Background
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Introduction
With the globalization of the world, countries are increasingly interested in their economic growth and development. Globalization is the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets (Merriam-Webster.com, 2020). Although it is known for connecting national economies across the globe and increasing international commerce, it has also been a source of disadvantages for some nations, which sparked the debate between free and fair trade. In many cases, nations are forced to change the structure of their society to adapt to the current global economy. For instance, there are nations that have struggled to open up their markets and expand internationally. Some of these are countries in Eastern Europe, such as Romania, that experienced a hard time transitioning from communism to capitalism. Many organizations have been formed to aid such countries to assist in this transition. The American Chamber of Commerce (AmCham) opened a branch in Romania in 1993, with its main goal being to stimulate commercial relations between Romania and the United States. Yet, AmCham Romania has been having organizational issues with their member communication.
Understanding the Global Context
After the fall of the Soviet Union in 1989, the countries of Eastern Europe strived to implement new political, economic, and cultural models that mimicked that of the Western free-market liberal democracies. Therefore, post-communist Eastern Europe became an ever-changing region of reconstruction and nationalization while continually attempting to integrate into the rest of Europe, such as joining the European Union (Bottoni & Lambert, 2017). Joining the EU was of utmost importance to many Eastern European countries as it would allow the free flow of goods and capital within Europe (Bottoni & Lambert, 2017).
Romania's Economic History
With the fall of communism in 1989, Romania was faced with the challenge of transitioning to a capitalist economy. The following decade of the 1990s did not see a lot of economic progress, as the country fell into a serious transformation recession (Neef, 2002). In 1991, less than half of the Romanian population claimed to be able to live off their wages (Neef, 2002). The statistics only worsened by 1998 as this figure dropped to 16%.
Despite the slow start, Romania’s economy experienced major economic growth from the 2000s up until the global financial crisis of 2008, the Great Recession. In fact the growth in 2007 and 2008 was supported by the capital stock, also known as the amount of shares within companies, in the economy (Armeanu, Crețan, Lache, & Mitroi 2015). This growth expanded the demand for nonessential consumer goods and the presence of real estate investments in the region (Bottoni & Lambert, 2017). These economic developments during these two years were also in large part due to the sustained increase in direct investments by foreign credit.
However, following the financial crisis of 2008, the steep decline in total factor productivity and increase of loan withdrawals caused an economic downturn in 2009 and 2010. Foreign investments in the Romanian economy drastically declined during this period. In reaction, local banks’ tightened their lending policies due to parent institutions also decreasing their funds. This was a policy that led to overly restrictive measures during the recession, which ended up extending periods of negative output gaps. Post-recession was a very slow recovery period barely exceeding 4% GDP in the seven years following the great recession.
Increasing the number of foreign investments in Romania, back to the level before the recession, will help to stimulate the economy once again. Cultivating economic relations with other nations will allow Romania to improve foreign relations and increase foreign investments.
The American-Romanian Relationship
The United States and Romania have enjoyed a bilateral relationship since formal diplomatic relations were established in 1880. The mutual relationship between the two countries encompass military, political, economic and cultural partnerships. This relationship further deepened after Romania embraced democracy in the 1990s (In Celebration of 125 Years of United States and Romanian Diplomatic Relations, 2006). The partnership between the U.S. and Romania started with a commercial treaty and the promotion of bilateral trade. Since then the commercial ties between the two countries have grown tremendously. In fact, between 1891 and 1914 American exports into Romania increased twenty-fold. With this long established history between the two countries, the two countries can easily help one another progress together in the global marketplace.