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2018

Globalization and its Impact


on Romania
A CASE STUDY ON POST-CEAUSESCU TRANSITION PERIOD

IONUT ALEXANDRU PARFENE

MEIA 2 – MASTER IN INTERNATIONAL STUDIES

Nº 83771
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Contents
Abstract ......................................................................................................................................... 2

Introduction ................................................................................................................................. 2

1. Globalization and its Problematic Definition ....................................................................... 3

2. The Romanian Case ................................................................................................................ 5

2.1. Historical Context: Romanian Economic Reform ........................................................ 6

2.2. Globalization and Economic Effect on Romania ................................................. 9

3. Social Effects on Romania .................................................................................................... 11

3.1 Positive Aspects ............................................................................................................... 12

3.2 Negative Aspects .............................................................................................................. 13

4. Conclusion.............................................................................................................................. 14

Bibliography ................................................................................................................................ 15
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Abstract

This paper focuses mainly on a country case study. The country in question is Romania,
an ex: URSS satellite. We will briefly discuss the economic and social effects which the
phenomenon of Globalization had upon it, during the transition from an autarkic and
planned economy to a capitalistic system integrated into the world market.

Keywords: Globalization, Romania, Economy, Society.

Introduction
At the start of the millennium, the world entered in a new phase, marked by the co-
existence and the confrontation between positive tendencies and negative ones. The old
world order based on a bipolar system disappeared. What did that mean for the world as
a whole? The American Liberalism of the Cold War was not as exploratory as the
Communists painted it, nor was Communism as disastrous as the Liberals painted it. In
an ideological conflict everything is said and done so that our own side of the barricade
wins. However, the ideology that wins, when finding itself the sole pole of power,
becomes something different. The arguments remain the same, but the performance and
the results do not correspond to the rhetoric. Liberalism, during the Cold War, was not
the monster the Communists claimed to be, but after the Cold War, Liberalism, which
won and prospered, became exactly such a monster as the Communists accused it of
being. The same would probably happen to Communism and Fascism, should they have
triumphed in the place of Liberalism. Having two ideologies to "divide" the world, forces
them to mutually control and counterbalance each other. For some authors like Kenneth
Waltz the world is worse in a unipolar world because now there is only one dominant
ideology that is not being monitored by another equally strong one, and therefore has the
capacity to do almost everything it wants.
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1. Globalization and its Problematic Definition


Today’s globalization is undoubtedly the greatest process of transformation in human
history, and a challenge for 21st century, encompassing the entire human society and our
planet’s space. There are many definitions of globalization, none fully satisfactory,
mainly because it’s hard to define such a complex concept, with each author evidencing
one dimension of it. Giddens defines globalization as the intensification of worldwide
social relations linking distant localities in such a way that local happenings are shaped
by events occurring many thousands of miles away and vice versa. Again, this explanation
is too simple. Probably the there is no clear definition as it can be shown by a joke that I
found on Internet regarding on how Globalization can be related to an event like princess
Diana’s death1. It goes as follows:

Question: What is the height of globalization?

Answer: Princess Diana’s death.

Question: How comes?

Answer: An English Princess with an Egyptian boyfriend, crashes in a French tunnel, driving a German
car with a Dutch engine, driven by a Belgian who was high on Scottish whiskey, followed closely by
Italian Paparazzi, on Japanese motorcycles, treated by an American doctor, using Brazilian
medicines!

And this is sent to you by an Indian, using Bill Gates technology which he stole from the Japanese.

And you are probably reading this on one of the IBM clones that use Taiwanese-made chips, and
Korean made monitors, assembled by Bangladeshi workers in a Singapore plant, transported by
lorries driven by Pakistanis, hijacked by Indonesians and finally sold to you by the Chinese!

Here you have it: Globalization!

As we can see, the Globalization can even be interpreted in a funny way, the truth is that
it constitutes a multi-causal process which carries repercussions in every part of the globe.
There’s no universally accepted definition, or definitive. This is due the fact that it
includes a multitude of complex processes that affect the diverse domains of a given
society. It can be a phenomenon, an ideology, a strategy or everything at the same time.
IMF defines globalization as:

‘’a historical process, the result of human innovation and technological progress.

