August 24, 2016

Could Bucharest be the next Silicon Valley?

Since the fall of Communism, Romania has kept a relatively low international profile and is one of the EU’s poorest countries. But its capital city Bucharest, with its unique culture, history, education system, and infrastructure, shows signs of becoming Europe’s new tech hub.

Romania joined the EU in 2007 and it now has its second fastest-growing economy after Ireland. Home to three universities, Bucharest provides employers with a well-educated STEM talent pool. Its educated labor force, combined with low wages and cheap operating costs, makes it an attractive place for international companies looking to outsource. However, it is also fast becoming a center for home-grown tech startups and the European Digital City Index reveals that growth rate for Bucharest is exceptionally high with over 170 start-ups.

Good broadband is widespread in Bucharest, as much of the country skipped copper cables and went straight to fiber. The country’s digital infrastructure ranks higher than other Eastern European countries and its peak internet speeds are the fastest in Europe.

Despite a good digital infrastructure, it still ranks behind other EU cities for start-ups. This is because raising capital is still difficult for many, partly as there remains a degree of bureaucracy which encumbers the start-up process, and partly because of a lack of know-how among prospective entrepreneurs. Labor retention is also a challenge for Romania. As EU citizens, Romanians can travel and work in other EU countries and international companies will seek to employ Romanian workers.

Hilal Atasoy writes about latent entrepreneurship in transition economies such as Romania for IZA World of Labor. She says “transition economies lack the essential financial and institutional development, trust in institutions, and social capital needed when trying to start a new business.” She suggests that policymakers can foster the expansion of social capital through policies to increase confidence in institutions, financial markets, and the legal system, such as removing inefficiencies and cumbersome regulations, fighting corruption, and tightening enforcement. These measures can encourage entrepreneurial activity.

Related articles:
Latent entrepreneurship in transition economies by Hilal Atasoy
New firms entry, labor reallocation, and institutions in transition economies by Randolph L. Bruno
Flat rate tax system and their effect on labor markets by Andreas Peichl