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Procedia Economics and Finance 6 (2013) 273 – 279

International Economic Conference of Sibiu 2013 Post Crisis Economy: Challenges and
Opportunities, IECS 2013

Measuring International Competitiveness of Romania by Using

Porter's Diamond and Revealed Comparative Advantage
Mihaela Herciua*
a
Faculty of Economic Sciences, Lucian Blaga University of Sibiu, Romania

Abstract

International competitiveness generate a number of challenges because creates profitability for companies, welfare for citizens,
sustainable prosperity for the economy as long as it is perceived as a constructive concept. The aim of present paper is to identify
the international competitiveness of Romania by analyze the competitive advantage and disadvantage according to Porter`s
Diamond, on one hand, and by calculate revealed comparative advantage according to Balasa, on the other hand. The results show
that Romanian has more competitive disadvantage than competitive advantage, even if by comparison with European Union,
Romania has some revealed comparative advantage.
©
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2013 The
The Authors. Published by
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Selection and peer-review under responsibility
Selection and peer-review under responsibility of ofFaculty
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Sibiu.

Keywords: international competitiveness; Porter`s Diamond; revealed competitive advantage; Romania.

1. Conceptual framework

Over the years international competitiveness has become a goal for economies in their struggle for achieving a high
level of performance. Obviously, international competitiveness of a country is related to international competitiveness
of firms but not in an exclusive way because the macroeconomic environment and stability plays an important role at
national level.
Starting with Porter (1990) and continuing with Trabold (1995), Krugman (1996), Aiginger (1998), Mitschke
(2008), the specialist had accepted the concept of international competitiveness of a nation.

*Corresponding author.
E-mail address: mihaela.herciu@ulbsibiu.ro

2212-5671 © 2013 The Authors. Published by Elsevier B.V. Open access under CC BY-NC-ND license.
Selection and peer-review under responsibility of Faculty of Economic Sciences, Lucian Blaga University of Sibiu.
doi:10.1016/S2212-5671(13)00140-8
274 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279

According to well know Porter`s Diamond, the determinants of competitive advantage at microeconomic level are:
the factor conditions (the wear of basic and advanced factors); the demand conditions (the level of buyer sophistication
and market size); the related and supporting industries (the activities from value chain in order to promote
competitiveness); the firm strategy, structure and rivalry (how is manage and how we compete).
For macroeconomic level of international competitiveness, Porter has added more 2 determinants, such as: the
government (antitrust, education, subsidies) and chance (taking into consideration some unpredictable events).
The nature of international competitiveness of country depends on the quality of interrelations between the four
determinants of microeconomic level and the two dimension of macroeconomic level because they can promote a
healthy business environment or on the contrary a ill business environment (Liu and Hsu, 2009).
Also, in Mitschke (2008) opinion the international competitiveness of a nation has two dimensions (See Figure 1).

Two Dimension of the International Competitiveness of Nations

Locational Attractiveness International Competitiveness of
of the Nations Domestic Enterprises
Government Fiscal Policy / Tax Policy
Monetary Policy: Low Inflation and Low Interest Rates
Currency Policy
Capital Market Regulation
Public Infrastructure
Social and Ecological Standard
Trade Policy and Competition Policy: Open and Free Markets
Education Policy
R&D Policy
Two Factors on Domestic Special Economic Zones for Industrial Policy for Domestic Firms,
the International Enterprises Foreign Investors e.g. Export Processing Zones, R&D
Competitiveness Policy Promote Risk-Taking and
of Nations Industriousness
Industrial Clusters Pro- Innovativeness Pro-Competitive
Competitive Behaviour Behaviour Productivity
Readiness for Cooperation Internationalization Business Strategy
in R&D Attractive Banking Management Capabilities Firm
Services Specific Human Capital Export
Orientation

Fig. 1. The dimensions of international competitiveness of nations, Source: Mitschke 2008

According to European Competitiveness Re

economic performance of a nation measured in terms of its ability to provide its citizens with growing living standards
on a sustainable basis and broad access to jobs for those willing to work. In short, competitiveness refers to the
institutional and policy arrangements that create the conditions under which productivity can grow sustainable
(productivity growth is the only source of sustained income growth, in turn the backbone of growing living standards).
When applied to international trade, however, competitiveness, or external competitiveness, may convey a different
more specific meaning. Unless otherwise stated, in this chapter external competitiveness refers to the ability to export
goods and services in order to afford imports, and hence it will be summarized by world market shares (the share of

