Bucharest-Ilfov Region – Between Economic and Social Convergence and Divergence

Badoiu, Catalina Mihaela Article Bucharest-Ilfov Region – Between Economic and Social Convergence and Divergence CES Working Papers Provided in Cooperation with: Centre for European Studies, Alexandru Ioan Cuza University Suggested Citation: Badoiu, Catalina Mihaela (2014) : Bucharest-Ilfov Region – Between Economic and Social Convergence and Divergence, CES Working Papers, ISSN 2067-7693, Alexandru Ioan Cuza University of Iasi, Centre for European Studies, Iasi, Vol. 6, Iss. 2, pp. 6-21 This Version is available at: https://hdl.handle.net/10419/198301 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ CES Working Papers – Volume VI, Issue 2 6 BUCHAREST-ILFOV REGION – BETWEEN ECONOMIC AND SOCIAL CONVERGENCE AND DIVERGENCE Catalina Mihaela Badoiu * Abstract: This paper aims to highlight the main economic disparities between the developing regions of Romania, during the 2005-2011/2012 period. We will focus on the Bucharest-Ilfov region, which differs both in terms of population density, and the galloping economic growth, relative to other regions. In terms of the convergence-divergence analysis, it will be based on key indicators, such as the factors that led to increased inter-regional divergence and to what extent the differences between regions were reduced in the analyzed period. Keywords: Regional disparities; Convergence; Concentration; Distribution analysis. JEL Classification: F30; F50; O52. 1. EU REGIONAL POLICY 1.1. Evolution of Regional Development EU acts to promote "harmonious development", targeting in particular "reducing differences among regions." To achieve these priorities, in parallel with the European integration, the EU develops a series of regional European policies applicable to each member state. Starting from a simple mention in the Preamble of the Treaty of Rome, which focuses on "economic and social cohesion" in Europe, it gradually becomes part of cohesion policy in Title XIV (now Title XVII) after the adoption of the Single European Act. Additionally, the Treaty Council Regulation no. 1260/99, (which) establishes general operating provisions for the Structural Funds (and amended by Regulation no. 1447/2001). Beside the legal standpoint, policy has also grown, financially speaking, from the stage which represented almost 10% of the European Communities and 0.09% of EU-15 GDP in 1980, with more than a third of the budget and about 0.37 of EU GDP as an average for the 1998-2001 period (Second Report on Economic and Social Cohesion, 2001). Development policies, such as the Common Agricultural Policy, became the second largest European policy in terms of the implementation area size (Puigcerver-Peñalver, pp. 179-208). As a first step, the single market was preceded by the 1989 reform of the Structural Funds, which means, not only the coordination of the three Structural Funds (European Social Fund - ESF, European Agricultural Guidance and Guarantee - EAGGF and the European regional Development Fund - ERDF), but also a broad reorganization of the governance principles, doubling the amount of * Bucharest University of Economic Studies, Romania; e-mail: catalina.bad[email protected]m. CES Working Papers – Volume VI, Issue 2 7 money for regional development from 15.1% of the EU budget in 1988 to 30.2% in 1992 * . Secondly, the decision taken by the Treaty of Maastricht to create a single European currency was closely related to the decision to set up a Cohesion Fund. † Changing the economic and social context of the Member States has led the Commission to enact general guidelines to ensure the added value of Community (Priorities for Structural Funds programs complement the end of 1999). They were intended to establish a general policy framework and priorities which can be changed according to Objective 1 (1994-1999).The guidelines set out a number of thematic priorities that support the main goal of the Structural Funds interventions: to help identify conditions that encourage sustainable economic development, growth and competitiveness and thereby indirect employment. This general objective was secured through the following specific priorities: primary infrastructure, productive environment (numerous measures to improve the growth and complexity of the business and industry), the development of research and technology, environment and sustainable development, human resources development and equal opportunities. After the Maastricht reform, more than two thirds of Structural Fund allocation were concentrated in the so-called Objective no.1 regions, representing less than 75% of the European average GDP per capita, estimated by Purchasing Power Standards. Regional policy was further increased by reducing the number of targets from 7 (programming period 1994-1999) to 3 targets (programming period 2000-2006) (Council Regulation, 1999):  Objective 1 - promotes the development and structural adjustment of regions whose development is lagging behind;  Objective 2 - promotes economic and social conversion of regions with structural difficulties other than those eligible for Objective 1;  Objective 3 - serves as a reference framework for all measures to promote human resources in the Member States, development of education, training and employment of people. Since the implementation of the Maastricht Treaty in the European Union in November 1993, which