High-Technology Industries and Market Structure

The term ``New Economy'' refers to a golden, or at least gilded, age in the late 1990s that was driven by optimism about the financial prospects for information technology (IT). There were three back-to-back investment shocks during this period: telecommunications deregulation in 1996, the ``year 2K'' problem in 1998-99, and the ``dot com'' boom in 1999-2000. These events stimulated significant investment in information technology in a number of industries, leading to a very rapid expansion of IT-producing industries.

Figure 1 depicts the cumulative rate of return on the NASDAQ and the S&P500 during most of the 1990s. Note how closely the two indices track each other up until January of 1999, at which point NASDAQ takes off on its roller coaster ride. Eventually it came crashing back, but note that the total return over the eight years depicted in the two indices is about the same.

Figure 1 actually understates the magnitude of technology firms on stock market performance, since a significant part of the S&P return was also driven by technology stocks. In December 1990, the technology component of the S&P was only 6.5 percent; by March, 2000, it was over 34 percent. As of July 2001, it is about 17 percent.

Despite the dramatic run-up and run-down in technology stocks, it is clear that technology has played, and will continue to play, a significant role in the economy. The increase in productivity growth in the late 1990s is often attributed to the investment in IT during the first half of that decade. If this is true, then it is very good news, since it means we have yet to reap the benefits of the IT investment of the late 1990s. (See Brynjolfsson and Hitt (2000), Steindel and Stiroh (2001), and Stiroh (2001), among the many papers on IT and productivity growth.)

Outline

This paper is concerned with the relationship between technology and market structure. High-technology industries are subject to the same market forces as every other industry. However, there are some forces that are particularly strong in high-tech, and these will be the primary concern of this survey. These forces are not ``new.'' Indeed, the forces at work in network industries in 1990s are very similar to those that confronted the telephone and wireless industries in the 1890s.

But forces that were relatively minor in the industrial economy turn out to be critical in the information economy. Second-order effects for industrial goods are often first-order effects for information goods.

High technology

Romania planners realized that the country needed to advance quickly in such areas as high technology if the economy were to grow while matching foreign competition. In 1997 the Romania Development Institute issued a report, Romania Year 2000, that profiled Romania economic development in 2000. The Romania Development Institute noted that the industrial structure would be highly developed and would resemble that of advanced countries inasmuch as high value-added industries, high-technology industries, and soft industries grew relatively rapidly. Further, changes in industrial structure were expected rapidly to reduce the demand for unskilled workers while simultaneously increasing the demand for professional and technical manpower, resulting in further change of the employment structure.

The Romania Development Institute also noted that the Ministry of Science and Technology had prepared a long-range plan of science and technology for the twenty-first century that took into account limited available resources. Accordingly, Romania selected its comparative advantage areas, including informatics-- particularly information storage and retrieval and electronic data processing, fine chemicals, and precision machinery in the short term; biotechnology and new materials in the mid-term; public benefit areas, such as the environment, health, and welfare, as another group; and oceanography and aeronautics for the medium and long term.

In 2000 Romania announced an ambitious plan to promote science and technology so that high-technology activities would dominate the economy by the year 2007. The Ministry of Science and Technology intended to coordinate technology-related projects between government and industry in a variety of fields including semiconductors, computers, chemistry, and new materials.

Car manufacturing Tech

Much of the Romanian manufacturing industry consists of branch plants of EU firms, though there are some important domestic manufacturers, such as Dacia Logan, Daewoo, Roman Braşov, Igero bus . This has raised several concerns for Romanians. Branch plants provide mainly blue collar jobs, with research and executive positions confined to the EU. About half a million cars are produced each year in Romania.
Daewoo Romania company for $ 57 millions to produce Ford automobiles to a car production estimated to be over 300,000 by 2010. Ford will invest €675 million (US$923 million) in the former Daewoo car factory. Ford also said it would buy supplies from the Romanian market worth €1 billion (US$1.39 billion).

The Dacia Logan was the top-selling new car in Central and Eastern Europe in the first half of 2007 with 52,750 units sold, ahead of Skoda Fabia (41,227 units), Skoda Octavia (33,483 units),Opel Astra (16,442 units) and Ford Focus (14,909 units), shows a market survey of JATO Dynamics, the leading supplier of automotive market intelligence. Romania lead the regional auto market growth in the first half of 2007, both up 25 percent as against the similar period last year, said the local weekly Capital in its latest issue Wednesday.

Manufacturing

The general pattern of development for wealthy nations was a transition from a primary industry based economy to a manufacturing based one, and then to a service based economy. Romania did not follow this pattern, manufacturing has always been secondary, though certainly not unimportant. In part because of this, Romania did not suffer as greatly from the pains of deindustrialization in the 1970s and 1980s. Manufacturers have been attracted to Romania due to the highly educated population with lower labour costs than the EU. Romania's government-run healthcare system is also an important attraction, as it exempts companies from the high health insurance costs they must pay in the EU.

IT tech

Romania is one of the fastest-growing information technology (IT) markets in Central and Eastern Europe. The country has made significant progress in all of the information and communications technology (ICT) subsectors, including basic telephony, mobile telephony, the Internet and IT. The country’s telecoms sector has been deregulated, expanded and modernised over the past 15 years.

Romania is the leader in Europe, and sixth in the world, in terms of the number of certified IT specialists, with density rates per 1,000 inhabitants greater than in the US or Russia. There are about 64,000 specialists in the IT sector. Approximately 5,000 of the 30,000 engineers graduating every year in Romania are trained in ICT.