REGIONAL PATTERNS OF GLOBAL ECONOMIC CRISIS SHOCKS

PROPAGATION INTO ROMANIAN ECONOMY*

Dorel Ailenei**, Amalia Cristescu, Cristina Vian
Dorel Ailenei
Bucharest Academy of Economic Studies
Department of Finance
Calea Dorobantilor 15-17, District 1, Bucharest,
Postal Code 010572, Romania
Email: dorulilenei@gmail.com
** Corresponding author
Biographical notes
Dorel Ailenei is Professor of Economics and Economic Policies at the Academy of Economic
Studies , Bucharest , Romania . Dorel Ailenei has published scholarly work on economic growth,
regional development, and labour markets. He teaches undergraduate and graduate courses in
microeconomics, macroeconomics and regional development. He is member in some national and
international associations: The Romanian Regional Science Association, European Regional Science
Association, The Regional Science Association International.
Amalia Cristescu is Assistant to Faculty of Economics at Bucharest Academy of Economic
Studies and also researcher to National Scientific Research Institute for Labour and Social
Protection. She is PhD in Economics, Bucharest Academy of Economic Studies. Her research fields
are macroeconomics, labour economics and regional economics. She is editorial assistant
at Theoretical and Applied Economics Journal and member in some national and international
associations: The Romanian Regional Science Association, European Regional Science Association,
The Regional Science Association International.
Cristina Vian is a PhD student in Economics at the Bucharest Academy of Economic Studies. Her
research fields are: Macroeconomics, Business Cycles and Economic Growth, European Integration
and Economic Convergence.

Acknowledgments:

This work was co-financed from the European Social Fund through Sectoral Operational Programme Human Resources
Development 2007-2013; project number POSDRU/107/1.5/S/77213 Ph.D. for a career in interdisciplinary economic
research at the European standards.

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
Abstract: This paper is a result of a reaction to delay in statistical data source regarding territorial
economic reality. For example, in Romanian statistics, the national account indicators (GDP, added
value, industrial output, etc.) in regional profile are available only for 2008. On the other hand,
economic reality is talking about an unpredictable end of the economic crisis, both in global
economy and in the Romanian economy. When statistical data is available we expect that the global
economic crisis will be over and we try to find what type of back-up analysis will be adequate for
the present regional economic state. In these circumstances, based on the available regional data, we
try to estimate the predictable regional patterns of the propagations of the global economic crisis
shocks into the Romanian economy, step by step, from 2008 to 2011. Thus, we begin with a quite
integrate profile of the regional development in 2008 and, afterwards, based on a series of statistical
data for the 2009-2011 period, we try to project predictable trends. The main equations of our
research consist in: is there a stochastic pattern in global economic crisis propagation at regional
level in the Romanian economy, or are there some consistent factors advocating a scientific
explanation of regional disparities during economic crisis period. Taking in account this research
objective, we implement an econometrical cross-section analysis of the main economic regional
indicators between 1998-2008 and try to compare the estimated forecasts with the available regional
statistics for the 2008-2011 period.
JEL Classification: R11, R15, E20
Key words: crisis shocks, propagation patterns, inertial effect, regional profile

Introduction
The chances for a sustainable economic recovery depend on a deep assimilation of the lesson
taught by the global economic crisis. Many specialists think that the recent global crisis was caused
by a combination of asset price bubbles, especially in the real estate sector, and a credit bubble that
led to an excessive leverage. Gros and Alcidi (2010) propose some important considerations about
the causes and the impact of the recent global crisis in the real economy: a) Europe exhibited the
same pre-crisis or bubble symptoms (house price increase, excess credit growth) as the US; b) an
important part of the pre-crisis growth was based on froth and therefore it was not sustainable; c)
in a search for the necessary adjustments caused by these bubbles, we should compare the present
state of the economy to a certain normal state (in the absence of a bubble) and not just to 2007,
which represents the peak of the bubble; d) the most appropriate approach of the crisis is in terms of
changes in unemployment and consumption (rather than only in GDP); e) it does not seem likely
that a credit crunch will impede a recovery while a more meaningful measure of the credit market is
the credit impulse, which has improved sharply over the last year and seems to have returned to
normal by the end of 2009.
One of the most relevant conclusions of these considerations is that the recovery will not
only depend on the financial markets returning to normal, but also on the amount of excess capacity
that was created during the bubble.
There is quite a consensus in the economic literature (e.g. Lane and Milesi-Ferretti, 2010;
Rose and Spiegel, 2010; Claessens et al., 2010) about the heterogeneous impact of the global
recession on individual European countries and regions. Therefore, the investigations of the main
classes of explanations for spatial heterogeneity in the severity of the crisis have been received with
much interest both in the academic and business environments.
42