1
http://ultrafeel.tv/princess-dianas-death-is-a-perfect-example-for-globalization/
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It refers to the increasing integration of economies around the world, particularly


through trade and financial flows. The term sometimes also refers to the
movement of people (labor) and knowledge (technology) across international
borders. There are also broader cultural, political and environmental dimensions
of globalization that are not covered here.’’2

Because the economic sphere constitutes the driving force of this phenomenon, it is no
wonder that the concept of globalization took an economic dimension. This phenomenon
at the same time is contradictory, when we say that we live in a ‘’global village’’, this
village is first and foremost an economic integration of markets between the countries.
How can we live in a global village when we see walls and fences around us, like the wall
between USA and Mexico? In spite of that they belong to the same economic bloc:
NAFTA, free movement of goods and services. This is why globalization can be
interpreted as being contradictory sometimes.

The subject of the globalization caused a great interest of thinkers, but it also created
divergences, as they understood the phenomenon of globalization in different manners.
Anthony Giddens in his book entitled "Sociology" highlights the perspective of David
Held and his collaborators (1999), which divides the opinions in three schools of thought3,
the sceptics, hiperglobalizers and transformationalists.

The Sceptics agree with the fact that there is a bigger interaction and contact between
several people nowadays, but that does not mean necessarily that there is a bigger
integration. The sceptics see the global economy divided in economical blocks, with
culturally similar countries, grouping together in intergovernmental organizations to gain
more economical, diplomatic and military power. The EU, ASEAN, MERCOSUR
CARICOM, and NATO are some of these organizations that aim to reinforce the power
in regions regarding the outside, which enters in contradiction with the idealistic vision
on which we are living in a "global village". Samuel P. Huntington in his book, "The
Shock of the Civilizations", presupposes that the next conflicts will happen between
civilizations, or groups of countries that share the same culture namely religion and
historical past. Each one of these civilizations trying to reach the hegemony at global
level. According to him the humanity might be divided in nine civilizations: Westerner,

2
https://www.imf.org/external/np/exr/ib/2000/041200to.htm#II
3
Giddens, A. (2006). Sociology 5th Edition. Cambridge: Polity Press p.61.
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African, Islamic, Chinese, Hindu, Orthodox, Japanese, Latin-American and Buddhist. For
the sceptics the growing regionalization is proof that the world-wide economy made less
integrated and not the opposite, being concentrated in bags of intense economical
activities.

The Hiperglobalizers constitute the totally opposite view of the sceptics. They argue that
globalization is really happening and its consequences are felt everywhere. Contrary to
the sceptics they think that the importance of the governments in the new emergent global
order, is reducing. They argue that the countries stop being able to control their
economies, as a consequence of the global market, thus reducing the importance of States.
For the hiperglobalizers this is a sign of a new era in which the barriers between the people
are disappearing gradually, suffering an "erosion" from the capitalist driving force.

For the Transformationalists, like Rosenau and Giddens, the regulation of the global
order must be secured on basis of partnership with the new actors of the international
relations (ex: UN, NGOs, IGOs, international treaties), and the beginning of sovereignty
sharing and an adjustment of States to new global challenges. However, they do not
advance with any exercise that gives a perspective regarding the direction of this historical
process, since it is a phenomenon that never took such dimensions in the history.

2. The Romanian Case


Globalization can have two types of consequences for Romania. The first ones are the
positive ones. Romania needs foreign investment capital for development, being unable
to produce this capital only from domestic sources. Being a country with multiple
economic opportunities - from tourism and agriculture to the oil and metallurgy industry
- Romania can become attractive to foreign capital if it provides favorable domestic
(legislative, fiscal) conditions. The rapid capital-driven movement of globalization -
where companies lose their classic "national" identity - can become advantageous for
Romania under a highly skilled but comparatively cheap labor force.