aimed to strengthen economic and social cohesion, it became one of the objectives of the European Union, in addition to the establishment of the internal market and EMU. Throughout the post-war European integration history, cohesion turned into a primary objective. Concomitant with * European Council in Brussels in February 1988reformingthe functioning of the Solidarity Fund, called "Structural Funds" and decide to allocate68 billion ECU (at1997 prices). † Treaty on European Union entered into force in 1993, considers cohesion as one of the key objectives of the Union, alongside economic and monetary union and the single market. The Treaty provides for the creation of a Cohesion Fund projects designed to support favorable environment and transport in the less prosperous Member States. CES Working Papers – Volume VI, Issue 2 8 the EU enlargement, economic and social cohesion complicated, as the Member States were more and more a heterogeneous entity (EU Structural Funds beyond Agenda 2000: Reform and Implications for current and future Member States, the European Institute of Public Administration, Maastricht, The Netherlands) Structural policies have been developed based on three main assumptions: the existence of disparities among EU regions, the ability of structural policies to reduce these disparities, and regional growth and convergence that lead to cohesion. Therefore, the EC Structural Funds impact assessment conducted in supporting the future policy and maximizing the impact on economic development (Puigcerver-Peñalver, pp. 179-208). 1.2. Reform of Regional Development 2007-2013 From the six founding members in 1952 to twenty-five in 2004 and then to twenty-eighth in 2013, the European Union can now be rightly named a neo-colonial empire; stretching from the Atlantic to the Black Sea, it combines Western and Eastern Europe for the first time since their separation from the Cold War, 60 years ago. EU expansion to 27 Member States in 2007 generated challenges in terms of its competitiveness and internal cohesion. Disparities between Member States and their regions widened. These differences come from structural deficiencies in the key factors of competitiveness, namely an inadequate endowment of physical and human capital (infrastructure and manpower), insufficient innovation capacity, support enterprises and the low level of environmental capital (natural environment and/or urban pollution). Implementation of cohesion policy at EU level involves reducing disparities between regions in terms of production, productivity and employment. A particularly strong growth in the new Member States - the 10 that joined in May 2004 plus Romania and Bulgaria - can be a significant boost for the rest of the economy in the enlarged/ expanded European Union. Therefore, the policy aims to reduce disparities between regions in the European Union. For this purpose, Member States and regions need significant financial help to solve various structural problems and achieve their potential widespread growth. There are significant disparities between Member States and its regions, these differences outside the Gross National Product (GNP) being given by: • infrastructure provision • environmental quality • unemployment and labor skills required for future development CES Working Papers – Volume VI, Issue 2 9 • size and diversity of the business • difference in the use of new technologies. To reduce disparities between regions through Cohesion Policy 2007-2013, the European Union has set the following objectives, together with grants and other measures to achieve them (Council Regulation, 2006): Objective 1. Reduction of the disparities between different regions and EU Member States with a GDP / capita less than 75% of the Community average and regions covered the so-called "statistical effect" are also eligible to be financed under the objective of the Cohesion Fund, Member States whose GNP per capita is less than 90% of the Community average. Thus in the current financial perspective, 81.54% of the structural funds are dedicated to this purpose, namely 251.163 billion allocated for investment in infrastructure, human capital, innovation Objective 2. Regional competitiveness and employment is funded with 15% of the budget for structural funds and cohesion. These targeting regions are not eligible under the convergence objective. Figure 1 - Regions eligible for Objectives "Convergence" and "European Competitiveness and Employment" Source: European Commission The two objectives are closely related, as improving cohesion within the EU depend largely on increasing competitiveness. Objective 3. European territorial cooperation is funded by 5% of the budget for structural and cohesion funds and targeting transnational cooperation, cross-border and interregional. For this objective was allocated a sum of 7.75 billion, respectively 2.52% of the funds for cohesion policy, being fully funded by the ERDF. To achieve the three goals in the 2007-2013 period, the EU has allocated 347 billion for its 27 Member States, representing 35% of the total EU budget for the same period (975 billion). CES Working Papers – Volume VI, Issue 2 10 Table 1Financial allocations 2007-2013 Structural and Cohesion Funds Eligible areas Financial allocations Objective „Convergence” 81,54% 251,16 Mld. Euro ERDEF Regions with GDP / capita <75% of GDP / EU 25 57,04% 189,6 Mld Euro EFS CF