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
Lane and Milesi-Ferretti (2010), based on a large cross-section analysis on the countries,
study the severity of the crisis as a function of the countries openness and their fiscal situation
before the crisis. They found that the integration degree of the global economy via financial and
trade linkages is the main explanation for the differences among countries in terms of the crisis
impact.
In another study, Groota et al. (2011) have sustained the importance of financial and trade
linkages regarding pattern and crisis impact differences, but they have also added some additional
explanations: the institutional framework and the economic sectoral composition of countries and
regions. Institutions play an important role in defining the economic landscape in countries; even
within Europe there are substantial differences regarding the quality of institutions. Institutions are
known to be especially important in explaining variation in unemployment (De Groot et al., 2006).
For example, countries with a high incidence of trade union membership were confronted with
relatively high reductions of the GDP during the crisis. On the other hand, a higher government debt
to the GDP ratio is associated with a less severe reduction of the GDP and a less significant change
in unemployment during the recession. However, many studies sustain the evidence that countries
with a large current account deficit prior to the crisis have experienced more severe outcomes of the
crisis.
The analysis on NUTS-1 and NUTS-2 regions reveals that the differences in the sectorial
composition explain a substantial part of the variation of the crisis or of the recession impact across
the EU regions. It seems that countries or regions with high shares of more cyclical sectors were
indeed more affected by the crisis.
Claessens et al. (2010) suggest that differentially policies are warranted, rather than applying
an one-size-fits-all approach; they also emphasized the implications of the way that the fiscal
austerity measures play out differently between the European countries and between European
regions.
One of the best pre-crisis predictors for both the reduction of the GDP and the change in
unemployment in each country is the change in the ratio between the GDP and labour costs per hour
during the years prior to the crisis. After these economies enter the recession, in most European
countries the GDP decline is usually followed by increase in unemployment with some delay; it
starts with sharp increases in unemployment rates, followed by gradual increases for one or several
years afterwards.
Empirical evidence indicates a gradual propagation with different lags of the financial crisis
shocks in the global economy. Even in the U.S. economy, which is considered to be the generating
source of the crisis, the shock propagation indicates a significant inertia of the real economy, since
the growth rate of the GDP in 2008 is still positive (although it decreased about five times, from 2.1
in 2007 to 0.4 in 2008). Furthermore, in 2009, the most developed country performed a negative rate
in the GDP dynamics and therefore, it entered the economic crisis (table 1).
Similar trends have been registered in some developing countries (South Africa, Turkey,
Mexico) and in transition economies, the most relevant being Russia (with a GDP growth rate of 7% in 2009).
It is very interesting to notice the unusual strong note of the two great emerging economies
in Asia - China and India - which have maintained high GDP growth rates (with slight decreases in
2009, but with trends of recovery in 2010). The cyclical asymmetry in relation to the dynamics of
the world economy can be explained both by huge foreign exchange stocks (supported by
commercial gluts, but potential risks are determined by regional and global imbalances) and the
circumstances favourable to the demand for cheap consumer goods due to the lower purchasing
power of the population in developed countries.
43