At the same time, the negative consequences - or, more correctly, the risks - of
globalization, are by no means neglected. Account must first be taken of the economic
risks. The phenomenon of globalization is accompanied more than any other by a
"philosophy of the winners" and Romania after the communist regime stepped into a
world where there is little mercy for the losers. If it doesn’t go beyond the current
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economic meltdown and stay away from the economic and security structures (NATO
and the EU), Bucharest may remain suspended not in a "gray area" but in a "margin of
the Empire", synonymous with underdevelopment in the classical sense of the term, with
an economically, politically and militarily detrimental role on the continental and
international, and even regional level.

2.1. Historical Context: Romanian Economic Reform

Stiglitz says in his book ‘’Globalization and its Discontents’’ that for economic
liberalization to succeed, it is essential that reform is implemented at the right speed and
in the right sequence. He blames the IMF for this mistake regarding sequencing and
pacing at which reforms should be undertaken. In his words these mistakes consisted in:

‘’Forcing liberalization before safety nets were put in place, before there was an
adequate regulatory framework, before the countries could withstand the adverse
consequences of the sudden changes in market sentiment that are part and parcel
of modern capitalism; forcing policies that led to job destruction before the
essentials for job creation were in place; forcing privatization before there were
adequate competition and regulatory frameworks.’’4

Despite the Romanian economic reform being described as chaotic, confusing, and with
disappointing results, there was a significant change of property relations, prices and
state’s role in the economy in a market environment.

Many agree that indeed Romania started with more structural handicaps than the rest of
the East-Central European countries5. In the later decade of Communist rule, while some
of the mentioned countries promoted more or less a decentralization effort, flexibility and
a consumer-oriented budget adjustment, Romania by contrast strengthened the central
planning and subsidized failing industries.

In 1981 Romania was obliged to resort to IMF’s lines of credit in order to meet its debt
obligations. As part of conditions Romania was to make a structural adjustment, reduce
trade and account deficits, implement long term managerial and financial reform, and thus
trigger policy change. But instead Ceausescu took a path of austerity and centralization.

4
Stiglitz, J. (2002). Globalization and its Discontent, W. W. Norton & Company, p.73.
5
Carey, H. (2004). Romania since 1989. Oxford: Lexington Books, p.373
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IMF report summarized the prospects of the reform:

‘’Ceausescu’s legacy was an economy plagued by inefficient industrial structures


and an almost obsolete capital stock, a completely disorganized system of production
and distribution, a collectivized agricultural sector, a decaying infrastructure, and
a population whose living standards had been forced steadily down to a level where
even basic necessities—food heating, electricity, and medical attention—were hard
to come by. There is little doubt that the initial obstacles to reform in Romania were
far worse than those faced by other reforming East European countries.’’6 (Carey,
2004).

The political life right after the 1989 revolution was dominated by the National Salvation
Front (FSN), a party which curiously was controlled by dissident communists, military
officers and ex: members of the nomenklatura7. The political elites of the Communist era
simply transformed themselves and adhered to a new economic system. The initial
challenges were how to turn a planned economy into a viable and functioning market
economy. FSN’s leader Ion Iliescu argued that the ‘’shock therapy’’ approach in order to
make this transition was NOT on the Front’s agenda. Iliescu argued that the demolishing
of the central organs wasn’t the objective, and that ‘’we must rely on the existing
structures’’. The so called ‘’Draft Strategy of the Transition’’ was aimed at a slowly and
gradual economic transition. The key features of this policy were as follows: firstly,
introduce market forces into economic decision making; secondly, privatize State Owned
Enterprises, housing and land; and thirdly, reduce the role of the government in economic
decision making. Despite that, during the first stage of the reform, FSN gave in to higher
wages and shorter working hours, and besides that did little to encourage private and
market pricing. They strongly opposed any global integration, continuing subsidizing
failing industries8, using outdated instruments and paradigms in a world which started its
full throttle towards globalization.

