Oman. The model is essentially a proposal to move forward with the idea of industry cluster in Oman.

Why should the local entrepreneurs and inhabitants be interested to invest at the local level as an industry cluster?

Each Omani region has unique cluster strength. Regional cluster is about identifying local strengths. Yet, the fact remains, local inhabitants gain employment from local industry clusters where small number of industries or firms decides to come in one geographical area and provide the service or goods to customers. With employment being generated, also new leaders come into the scene to embrace the new cluster entrepreneurial culture and at time also oppose such economic activity which is somewhat rare. Besides employment, there are tangible economic benefits for the specific region in terms of wealth creation, job creation and individual profits as evidenced by the Silicon Valley.

With the distinct economic benefits of not only employment but the spending power of the local residents increase and with that, a sort of regional confidence and pride develops within the local people. At the same time, due to high and intense competition, customers at times get bargains and improved service. Besides the economic benefits, there are other benefits of firms coming together, for example, the cost of transportation of goods and services is reduced when firms are located close to customers and suppliers.

Alongside with the economic benefits, the region will also benefit from the education and training perspective where local schools and colleges will eventually arrive to support the workforce. As a result, the whole regional population will become educated and skilled for the labour market. According to Swann et al (1998: 57), the benefits include customer proximity, reduced customer search costs, information externalities and reputation. And Swann et al (1998) has also given the warning that too much completion and congestion may at times slow clustering.

How could the local entrepreneurs and potential local entrepreneurs be inspired to invest as an industry cluster?

The first and foremost point to be made: the patronage of the government and local authorities is mandatory to form an industry cluster that will encourage, inspire and motive people to invest their time and resources. Through government policies, special funds need to be arranged by the local authorities to make it accessible to the local 198

people. Financing is a must which must be made accessible for the entrepreneurs to come forward. Financial assistance, sponsorships, donations, free advise centres and training and development must have the intervention of the government that will provide the encouragement for the local entrepreneurs to come forward. But Chatterji, Aaron et al, (April 2013), ‘it is not obvious that government policy can create entrepreneurship.’ By this statement it is meant that the government cannot do everything. It is the local entrepreneurs that need to come forward and take the lead role in creating a cluster. That is why local entrepreneurs with the local knowledge will need to be identified and motivated to form an industry cluster. What the government should do is to facilitate the process by providing funds for start-ups and providing access to information with a cluster strategy in place. The government of Oman needs to develop a cluster strategy taking into account the views of the local entrepreneurs and with a long term vision. In Oman, the government will have to take the lead role. Besides the government taking the lead role, it is important to understand that without a good understanding of the cultural setting and cultural intervention, a change of paradigm within the local inhabitants in relation to industry cluster will not happen. For a long lasting impact, alongside an economist perspective, it is equally vital to take the perspective of Omani sociologists who will understand the Omani culture better.

Also, culture helps the cause of identification. By identification, is mean, the people can identify to a certain beliefs. It is this sense of identity that brings commitment. Schein (1985) suggests that culture can be examined at three levels: level one: easily observed rituals and behaviour values and beliefs basic assumptions The above mentioned points need to be examined in the context of Omani culture with the aim to gain acceptance to the Industry culture Concept and to create an enabling environment in which existing and potential entrepreneurs find within an easy reach most of what the direly need – information, counselling, mentoring, access to finance, technology and means to market.

With culture the question of Trust is also of great importance. In a cluster environment, in spite of the intense competition and rivalry, there must be an element of trust among the key players, trust in the system, trust in the government initiatives related to the Industry Cluster, trust in the financial institutions and last but not least trust in the entrepreneurial management team of the different firms striving for different aims and objectives.

In a cluster environment, trust is not only about employment, it is beyond that: trust in the system is what will invite and inspire aspiring entrepreneurs to come forward and invest and take advantage of the benefits of a Industry Cluster.

What is interesting to note that Omani society neither adopts Westernization nor rejects Westernization? Whatever is good for Oman is accepted without compromising the history of Oman.

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According to Linda Pappas Funsch, (2015), ‘Omani national psyche a certain cosmopolitanism, including a pronounced affinity for harmonious interaction with people of disparate traditions.’

The third question is: the outcome of an Industry Entrepreneurial Cluster in Oman. With right government initiatives in the form of strategy, infrastructure, financing and leadership accompanied with the collective wisdom of the local inhabitants in the right cultural setting alongside a good monitoring system, should be able to see the growth of another Silicon Valley in Oman. Now more and more governments are coming forward with the desire to form Industry Cluster as the benefits are visible and recognizable, and influenced to implement policies intended to launch initiatives to support existing clusters or to form new ones as observed by Solvell, (2003).

Figure 2: Model of Industry Cluster in Oman Source By researcher (2016)

The above mentioned model under the name: Industry Cluster in Oman, is a model developed to facilitate the process of forming an Industry Cluster in Oman as Regional development. And the starting point is: Regional Cluster Data.