Member States with GNI <90% GNI / capita, EU-25 24.5% 24,5% 61,55 Mld Euro Objective „ Competitiveness and Employment” 15,95% 49,13 Mld. Euro ERDEF Member States shall propose a list of NUTS I or NUTS II 15,95% 49,13 Mld. Euro EF Objective „ European Territorial Cooperation” 2,52 % 7,75 Mld Euro ERDEF Border regions and regions transnational cooperation 2,52 % 7,75 Mld Euro Source: European Commission 1.3. The legal basis of regional policy The legal framework of EU regional development policy has established regional policy objective of Title XVII of the Treaty in the European Union "reducing disparities between the levels of development of the various regions and the backwardness of the less developed regions or islands, including rural regions". Add:  Regulation no. 1080/2006 on the European Regional Development;  Regulation no. 1081/2006 on the European Social Fund;  Regulation no. 1082/2006 European Territorial Cooperation;  Regulation no. 1083/2006 laying down general provisions on the European Regional Development Fund, European Social Fund and the Cohesion Fund Regulation no. 1084/2006 establishing a Cohesion Fund. 2. ROMANIA IN THE EUROPEAN CONTEXT 2.1. Romania and European Union Relations Romania is the first country in Central and Eastern Europe that has established formal relations with the European Community. First official relations between RO and the former Economic European Community have been established in 1967, by initiating the negotiations for a series of sectorial and technical agreements on food products, such as: cheese, eggs, pork. In 1974 Romania enters the generalized system of preferences (GSP) of the European Economic Community. In 1980 it is signed the Agreement on trade in industrial products subsequently suspended by the Community because of human rights violations during the communist regime. CES Working Papers – Volume VI, Issue 2 11 Although in the next years Romania - EU diplomatic relations worsened near the western structures, this is resumed 10 years later, with the end of communism and the "Cold War" (Berlin Wall), thus in 1991 the Trade and Cooperation EU Agreement was signed. On 01.02.1993 Romania signed the European Union Association Agreement (Europe Agreement), which became applicable in 1995; this agreement determines the legal and institutional relations between Romania and the EU, having the main objective to get prepared for adhering to the European Union. Formal application for membership is submitted on June 22, 1995, the next period scrolling down (??) the Commission's analysis and publication of a series of documents concerning the accession of Romania: • July 1997 -"Opinion on Romania's Application for membership of the EU"; • November 1998 -"Regular Report on Romania's progress towards accession"; • October 1999 - "Periodic Report" on Romania, the recommended starting accession negotiations, subject to certain conditions; In June 1999, Romania adhered to the National Programme for Accession to the EU, so that in the same year, the European Council decided to open accession negotiations with six candidate countries (Malta, Slovakia, Lithuania, Latvia, Bulgaria and Romania) – Helsinki 1999. To support efforts to prepare for accession to the EU, the European Commission issues a "Roadmap for Romania and Bulgaria" (November 13, 2002), followed seven days later Parliament proposed on1st of January, 2007 target date for accession of Romania to the European Union. In the Copenhagen European Council on 12-13 December 2002 was decided the accession of 10 new Member States. On the 26th of March, 2003 the European Commission presented a revised edition of the Romanian Partnership Accession. Following the assessments presented in the 2004 annual report, Romania obtained the rule of functioning market economy, which influences the dynamics of the accession negotiations, so on December the 17th, 2004, at the European Council in Brussels, it receives confirmation to completion of accession negotiations. On April the 13th, 2005, Romania and Bulgaria received the opinion of the European Parliament, followed by the signing of the Accession Treaty to be held on 25thof April, 2005 at the Neumunster Abbey in Luxembourg. Since that time Romania has observer status in the work of the CES Working Papers – Volume VI, Issue 2 12 European institutions, being involved in the drafting of Community legislation, but having no right to vote. January the 1st, 2007 is the date when Romania becomes a Member State of the European Union accession accompanied by a series of measures to remedy existing national deficiencies (agricultural funds, legal system, corruption etc.) for the last two components being established a Cooperation and Verification Mechanism (CVM). 