By October 1990 the economic situation in Romania deteriorated significantly. In the first
nine months the post-Communist Romania experienced a 27.7% decline in net industrial

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‘’ p.375
7
Nomenklatura was a category of people within the Soviet Union and other Eastern Bloc countries who
held various key administrative positions in the bureaucracy, running all spheres of those countries'
activity: government, industry, agriculture, education, etc..
8
Big state-owned industries like Sidex Galați with 27000 employees, which were subsidized in order to
avoid massive unemployment. Many of these big companies were later purchased by foreign investors.
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production and a 22.8% decline in worker productivity. The political elites recognized
that the economic crisis was unsustainable and the reforms had to be accelerated. Until
1994, the mass privatization program was a failure, and a second program of mass
privatization was issued in October 1995.

The elections in 1996 marked a change on policy regarding the centralist administration
towards more western and liberal principles. The Democratic Convention of Romania
assumed the power uniting other reformist parties into their coalition like the PNTCD,
PNL, PD and UDMR. This change reflected the people’s wish towards the promotion of
true democratic reform and the country’s integration into the international community9
(Văduva, 2016). The foreign investment initially stayed away, but the trend has been
reversing since 2000. At the end of 2000 the percentage of the economy in the state sector
was only about 25% compared to the 66% in 1993.

However fragile, institutions and a framework for a market economy were created
between 1989 and 2000, and the economy was de-statized with over 50% of GDP being
produced by the private sector10. Despite all this, the period until 2000 meant very little
for regular people. The macroeconomic stabilization, privatization and the reduction of
government deficits were not an issue for them. Life was still hard; the

survival and the satisfaction of basic necessities were their main concern. As you can see
on the graphic below, the period between 1990 and 2000 is characterized by a profound

stagnation. From 2000 onward, we can see an exponential increase in GDP, as a result of

9
Văduva, S. (2016). Between Globalization and Integration: The Europeanization of Romania.
SpringerBriefs in Economics, p.72.
10
Carey, H. (2004). Romania since 1989. Oxford: Lexington Books, p.386.
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efforts undertaken in order to integrate Romania into European Union’s access


requirements. In January 2007 Romania became a full-fledged Member of the European
Union, after 17 years of struggle with corruption and institutional problems, which still
persist today.

2.2. Globalization and Economic Effect on Romania


As a complex phenomenon, the globalization is dependent on national and international
factors that may stimulate or hinder it. This carries diverse effects on national economies
and world economy as a whole (Dima, 2016).

These factors that may affect globalization may be11:

 Economical - trade, capital flows and financial development;


 Technological - technology exports, research and development, information
society;
 Social - population migration, educational, health systems, poverty,
discrimination;
 Cultural – freedom, acceptance, tolerance;
 Politic - international and multilateral global cooperation, global stability and
security.

It is also expectable that high shares of FDI stocks as percentage of GDP indicate that
foreign capital constitutes an advancing factor of the globalization process. As such, it is
absolutely necessary in order for Eastern and Central European countries, after the fall of
the Soviet Union to attract such investment and to create the necessary conditions. FDI
provides not only more wealth but provides jobs, new technologies which make the
industry more competitive and the development of the capital.

11
Dima, S. (2016). Globalization, Trade Openness and Foreign Direct Investment in Romania. ''Vasile
Goldis'' Western University of Arad. p.2.
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In the graphic above, taken from a study made on the evolution of the Romanian KOF12
globalization index13, we can observe that in 1990 the levels were at approximately 34%
of the GDP and in 2000 at 62%, to a maximum of 72% in 2007. With the recession this
trend was negative but it bounced back in 2011 and since then it has been rising.

Other indicator for economic globalization is trade openness, measured by the share of
the sum of exports and imports in total GDP. Since 1990 it steadily rose reaching at 80%
in 2014.

12
The KOF Index of Globalization is an index of the degree of globalization. It was conceived by Axel
Dreher at the Konjunkturforschungsstelle of ETH Zurich. The index is based on three principal criteria:
economic, political and social.
13
Dima, S. (2016). Globalisation, Trade Openness and Foreign Direct Investment in Romania. ''Vasile
Goldis'' Western University of Arad.
11

Regarding the FDI, in the graphic below we can see that in the first 10 years there was a
timid evolution of the FDI inflows due to an inappropriate legislative framework and
structural problems which we mentioned before. Between 2004 and 2008.there was a
peak in the flow of foreign direct investment reported to the percentage of GDP, which
with the crisis crashed to pre-2000 levels. Since then it has been slowly recovering.