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
The African countries have maintained modest but positive GDP growth rates even in the
recrudescing year of the crisis (2009), but they have quickly recovered in 2010 due to the
maintenance of a high level of the demand for raw materials and agricultural commodities. In most
of the world economies, visible signs of recovery appeared only in 2010. However, the expectations
for a sustainable consolidation of these positive trends became uncertain in 2011, due to the huge
public debt problem that some countries in the Euro zone are facing, to the tensions between the
main currencies generated by speculative attacks, to the crossing borders of some currency areas, to
the dissipation of external inflationary pressures in some developed countries as a result of
maintaining the currency liquidity gluts etc.
Table 1: World GDP Growth, 2004-2010
2004 2005 2006 2007 2008
c)
World product
4,0
3,5
4,0
3,9
1,9
Developed economies:
3,0
2,5
2,8
2,6
0,5
Euro Zone
2,2
1,7
3,0
2,7
0,7
Japan
2,7
1,9
2,0
2,3
-0,7
Great Britain
3,0
2,2
2,9
2,6
0,6
United
States
of 3,6
3,1
2,7
2,1
0,4
America
Transition economies:
7,7
6,5
8,0
8,4
5,5
Russia
7,2
6,4
7,7
8,1
5,6
Developing economies:
7,3
6,7
7,3
7,6
5,4
Africa:
6,5
5,9
5,9
6,0
4,9
Nigeria
10,6 5,4
6,2
7,0
6,0
South Africa
4,9
5,0
5,3
5,1
3,1
East and South Asia:
7,8
7,7
8,6
9,3
6,3
China
10,1 10,4 11,6 13,0 9,0
India
8,3
9,3
9,7
9,1
7,3
West Asia:
8,7
6,9
6,1
5,0
4,6
Israel
5,0
5,1
5,2
5,4
4,1
Turkey
9,4
8,4
6,9
4,5
1,1
Latin
America
and 5,8
4,6
5,5
5,6
4,1
Caribbean:
Brazil
5,7
3,2
4,0
5,7
5,2
Mexico
4,0
3,2
4,8
3,2
1,3
The least
developed 8,2
7,8
7,9
8,5
7,2
countries

2009a)
-2,2
-3,5
-4,1
-5,6
-4,5
-2,5

2010b)
2,4
1,3
0,4
0,9
0,6
2,1

-6,5
-7,0
1,9
1,6
1,9
-2,2
4,3
8,1
5,9
-1,0
0,1
-4,9
-2,1

1,6
1,5
5,3
4,3
5,0
3,1
6,4
8,8
6,5
3,6
2,0
2,2
3,4

0,0
-7,1
3,3

4,5
3,0
5,3

Source: UN/DESA.

The graphic illustration of the output gap dynamics registered in the main developed
countries support the view regarding the origins of the current crisis in a double-bubble process both
in the U.S.A. and the Euro zone. (Fig.1). However, it appears that while the inflationary gap was the
largest in the Euro zone (exceeding the average one in the developed economies and G7 countries),
the collapse caused by the crisis led to a reversal of the amplitude order of the decreasing gap (the
G7 countries are affected the most, while the Euro zone countries are least affected).

44

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy

Data source: OECD

Fig. 1 Output gap dynamics on countries groups, 1991 2012

Regarding the impact that the global economic crisis had on the Romanian economy, it can
be noticed that the dynamics of the quarterly GDP (seasonally adjusted data) shows a pro-cyclicality
with the Euro zone, but the recovery trends are uncertain even in the 2010-2011 horizon (Fig. 2).
Although it is not a member of the Euro zone, Romania strongly experiences the monetary
turbulence through the monetary channels of the Greek banks and the export flows towards the EU
countries.
106
104
102
100
98
96
94
92

II 2
00
IV 0
20
0
Q
II 2 0
0
0
Q
IV 1
20
0
Q
II 2 1
0
0
Q
IV 2
20
0
Q
II 2 2
0
0
Q
IV 3
20
0
Q
II 2 3
0
0
Q
IV 4
20
0
Q
II 2 4
0
0
Q
IV 5
2
Q 005
II 2
Q 006
IV
20
0
Q
II 2 6
0
0
Q
IV 7
2
Q 007
II 2
Q 008
IV
20
0
Q
II 2 8
Q 009
IV
20
0
Q
II 2 9
Q 010
IV
20
1
Q
II 2 0
01
1