A way to measure international competitiveness is revealed comparative advantage (RCA). This index was first
developed by Balassa (1965).
 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279 275

RCAij = (Xij/Xwj)/(Xi/Xw) (1)

Where,
Xij = export of good j from country i
Xwj = export of good j at world level
Xi = total exports of country i
Xw = world exports

The index ranges from minus infinity to plus infinity and is symmetric around zero. A positive value reveals a
comparative advantage. One accounts for double counting by excluding the respective country in the aggregates over
countries and the particular product categories in the product aggregates.

2. Romania`s competitive advantage and disadvantage (Porter and Balasa)

Romania is on stage 2 of development as an efficiency-driven economy with a GDP per capita in 2011 of 8863USD.
The last Global Competitiveness Report (2012) from World Economic Forum placed Romania on 78 rank with a 4.1
score. From the 12 pillars of international competitiveness used by WEF to measure international competitiveness,
Romania has competitive advantages for: strength of investor protection, gross national saving as %GDP, general
government debt, tertiary education enrollment, number of procedures to start a business, redundancy costs, weeks of
salary, domestic and foreign market (See Table 1).

Table 1. Porter`s Diamond for Romania

Diamond determinants Competitive advantage Competitive disadvantage

Factor conditions Redundancy costs Availability of financial services
Hiring and firing costs Quality of overall infrastructure
Investor protection

Demand condition Market size Poor investment in R&D

Number of procedures to start a business Degree of customer orientation
Trade tariffs

Related and supporting industries Internet bandwidth Local supplier quality

Broadband Internet subscriptions Local supplier quantity
State of cluster development

Firm strategy, structure and rivalry Tertiary education enrollment Firm-level technology absorption
Quality of math and science education Capacity for innovation

Government General government debt Favoritism in decisions of government

officials
Corruption
Transparency of government
policymaking
276 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279

Chance Gross national saving Predictability

Source: adaptation Voinea et. all, GEA (2010)

Also, the Global Competitiveness Report identify 15 problematic factors that can influence de business
environment, in particularly, and international competitiveness of nation, in generally.

Table 2. Problematic factors of international competitiveness

Factors %Romania
Tax regulation 11.2
Tax rates 11.6
Inadequate supply of infrastructure 13.9
Restrictive labor regulations 5.2
Inefficient government bureaucracy 12.2
Corruption 6.9
Access to financing 15.9
Inadequately educated workforce 4.7
Crime and theft 0.6
Foreign currency regulations 2.5
Policy instability 8.6
Poor public health 0.1
Inflation 3.5
Poor work ethnic in national labor force 2.5
Government instability/coups 0.4
Total 100

Source: GCR (2012), WEF

According to many specialists, a way to quantify the international competitiveness of a nation is market share from
export.
A recent study made by NBR (Competitiveness of Romanian exports: quo vadis?) emphasized that Romania is
competitive in textile and furniture industries (with a low technological level) and chemical industry (with a medium
technological level). Also the last Annual Report about Balance of Payments an International Investment Position of
Romania (2010), identify that in 2010 trade balance was 5923 million euro beside 6871 million euro in 2009. The
value of goods and services export was 45034 million euro in 2011, with 2.4% higher than 2010.
Machinery and transport equipment had a 41.16% share from total export of Romania, following by other
manufactured goods. Commodities and transaction not classified in the SITC had only 0.52% from total export of
Romania.
 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279 277

Food, drinks and tobacco

6.42
7.20 Raw materials
5.52
32.87 Mineral fuels, lubricants and
related materials
Machinery and transport
equipments
6.30 Commodities and transaction
0.52
0. 41.1
16 not clasified in the SITC
Chemicals and related
products
Other manufactured goods

Fig. 2. Structure of export by industries (Romania, 2011), Source: own calculation according to EUROSTAT

In total export structure of Romania, intermediate goods as stage of production represent about 50%, consumer
goods are 21%, capital goods are about 21%, and raw materials only 8%.