3. Social Effects on Romania


With the fall of the Berlin Wall, one of the most important economic transitions of all
time began. In Joseph Stiglitz’s eyes, this was the second boldest economic and social
experiment following the communist experiment in Russia. In truth the transition from
communism to a market economy wasn’t solely an economic experiment but the
transformation of whole societies and political cultures. Until 1989 there was in place
more or less a similar system of welfare policy across the whole USSR and Eastern
Europe. The social-welfare contract between the nomenklatura and the people, the party-
state apparatus, consisted of highly subsidized prices on food, housing and basic
necessities. As growing in Romania in the post-Ceausescu era I often heard the people’s
complaints but also some degree of nostalgia towards the period. Needless to say, for
some the transition period meant more poverty and a scarcity of basic needs which the
state apparatus formerly provided. There was simply no unemployment in the urban or
rural areas, the latter operating under a collectivized method of organization. A somewhat
adequate health system, although underdeveloped and highly inefficient, and education
system were in place, with the former collapsing drastically after the transition. The
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quality of the education system still persisted for some decades and it didn’t share such a
bad fate due to the ‘’old guard’’ professors and state employees continuing to exercise
their function, obviously with less resources. What many people were aware and even
frustrated about, was that there existed indeed hidden privileges available to the
nomenklatura and state bureaucrats. Bribes and ‘’gifts’’ were the norm if one wanted to
have access to above average goods or services. The work and welfare guarantees
coexisted with an egalitarianism not between individuals, but in poverty for the great part
of the population. The system had some achievements but many shortcomings.
Corruption and the inefficient allocation of resources in a state planned economy,
produced a rotten and declining economy, together with an apathetic population which
looked in awe to the West and its consumption bonanza. A pair of jeans were considered
a luxury. There was a certain hatred towards the system, a desire for freedom and the
opportunity to enter a supermarket and buy the products you wished instead of waiting in
a long queue since early morning. Moreover, foodstuffs weren’t even nearly sufficient.
All these culminated in a bloody revolution with Ceausescu himself being executed. As
the author of this paper, these are my reports, from personal accounts of members
belonging to the generation living in the mentioned period.

3.1 Positive Aspects

Romania undoubtedly benefited from the globalization trough massive financial


investment, technology, management and as a new untapped market. It befitted from
development funds from the European Union which had a decisive contribution in the
country’s modernization. The rule of law, although shaky, is having some success in
curbing the dreadful corruption that afflicted the country for many years, and Romania’s
exports in the EU are increasing contributing decisively for the country’s GDP. Its
membership in NATO and EU amplifies its power as part of a regional bloc and in matters
of security as member of NATO and collective security, spends less in matters of defense.
There is also this feeling that the country and the people can take decisions for themselves,
many of these organizations are benevolent and the membership optional. No one asked
the country members of the Varsovia Pact if they really wanted to form an alliance.14
Brexit showed that any country can leave the project if it wished through a referendum.

14
http://adevarul.ro/news/politica/pro-globalizare-1_583a7f115ab6550cb8e3bc23/index.html
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The free will and sovereignty is something praised by Romania, mainly because
historically in grand part the country never truly had it. By far the country has never been
as secure as now.

There has been no World War for 70 years, an extremely positive things happening. The
contact between people, societies, cultures and technologies reduce the possibilities of
wars on planetary scale. It deters indeed the expansionist and conquering urges that some
aggressive countries might undertake. Let’s see Russia for instance, 50% of its GDP
results from the exports of natural resources, and its citizens had developed an appetite
for luxury and high tech western goods (computers, mobile phones, cars,
electrodomestics). The exchanges and the interdependence became so important and vital
that the risks and losses in case of a conflict are enormous. The benefits of Globalization
are undeniable even for a country like Romania and concluding this, can one truly imagine
the world without internet, mobile phones and worldwide tv channels?