90

Data source: INS

Fig. 2 Romanian GDP dynamics, quarterly adjusted data, 2000 2011

Moreover, these trends are confirmed by the labour market dynamics (Fig. 4) emphasized by
a slight increase in the unemployment rate starting with the second half of 2008 (without reaching
the high levels from 2002 following the emigration of a large segment of the labour force). It is
important to outline the constant trend (with slight oscillations) the employment rate has registered
since 2002, due to the Romanian economys reduced capacity to absorb labour force, but also to the
increasing emigration.
45

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy

12
10
8
6
4
2

Q
I
Q 200
III
20 0
Q 00
I
Q 200
III
2 1
Q 001
I
Q 200
III
2
2
Q 002
I
Q 200
III
20 3
Q 03
I
Q 200
III
2 4
Q 004
I
Q 200
III
5
2
Q 005
I
Q 200
III
20 6
Q 06
I
Q 200
III
2 7
Q 007
I
Q 200
III
8
2
Q 008
I
Q 200
III
20 9
Q 09
I
Q 201
III
2 0
Q 010
I2
01
1

Data source: INS

Fig. 3 Unemployment rate dynamics in Romania, quarterly data, 2000-2011

Methodology
Because of the large time lag of regional statistical information as opposed to the current
state, we tried to combine the comparative analysis of some NUTS 2 economic indicators (as close
to the present moment as possible) with econometric tests of possible correlations between some
NUTS 3 economic variables. Thus, a comparison between the trends of the unemployment rate, the
agricultural production and the FDI at NUTS 2 level, has been accomplished. The panel
econometric analysis was made at the NUTS 3 level using autoregressive equations of different lags.
The option considered the hypothesis based on which there is a strong inertial effect in the dynamics
of some regional variables for which data have been available, such as: the number of completed
homes, employment and unemployment rate. Several variants of econometric equations have been
tested, based on different combinations of lags, and depending on the test results, the most
consistent ones have been selected.
Empirical analysis
In order to capture the impact of the global economic crisis on Romanias development
regions (NUTS 2), annual data from 2004-2010 on unemployment, agricultural production and FDI
have been used. The choice for the time range was rendered by the fact that the negotiations for
Romanias accession to the EU began in 2004. Unfortunately, the last year available for the regional
time series was 2010. Nevertheless, the analyzed period captures both the peak of the inflation gap
(2007) and the crisis period (2008-2010). Thus, there is a countercyclical dynamic of the
unemployment rate, which decreased in the expansion phase and has been increasing since 2008,
reaching a maximum level in 2009 when the economic crisis was at its peak (Fig. 4). The
comparative analysis by region shows that the lowest unemployment rate was registered in the
capital city region (Bucharest - Ilfov) which is also the most economically developed region.
Moreover, the fluctuations of the unemployment rate dynamics are at their lowest amplitude here. In
the other seven regions, the dynamics of the unemployment rate is almost identical as the size of the
variation band (benchmark) is about 3.7%; the highest values are registered in the South-East region,
46

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
while the lowest are registered in the North-East region. The low level of unemployment in the
North-East region may look paradoxical considering that it is the least developed region in Romania,
but this region is also the main source of external labour migration. Under these circumstances, the
compliance with the normal trend is achieved due to the West region, which is the second best in
terms of the development level after the capital city region, and which marks the minimum level of
unemployment rate variation.
12

unemployment (%)

10
8
6
4
2
0
2004

2005

2006

2007

2008

2009

2010

years
BUCHAREST- ILFOV

CENTER

SOUTH

WEST

SOUTH - EAST

NORTH -WEST

SOUTH - WEST

NORTH - EAST

Data source: INS

Fig. 4 Unemployment rate dynamics on regions (NUTS 2) in Romania

The dynamics of the agricultural production is an important regional economic indicator,
considering the high contribution of agriculture to the formation of the Romanian GDP (9 to 12%),
and the great agricultural potential of our country. However, the fluctuations in the regional
agricultural production are rather acyclic due to the dominant weather and climate conditions (Fig.
5). Thus, the highest levels were registered in all the regions in 2008 (except for the capital city
region, which has been excluded from the graph because of the insignificant values), which was the
most favourable agricultural year in the analyzed period. The upper limit of the variation range is
provided by the South and North-East regions, while the lower limit is rendered by the South-West
and West regions.
14
12