According to Boja, (2011), ‘The Cluster is an economic phenomenon that is placed in a competitive context in which many businesses simultaneously compete and collaborate to gain different economic advantages.’

Regional Cluster Data (RCD) is about collecting data systematically on the potential cluster regions. The data should comprise of the following facts: unique strengths of each selected cluster region in terms of what it can offer, whether services or products based on economic- historical analysis of the region. It is assumed that each town has something special to offer. What to offer is the topic that needs to be investigated and examined. The analysis must include all the tangible and intangible items that could or have the potential 200

to create marketable provisions through profit-oriented analysis. Also, data should include the demographics of the region (age profiling, total population, gender, level of education) Short, medium and long term time bound action plans will be taken for implementing this Industry Entrepreneurial Cluster strategy and policy efficiently to provide quick industrialization that can provide speedy regional employment and speedy regional economic growth.

2.1. Cooperation, coordination and consultation with all sectors at the national and regional level All the key actors must agree that Industry Entrepreneurial Cluster as the vehicle for enhancing the standard of live and economic growth for the common people. The broad objective of the Industry Entrepreneurial Cluster shall be to: Acknowledge the importance of Industry Entrepreneurial Cluster as an indispensible player in the economic growth acceleration Include the Industry Entrepreneurial Cluster Strategy in the Omani Budgetary Framework A National Taskforce will be formed on the development of Industry Cluster in Oman to draw up a realistic industry cluster strategy for promoting rapid growth. The National Taskforce will submit recommendations to the Ministry of Commerce and will include a comprehensive state of recommendations that, if implemented, will mount to coherent strategy to promote the development of Industry Cluster in Oman in three phases: short, medium and long term.

3. Implementation of the Industry Entrepreneurial Cluster The implementation will be undertaken by The Implementation Committee who will work under the guidance of the National Taskforce. The role of the Implementation Committee will be to execute the Industry Cluster Strategy and will be the Secretariat of Implementation and to be headed by a leader who has Industry Cluster experience. And will provide the following information mentioned in the next line The Implementation Committee will try to attract training providers and educationalists to take on the responsibility of workforce skills upgradation.

It is important to understand that a positive relationship must exist among three key players as identified by Etzkowitz, (2002): Business environment, Government and Public administration, Education and Research What this means is that the Omani Government will have to attract the attention of educational institutions to come forward and extend their hand in the regional cluster areas where their core responsibility will be to oversee the up-grade of skills of the local inhabitants. With the up-grade of skills, will come advanced entrepreneurial managerial skills compatible with the Industry Cluster Strategy of the government.

3.1. Evaluation: Systematic monitoring to be introduced in all the key aspects of the Industry Entrepreneurial Cluster framework 201

These are the elements which will be taken into account when monitoring firm performance by the Evaluation Team.

There will be in place a robust and transparent feedback mechanism The Evaluation Team will be in charge of Incident Response within the cluster region and will develop mechanisms to respond to urgent emergency matters within the cluster region. The emergency issues will need to be defined and the overall Health and Safety issues will be dealt and under the supervision of the Evaluation Team.

Feedback which forms part of the Industry Cluster Personality is extremely significant and at the same time, because it is least understood, seems to be often side tracked and seldom treated with urgency and respect. Feedback is about trying to understand the outcome of something through a feedback process. Accepting feedback and giving feedback are both extremely important elements of feedback. Basically feedback means the process of feeding back information into a particular system, for the output to improve. But as warned by Swann et. al (1998), that congestion and competition may slow down clustering.

Each firm will have to supply information on Continuous Improvement Process to the Evaluation Committee which is to be a part of the feedback mechanism. Without good feedback mechanism, the Industry Cluster Project will suffer. This is the reason why the feedback mechanism is extremely vital. The Evaluation Team will also gather information from the Environment and provide guidance to the Implementation Team as well as individual firms within the Cluster region.

Figure2: By researcher (2016)

The Industry Cluster Model is flexible and can be used to facilitate the process of forming a cluster region in Oman and accelerate the economic growth. The Industry Cluster Model 202

for Oman is about economic transformation at the regional level by the integration of action and reflection at each stage of the process. For the sustainable installation of the modelneeds to be real commitment concerning all acts of initiation and includes the whole process and to be owned by the key players for productive results. Unfortunately, there is no substitute for commitment. If it is there, it is there. And ultimately contribute to the overall economic growth of Oman from the perspective of Entrepreneurial Industry Cluster. The path to the creation of an Industry Cluster will not be without obstacles and as the history Oman suggests with the outstanding leadership of Sultan Quaboos, Oman will overcome the obstacles and move forward.

Before a closure of this Literature Review, a quotation worth remembering by Alfred Marshall in 1890: ‘When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of trade become no mysteries: but are as it were in the air, children learn many of them unconsciously.’

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