2.2. Regional Development Policy in Romania Although the Maastricht Treaty (1993) says that the EU should "promote economic and social progress and a high level of employment of labour as creating an area without internal frontiers and strengthen economic and social cohesion in the European Union" in Romania, until 1996, the Government committed for the first time, regional and local development policy chapter of its program "funds to finance programs and projects of regional and local development will be established ... the principles of decentralization and subsidiarity will be applied, where local authorities will become privileged dialogue partner. National restructuring programs will be linked to regional and local development projects ... the adoption of regional and local variants will be stimulated" (Romanian Government Program, 1996) Officially, in Romania, regional development policy exists from mid-1998. Until then, there were only certain spatial planning activities related to identifying of priority areas, such as the Black Sea and the Danube-Black Sea Canal Zone (Pascariu, 2002). Thus, with the support of the European Union, following closely the recommendations of the "Green Paper on regional development" (1997), and Law 151/1998 on regional development in Romania, in late 1998 the 8 regions of Romania are being constituted. They function as tools to promote economic and social development and research, being affiliated to the European Commission Eurostat Statistical Services. According to the Nomenclature of Territorial Units for Statistics (Oltean, 2004), NUTS II regions are statistically similar to other regional levels in EU Member States, counties are at NUTS III level, and the towns and cities correspond to NUTS V. The 8 regions are not administrative units, they do not have legal personality and they are the result of an agreement between the county and local governments to organize "framework development, implementation and evaluation of development policies and collection specific statistical data in accordance with European regulations issued by EUROSTAT for the second level NUTS II territorial classification, existing in the European Union." (Law 315, 2004) CES Working Papers – Volume VI, Issue 2 13 Figure 2 - Map of the regional division in Romania Source: http://scmdfiliala1constanta.blogspot.com Table 3 - Regions of economical development in Romania Development Region Departaments North East Iasi, Botoşani, Neamţ, Suceava, Bacău, Vaslui Vest Arad, Caraş-Severin, Hunedoara, Timiş Nord West Bihor, Bistriţa-Năsăud, Cluj, Maramureş, SatuMare, Sălaj Centre Alba, Sibiu, Mureş, Harghita, Covasna, Braşov South Est Vrancea, Galaţi, Brăila, Tulcea, Buzău, Constanţa SouthMuntenia Argeş, Dâmboviţa, Prahova, Ialomiţa, Călăraşi, Giurgiu,Teleorman South West Oltenia Mehedinţi, Gorj, Vâlcea, Olt, Dolj Bucharest-Ilfov Bucharesti and Ilfov Source: http://www.mdrap.ro/ 2.3. Considerations on regional disparities in Romania In Romania regional disparities were not measured officially until 2000. The Green Paper on Regional Development Policy developed in 1997 by the Government of Romania has been prepared based on a preliminary analysis of the level of disparities in Romania. The next period - 1998-2000 - was also characterized by a thorough analysis of rural areas, which revealed significant disparities. All these studies have shown significant differences in levels of economic and social development between the regions and counties and inside the counties. CES Working Papers – Volume VI, Issue 2 20 Table 9 - Tertiary educational attainment, age group 25-64 by sex and NUTS 2 regions Tertiary educational attainment, age group 25-64 by sex and NUTS 2 regions 2005 2006 2007 2008 2009 2010 2011 2012 2013 NorthWest 9.1 9.6 11.0 12.1 12.1 13.1 13.5 13.8 14.3 Centre 9.7 10.8 11.1 11.4 11.8 11.7 13.0 14.0 14.7 Nord Est 9.4 9.8 10.3 11.1 11.2 11.6 12.5 13.1 12.5 South Est 8.5 9.2 8.8 9.4 10.0 10.5 11.6 12.2 12.4 South Muntenia 7.9 8.7 8.6 8.6 9.1 10.1 11.2 11.5 11.9 BucharestIlfov 25.4 26.5 26.3 27.7 27.7 28.6 31.4 32.0 33.3 South West Oltenia 10.6 10.8 11.1 12.8 13.0 13.5 13.6 14.2 14.7 West 10.9 10.8 11.4 12.8 14.3 14.3 14.9 15.4 14.4 Source: Eurostat CONCLUSIONS Although there is a clear process of convergence in EU region sduring the analyzed period (2005-2012), it could be affected by development and increased regional disparities within each individual Member State, in particular in the new Member States, which still have structural and regional problems. For Romania there is a widening gap between the eight regions, particularly in terms o feconomic performance. These disparities are emphasized when considering the BucharestIlfov, on the one handand the other region son the other hand. REFERENCES Council Regulation (EC) No 1083 (2006) available at http://eur-lex.europa.eu Council Regulation (EC) Nr. 1260 (1999) available at http://eur-lex.europa.eu EU Treaty (1993) available athttp://eur-lex.europa.eu European Commission (2001) Second Report on Economic and Social Cohesion, Brussels, Eurostat. Law 315 of 28 June 2004 on Regional Development in Romania, published in the Official Gazette, no. 577/29.06.2004, chapter 2, article 5, paragraph 2. NE Regional Development Plan 2014-2020. CES Working Papers – Volume VI, Issue 2 21 Oltean, I. (2004) Regional Policy in Romania: Implications for the EU accession process, Euroregion Development Cooperation Programme in Central and Eastern Europe, Friedrich Ebert Stiftung, Office Romania, Bucharest. Pascariu, G. (2002) The impact of social cohesion on economic and social development at the regional level in Romania, European Institute of Romania, Bucharest. Puigcerver-Peñalver, M.C. (1996) The Impact of Structural Funds Policy on European Regions´ Growth. A Theoretical and Empirical Approach, The European Journal of Comparative Economics Vol. 4. Romanian Government Program, December. Romania's European Economic Community Association (1993), Brussels http://www.dce.gov.ro/Materiale%20site/Acordul_european_01%5B1%5D.03.06.html Treaty of Maastricht (1993), Art.2.