8
6
4
2

20
10

20
09

20
08

20
07

20
06

20
05

20
04

mld. lei

10

years
CENTER

SOUTH

WEST

NORTH - WEST

SOUTH - WEST

NORTH - EAST

SOUTH - EAST

47

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
Data source: INS

Fig. 5 Agriculture output dynamics on regions (NUTS2) in Romania

The FDI dynamics is highly relevant in describing the regional profile of the impact that the
global crisis has on the Romanian economy for at least two reasons: it reflects extremely well the
huge gap between the capital city region and the other regions and acts as a pre-crisis indicator (Fig.
6). Thus, the dynamics of the FDI annual growth reveals large gaps (between 3.6 and 8.2 billion
Euros) between the capital city region (Bucharest Ilfov) and the other regions. The fact that there
is an asymmetry of the FDI dynamics in relation to other regional economic indicators can be noted.
For example, in case of the capital city region, the FDI peak is reached a year before reaching the
GDP peak; this indicates the crisis super-eminence by the sudden decrease in the FDI level in 2007.
The effect can be explained based on the greater investment attractiveness on the financial markets,
but also on the state of nervousness on the markets towards the end of 2007 (when the financial
crisis arose). The continuous decreasing trend in 2008-2009 can also be attributed to the withdrawal
of the foreign capital flows in the original countries so that the shortfalls in financial resources could
be compensated. Under these circumstances, the FDI volume in the capital city region is brought to
the common denominator with the other regions in Romania. In these regions, the variations of the
FDI annual growth have been kept in a limited range with slight increases in amplitude during 2008
and 2009 when the positive values coexisted with the negative ones, but the order of the regions
reverses from one year to another.
10
8

mld. euro

6
4
2

20
10

20
09

20
08

20
07

-2

20
06

20
05

20
04

years
BUCHAREST- ILFOV

CENTER

SOUTH

WEST

SOUTH - EAST

NORTH -WEST

SOUTH - WEST

NORTH - EAST

Data source: INS

Fig. 6 The evolution of the FDI by region

Econometric analysis
The difficulty in making an econometric analysis is caused by the lack of regional statistical
data for the occurrence period of the global economic crisis shock, for a sufficient number of
macroeconomic variables. In addition, the registration rates of the existing regional economic
indicators are different and therefore, they require adjustments that greatly diminish the significance
48

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
of the econometric correlations. Under these circumstances, we tried to econometrically test the
correlations in the dynamics of some variables that could indirectly describe the impact of the global
economic crisis on the Romanian economy at regional level. In order to do this, we selected as
endogenous variables those variables whose data series cover as much as possible the time period
associated to the occurrence of the global crisis impact in Romania: the number of completed homes,
employment and the unemployment rate. The option for the number of dwellings can be explained
by the significant contribution that the construction sector has had to the formation of the Romanian
GDP in the last decade; moreover, under the circumstances of a great delay (from present) in the
regional GDP statistical data, the number of completed homes could be a proxy variable for the
GDP. In terms of using the employment variables and the unemployment rate, the intention was to
test the hypothesis commonly used in the literature according to which the unemployment
dynamics could better explain the regional differences regarding the impact of the global economic
crisis (e.g. Lane and Milesi-Ferretti, 2010; Rose and Spiegel, 2010; Claessens et al., 2010). The
purpose of the panel econometric analysis is to test the influence of some typical causal factors,
considering the limitations of the available regional data, and also the forms and the intensity of
some autoregressive correlations with the aim to identify some inertial effects. To this end, we tested
several variants of econometric equations, and the final selection was made based on the best three
assessments for each endogenous variable. The panel is a NUTS 3 structure, respectively the
Romanian counties.

