Consilium Policy Advisors Group (CPAG) presents a selection of findings from its research on globalization and economic convergence in Central and Eastern Europe, examining the performance of foreign-owned and domestic firms in Romania, Bulgaria, Czechia, Hungary, and Poland over the 2021–2024 period.
Romania’s economic development requires the simultaneous upgrading of foreign-owned and domestic firms through investment, technology, and higher value-added activities.
Data show that foreign investments have contributed to the economy’s development over the past four years, but productivity gaps remain significant. The productivity of local companies is below that of foreign affiliates, which in turn is below the productivity of companies in their home countries.
In 2024, foreign-controlled firms accounted for approximately 3% of all enterprises in Romania, yet employed 27.5% of the workforce and generated nearly 41% of total value added. Their productivity was 1.9 times that of domestic firms, while labor costs per person employed were 2.2 times higher. Most foreign affiliates come from the European Union, accounting for 2% of all enterprises, 19% of jobs, and 29% of added value. They are 1.9 times more productive and have double the labor cost per employee compared to domestic firms. Five EU countries are mainly represented: Germany, France, Italy, the Netherlands, and Austria. Their affiliates make up 1% of all enterprises in Romania, 14% of jobs, and 22% of added value. Both labor productivity and labor cost per employee in these firms were double that of local firms.
Nevertheless, international comparisons reveal considerable potential for further productivity gains. Compared with foreign-controlled firms operating in Germany, France, Italy, the Netherlands, and Austria, foreign-controlled firms in Romania achieve only 35% of their productivity levels, compared with 50% in Czechia, 48% in Poland, and 46% in Hungary, based on sector-by-sector comparisons.
The gaps are particularly pronounced in manufacturing, where foreign-controlled firms account for approximately 51% of employment. The analysis indicates that these differences are primarily driven by lower output per worker, highlighting the need for investment in technology, automation, and higher value-added industrial activities.
Between 2021 and 2024, labor costs per person employed increased by 54% in Romanian domestic firms, compared with a 39% increase in value added per person employed. Among foreign-controlled firms, the corresponding increases were 45% and 28%, respectively, measured in nominal euro terms.
Romania therefore recorded the largest increase in labor costs relative to value added among the five economies analyzed. Although labor costs remain significantly lower than in Western Europe, productivity differences substantially reduce this advantage. When measured relative to value added, the labor cost advantage of foreign-controlled firms in Romania is only approximately 3% compared with their counterparts in the Western economies analyzed.
Wage growth is a natural outcome of economic convergence, but its sustainability depends on firms’ ability to generate higher value added.
Realizing Romania’s economic convergence potential requires simultaneous progress across both segments of the economy: upgrading the activities of foreign-owned subsidiaries and increasing the productivity of domestic firms, which account for nearly three-quarters of total employment.
“Foreign and domestic investments have played a key role in modernizing the Romanian economy. The next stage of convergence requires speeding up investments and closing productivity gaps by directing them towards higher value-added activities, from engineering and R&D to advanced technologies and more complex production processes. Only in this way can the virtuous circle of future development be created. Economic policies, investment incentives, and EU funds should place greater emphasis on technological modernization, digitalization, energy efficiency, and human capital development. The objective is to sustain wage growth through productivity gains. Romania needs a convergence model built on competitiveness, innovation, and higher value added, ultimately translating into sustainable improvements in living standards”, said Ella Kallai, Co-Founder of Consilium Policy Advisors Group and author of the research.
According to illustrative scenarios developed by CPAG, reaching 90% of the average productivity of foreign-controlled manufacturing firms in Czechia, Hungary, and Poland could generate approximately EUR6.7 billion in additional value added. In parallel, a 10% increase in the productivity of domestic firms would translate into approximately EUR9 billion in additional value added. These estimates highlight the potential benefits of developing both segments of the economy simultaneously through productive investment, innovation, and technology transfer.
For Romania, the challenge is no longer simply to attract investment and integrate into the European economy, but to reduce the productivity gaps.
CPAG’s research, “Globalization and Convergence in Central and Eastern Europe: Foreign and Domestic Firms, 2021–2024”, examines productivity, labor costs, investment, and value added across five Central and Eastern European economies, comparing their performance with that of firms in the main investor countries. The analysis covers 11 economic sectors, including the main branches of manufacturing.
Consilium Policy Advisors Group (CPAG) is an economic think tank conducting in-depth economic research to translate emerging challenges into clear, policy-relevant issues for Romania.