| Abstract: |
After fifteen years of economic transformation, Moldova still remains a mostly
agrarian country. The industrial sector is only successful in connection with
agriculture (such as the production of food or beverages). The country's
agrarian structure seems to be a legacy of Moldova's former role in the
division of labour within the Soviet Union. Although the absence of the
'resource curse' facilitated Moldova's relative success in economic and
political institutional reforms, there are still significant drawbacks in the
quality of the economic order which prevent the institutional factor from
compensating the 'geographical' deficits. An additional problem is the
Transdniestrian conflict, which has resulted in the existence of a 'split
state' and a 'split society'. High labour emigration in the wake of rising
poverty, deficits of the labour market and the advantages of social
integration within the post-Soviet space have a twofold effect on economic
transformation: they reduce internal demand and workforce potential, but also
create a permanent and significant inflow of migrants' transfers and establish
opportunities for learning effects. Moldova's geographical structure of trade
is still dominated by the CIS. The European vector of its foreign trade
remains underdeveloped, partly because of EU agricultural trade restrictions,
but to a great extent because of internal trade barriers. Moldova's major
comparative advantage (with respect to both the CIS and the EU, as well as
globally) lies in agricultural production - food, beverages, tobacco, animal
and vegetable oils - which is reflected in a very low diversification of
exports. Imports are by far more diversified; the major imported goods are
fuels, machinery and equipment. The energy intensity of the Moldovan economy
makes the country extremely dependent on Russian gas and oil. In order to
achieve positive structural shifts and move away from agricultural
specialization, Moldova needs to continue economic and political reforms and
improve the quality of the investment climate in order to attract FDI. A
peaceful resolution of the Transdniestrian conflict is of vital importance
from the point of view of investment risks. Further consolidation of democracy
could help to reduce rent-seeking and state capture (which is still very high
in the republic). The evolution of the Communist administration since 2001 has
been very promising in this respect. Moldova seems to be a natural benefactor
of 'open regionalism' solutions in the Eurasian space, which could give it an
opportunity to simultaneously improve its trade relations with the EU, the CIS
and Southeast Europe. The EU Neighbourhood Policy could act as a trigger for
internal reforms and as a factor of external re-orientation (if major problems
such as Transdniestria could be resolved). On the other hand, Moldova could
benefit from a redesigning of post-Soviet integration to make it compatible
with the Western vector of integration, reduce political aspects of the
'protective integration' currently inherent in the CIS and similar groups, and
focus on the opportunities of open regionalism solutions. |