The effects of internal and external imbalances on Romanian’s economic growth

This article examines the tendencies of economic growth in Romania after its transition to the market economy by employing a balance of payments approach and an extended growth model that takes into account both internal and external imbalances. The first approach is linked to the well known balance of payments constrained growth hypothesis, while the second is an extension of that model that encompasses not only external imbalances emerging from trade but also internal imbalances related to public deficit and debt, among other factors. Both approaches show that the Romanian economy is balance of payments constrained and that measures must be taken to increase the country’s competitiveness. The scenario analysis provided by the second approach reveals that the Romanian economy must improve its external competitiveness in order to achieve higher growth rates.