21 8
Raw materials
Intermediate goods
21
50 Capital goods
Consumer goods

Fig. 3. Structure of export by stage of production, Source: own calculation according to BNR

Regarding exports by groups of countries, Romania situation is not very favorable. A share of 72.1% from exports
is intra-European Union and only 27.9% are with other countries from outside of European Union.
278 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279

Other 14.6
6
Moldova 1.2
Ukraina 1.4
USA 1.5
Russia 2.2
Turkey 7
Extra EU 2
27.9
Other 9.3
Austria 2.3
Poland 2.6
Netherlands 2.7
Spain 3
Bulgaria 3.6
UK 3.6
Hungary 4.8
8
France 8.3
Italy 13.8
8
Germany 1
18.1
Intra EU 72.1
0 10 20 30 40 50 60 70 80

Fig. 4.Structure of Romania`s exports by countries

Source: own calculation according to BNR

In order to calculate Revealed Comparative Advantage (RCA) we used exports by industries from Romania and
European Union.

0.80

0.60

0.40

0.20
EU
0.00
Romania

Fig. 5. Comparative analysis of exports Romania an EU, Source: own calculation according to EUROSTAT
 Mihaela Herciu / Procedia Economics and Finance 6 (2013) 273 – 279 279

Table 3: RCA by industries (2011)

Industries (Mil. euro) Romania EU % Romania % EU RCA

Food, drinks and tobacco 2890 356896 0.06 0.08 0.78
Raw materials 3242 153500 0.07 0.04 2.04
Mineral fuels, lubricants and related materials 2485 321722 0.06 0.07 0.75
Machinery and transport equipment 18538 1605146 0.41 0.37 1.12
Commodities and transaction not classified in the SITC 236 99892 0.01 0.02 0.23
Chemicals and related products 2839 699667 0.06 0.16 0.39
Other manufactured goods 14803 1121225 0.33 0.26 1.28
Total 45034 4358056 1 1

Source: own calculation according to EUROSTAT

It can be observed that Romania has a competitive advantage against EU on raw materials (RCA=2.04), on
machinery and transport equipment (RCA=1.12) and other manufactured goods (RCA=1.28)

3. Conclusions

The perspectives on competitiveness of Romanian exports may be promising if: (1) international competitiveness
of Romanian exports are sustained by: (a) reduction in production costs simultaneously with the improvement of the
quality of products, which are decisive; (b) stimulating and assisting the exporting firms to penetrate new markets; (c)
maintaining the exchange rate at a reasonable level (Dobrescu, 2010); (2) maintaining current account deficit at a
sustainable level (NBR, 2012).
Even so, the perspectives are not encouraging taking into consideration that important shares of Romanian exports
are in European Union/Euro Zone countries. The recent problems of Euro Zone countries will affect seriously the
international competitiveness of Romanian exports, on one hand, and economic development of Romania, in
generally, on the other hand. All these because exports produce many favorable effect on national economy, both
through the direct channel and through the net exporting firms that are usually multinational companies engaged in
production activities. Also, Romania must increase the exports of national companies in order to increase their
international competitiveness and must improve the nature of competitive advantage.

4. References

Aiginger, K., (2006) Revisiting an evasive concept: introduction to the special issue on competitiveness, Journal of Industry, Competition and
Trade, vol. 6, 63-66.
Annual Report (2010) Balance of Payment and Romanian investment position, National Bank of Romania, available at www.bnr.ro.
Dobrescu, E., (2010) Macromodel simulations for the Romanian economy, Romanian Journal of Economic Forecasting, issue 2, pp. 7-28.
European Competitiveness Report (2010), European Commission, available at http://www.imd.org/research/publications/wcy/index.cfm
Global Competitiveness Report 2012-2013 (2012), World Economic Forum, available at www.weforum.org
Iorga, E., (2010) Competitiveness of Romanian exports: quo vadis?, National Bank of Romania.
Krugman, P., (1996) Making Sense of the Competitiveness Debate, Oxford Review of Economic Policy, vol. 12(3), pp. 17-25.
Liu, D-Y., Hsu, H-F., (2009) An international comparison of empirical generalized double diamond model approaches to Taiwan and Korea,
Competitiveness Review: An International Business Journal, Vol. 19, No. 3, pp. 160-174
Mitschke, A., (2008) The influence of national competitiveness policy on the international competitiveness of nations, Physica-Verlag, Springer.
Porter, M.E. (1990) Competitive Advantage of Nations, Free Press, New York, NY.
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zur Wirtschaftsforschung 64 (4):573 589.
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strategies, study made by GEA.
http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/