Equation 1
Test of the correlation between the number of completed homes (H?), the number of
employees (NE?) and the net average wage (NW?). We used rates to describe the dynamics of these
variables. The ADF tests showed that the data series are stationary for the analyzed time period. The
data series are annual and cover the period 1997 - 2010 on a panel of 42 NUTS 3 units.
The most consistent econometric equation that describes the number of completed homes dynamics
is:
L? = 20.521 -0.222L?(-1) - 0.163L?(-2) -0.086L?(-3) + 1.493NS? + 1.422NS?(-1) +
0.499NS?(-2) -0.1776SN?(-2)
It can be seen that the most important influence on the number of completed homes is
exercised by the number of employees variable, which exercises its influence on the endogenous
variable (L?) both during the current period (with a coefficient of 1.493) and during the previous
periods (lag 1 coefficient is 1.422, while lag 2 coefficient is 0.499). This means that the increase by
one percent in the number of employees in the current period and in the previous year contributes to
increasing the number of completed homes by approximately 1.5 times. Even the growth in the
number of employees two years ago significantly sustains the increase in the number of completed
homes. The results are completely normal since building a house in Romania requires some time,
and the number of employees in a family requires a support which should be more adequate to the
necessary financial resources. However, the fact that the number of employees variable is vulnerable
to the economic crisis shocks may negatively affect the dynamics of the number of completed
homes indicator; this can be observed in the increasing number of unfinished homes during the
economic crisis.
49

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
It is important to remark that the inertial component is relatively weak and distributed on
three temporal lags, which indicates the vulnerability of the variable to macroeconomic shocks.
Furthermore, the coefficients associated with the autoregressive components are negative on all
three lags and present a flattening trend in the dynamics of this variable as the need for housing is
getting covered better and better.
The influence of the net average wage on the number of completed homes seems to be
somewhat abnormal. First of all, the intensity of the relation is relatively weak compared with the
other variables (a coefficient of - 0.177 opposed to 0.499, which is associated with lag 3 of the
number of employees variable). Moreover, the probability of guaranteeing the correlation is only
0.825 (below normal limits). However, this could be explained by the fact that the cumulative
family income and not the individual income sustains the demand for housing. However, the
negative value of the coefficient associated with the net average wage is paradoxical, because the
interpretation of the correlation would mean that if a net average wage increased two years ago, it
would lead to a decrease in the current number of completed homes. The only plausible explanation
that we have found is that the individual wage cannot support the necessary saving for an investment
in housing; because of its low level, the financing of these investments is made based on the
cumulative family income (which is proved by the strong influence of the number of employees). In
other words, the individual wage supports consumption, while the cumulative family incomes
support saving and therefore, the investments in housing (this conclusion also applies in the case of
financing credit investments in housing since the credit conditions take into account the cumulative
income per capita).
Equation 2
Test of the econometric correlation between the employed population (POP?), the number of
local economic active units (UNI?) and the average gross wage (GW?) during 2003 2010, on a
panel of 42 NUTS 3 units. Beyond the limit imposed by the data availability, the options for the
causal variables can be explained as follows:
The number of local economic active units can be considered a proxy variable suitable for
the labour demand. In addition, such a variable is very vulnerable to the shocks caused by
the economic crisis since the number of bankruptcies increases sharply in such situations.
The wage correlation - employment is an expression of the labour demand that is frequently
tested in the literature. It is absolutely normal to use the gross variant of the average wage
(compared to the previous equation in which the net wage was used) since the cost of the
labour force is what matters the most for employers.
We used rates to describe the dynamics of these variables. The ADF tests indicate that the data
series are stationary for the analyzed time period. After running several econometric tests, we have
selected the most consistent econometric equation:
POP? = - 3.3 + - 0.094POP?(-1) + 0.087UNI? + 0.247UNI?(-3) + 0.046SB?
As expected, the greatest influence on the dynamics of the employed population is exercised
by the number of local economic active units, but the distribution of the influence on temporal
moments is very different. Thus, the impact of the increasing number of economic units in the
current period is about three times lower than the impact registered three years ago (a coefficient of
0.087 for the current period compared to 0.247 for lag 3). This is normal considering the need for a
50

