The Role of Labor Cost in Attracting Foreign Direct Investment in Romania
The Role of Labor Cost in Attracting Foreign Direct Investment in Romania

Summary/Abstract: In the present paper we analyze the role of labor costs as a determinant of FDI inflows in Central and Eastern Europe with special focus on Romania. According to the standard theory of FDI, low labor costs are expected to be a strong attraction factor. Low wage levels in Romania compared to other European countries have created a potential advantage for FDI location decisions. However, low productivity levels caused high unit labor costs and it eroded the cost competitiveness of the country If labor costs are still important in manufacturing, the new orientation of FDI towards the service sector has decreased their relevance in favor of other determinants.

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