3.2 Negative Aspects

In the ‘’race’’ for profits, goods, services and the acquisition of specific aspects of other
cultures, especially the ‘’hegemonic’’ culture15, there is the risk of ignoring the own
culture and own traditions. For some this is the price that has to be paid in exchange for
some advantages. In Joseph Stiglitz’s eyes globalization has simply not worked and I
quote:

‘’Many have actually been made worse off, as they have seen their jobs destroyed
and their lives become more insecure. They have felt increasingly powerless
against forces beyond their control. They have seen their democracies
undermined, their cultures eroded. The risk can be diminished or accentuated,
depending on institutions like the education, the media and civil society as a
whole in identifying these risks and manage it.’’16

The problem in Stiglitz’s eyes is that the process of globalization has been pushed and
sometimes forced upon some countries, without taking into account the characteristics of
each individual country and setting their own terms of taking part in it. Neoliberal policies

15
http://adevarul.ro/news/politica/pro-globalizare-1_583a7f115ab6550cb8e3bc23/index.html
16
Stiglitz, J. (2002). Globalization and its Discontent, W. W. Norton & Company, p.248.
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were implemented at a fast pace often with drastic results by ‘’market fundamentalists’’,
IMF, and the Washington Consensus preachers. Romania was no exception and its
relations with FMI precipitated the communist regime downfall trough badly employed
reforms in order to receive credit aid. The debt was finally paid a few months before the
revolution trough austerity measures which had taken its toll on the population’s
wellbeing.

4. Conclusion

In this paper it was given a brief explanation on the phenomenon of globalization and its
interpretation among the scholars, namely skeptics, hiperglobalizers and
Transformationalists. We also concluded that despite the ups and downs during the first
ten years of the transitional period, Romania managed to integrate itself into the global
market and intergovernmental organizations. A high share of the economy was de-
statized along these years and by 2000, 50% of GDP was produced by the private sector.
It opened to the world and in 1990 the KOF index of globalization levels were at
approximately 34% of the GDP and in 2000 at 62%, to a maximum of 72% in 2007.
Romania attracted a great share of FDI since 2000, but the previous 10 years were a total
disaster in this matter due to corruption issues, lack of a legal framework and confidence
for investors. One can ask himself, why did it take almost 10 years to transition to a
functioning market economy? The Mass Privatization Program (MPP) in Romania did
not ensure a quick transition to a market economy mainly because the institutions
designed to handle the privatization process were captured by the industrial elites,
delaying the process until the insiders were in a favorable position to take the position as
the new owners. Vested interests of the public sector tied to the former ex:communist
party members were formed. The result was that instead of having a fully market driven
system, there was formed a hybrid system, with the bureaucrats in state institutions having
an important role in allocating economic resources and more damaging, distorting
competition in their favour17. Which takes us to Stiglitz’s idea that without a level of
competition in the market being established by the institutions and a right sequencing of
reforms, the success of transition to a market economy is prone to failure. We also pointed

17
Tache, I. (2009). The Mass Privatization Process in Romania: A Case of Failed Anglo-Saxon Capitalism.
Transilvania University of Brasov p.12.
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out the positive and negative aspects of the Globalization process in Romania, the dangers
it might represents if not undertaken in a responsible manner.

Bibliography
Carey, H. (2004). Romania since 1989. Oxford: Lexington Books;

Dima, S. (2016). Globalisation, Trade Openness and Foreign Direct Investment in


Romania. ''Vasile Goldis'' Western University of Arad;

Văduva, S. (2016). Between Globalization and Integration: The Europeanization of


Romania. SpringerBriefs in Economics;

Giddens, A. (2006). Sociology 5th Edition. Cambridge: Polity Press;

Stiglitz, J. (2002). Globalization and its Discontent, W. W. Norton & Company;

Raiu, S. (2011). Procesul Globalizării în România, Bucharest: Revista Română de


Sociologie;

Tache, I. (2009). The Mass Privatization Process in Romania: A Case of Failed Anglo-
Saxon Capitalism. Transilvania University of Brasov.

http://adevarul.ro/news/politica/pro-globalizare-1_583a7f115ab6550cb8e3bc23/index.html

https://www.imf.org/external/np/exr/ib/2000/041200to.htm#II
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