Agglomeration and Economic Growth. A New Economic Geography approach for Romania's Counties

Over the last 25 years and particularly over the last 10 years, Romania has achieved an important economic growth pace. Nevertheless, the level of economic development is not the same across the country and, like many other states, Romania displays a heterogeneous territory with different economic, social and geographical characteristics and therefore with great disparities among regions and among counties. Regarding this aspect, and built on the principles of the New Economic Geography approach, this paper proposes to explain the inequalities stemming from the location, distribution and spatial organization of economic activities. Using the endogenous growth theory as a foundation, and using panel data models in order to uncover the role of both agglomeration economies and positive externalities in regional development, our inquiry focuses on Romania's 41 counties plus Bucharest, analysing data from 2005 to 2012. The results show a certain positive impact of both the employment and unemployment rates, research and development and education. Nevertheless, all these components are statistically significant only in the long run, given the fact that in the short run it is very difficult to uncover and evaluate their impact on economic development. By the same vein, even if a different result was expected, in some models, public infrastructure and market potential seem to have a negative impact on Romania's regional development.