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
period of time that is necessary in order to strengthen and increase the economic units so that they
can provide a significant number of jobs.
It should be noted that the autoregressive component is very weak (coefficient of 0.094
associated with lag 1), which indicates a low inertia effect and therefore, a high vulnerability to
macroeconomic shocks. As for the negative value of the lag 1 coefficient, it reflects a normal
behaviour of slight adjustment in the number of employees, meaning that in case the employment
rate had increased last year, employers would have prudentially adjusted the labour demand. In fact,
the equation reflects very well the oscillatory dynamics of the employment rate in the last decade.
It is interesting to observe the influence of the gross average wage on employment, not as an
intensity of the correlation (a coefficient of only 0.046), but rather as a direction (positive value).
We think that the positive value of the coefficient associated with the normal wage variable
indicates only a covariance between the employed population variable and the gross average wage,
meaning that the variation of the employment rate was sustained by the labour demand rather than
by the labour supply.

Equation 3
Due to the limitations imposed by the available regional data, we have only tested the
correlation between the unemployment rate (UR?) and the gross average wage (GW? as an
expression of the labour force cost). We used annual data on a panel of 42 NUTS 3 units in the
period 1997 2010. After testing several variants, we selected the most consistent econometric
equation:
RS? = 0.371 + 0.882RS?(-1) + 0.017SB?
This time, the autoregressive component is very strong and indicates a significant inertial
trend (coefficient associated with lag 1 of 0.882). The positive value of this coefficient shows that
unemployment is a phenomenon that sustains itself through a persistent unfavourable economic
framework. This is consistent with the minor variations of the national unemployment rate in the last
decade, but also with its limited growth even during the economic crisis (Fig. 3). The explanation of
the phenomenon lies in the high extent of emigration, including at regional level, which largely
regulates the problem of the excessive labour force (in relation to the reduced capacity of the
Romanian economy to sustain a high level of labour demand). We are surprised by the intensity of
the labour force mobility in Romania, especially abroad.
Regarding the influence of the gross average wage, it is only significant in terms of
directions (positive value of the associated coefficient, but a low value of 0.017) indicating a normal
correlation between the labour force cost and the level of labour demand. Nevertheless, there is a
problem regarding the significance of the constant in this equation which is guaranteed with a
probability of only 0.53, but the alternative variants exclude the influence of the gross average wage,
while confirming the intensity of the autoregressive correlation of the unemployment rate distributed
on different lags when the constant is guaranteed with higher probabilities.
Conclusions
The purpose of this article was to detect specific forms of shock propagation of the global
economic crisis on the development regions (NUTS 2, 3) in Romania. We have tried to overcome
the drawback of the insufficient statistical data regarding regions, looking for data as close as
51

Dorel Ailenei, Amalia Cristescu, Cristina Vian -Regional Patterns of Global Economic Crisis
Shocks Propagation into Romanian Economy
possible to the current date. Despite these difficulties, there are certain features of the global
economic crisis impact on the Romanian economy that can be emphasized:
There is an obvious symmetry of the economic cycle in Romania in comparison with the one
in the Euro zone countries or in the group of developed countries, both in terms of the peak
bubble and the economic collapse. The dynamics of the GDP quarterly series have been
adjusted seasonally; the unemployment rate supports this symmetry, although the recovery
phase of the crisis is uncertain in case of the Romanian economy.
The forms of the dynamics of some regional economic indicators (unemployment rate,
agricultural production and FDI) indicate the significant differences between the capital city
region and the other regions in Romania. However, the regional propagation of the economic
crisis shocks is either pro-cyclical (for the unemployment rate), acyclic (for the agricultural
production) or even with forward lag (anticipated lag) for the FDI. It appears that the
dynamics of the FDI can be considered a precursor of the global crisis impact on the
Romanian economy.
The econometric tests on the correlations that characterize the dynamics of some regional
economic indicators, emphasize the vulnerability to external shocks in case of completed
homes (the autoregressive-inertial component is weak) and employment, and a high intensity
of the inertial trend in case of the unemployment rate (due to the external migration of the
labour force in Romania).

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