Since 1991, the tiny Eastern European republic of Moldova, occupying a mere 33, 843.5 kilometers square of territory and sandwiched in between its mother-state of Romania to the west and Ukraine to the east, north, and south, has stood out to economists, political scientists, and scholars of international economic development alike as one of the most pertinent -if not the most pertinent- examples of poverty, underdevelopment, and socio-economic and political backwardness in Europe. The reasons behind this unfortunate state of events are complex and manifold. In this paper, we shall endeavor to understand and trace the roots, dimensions, and dynamics that underlie Moldova’s modern predicament, with the ultimate aim of delineating the specific challenges to economic development that the country faces, and the social, political, and economic obstacles that hamper its long-term prosperity and the wellbeing and happiness of its citizens. In other words, the question that this paper shall try to answer is “Why is Moldova So Poor?”.

Why is it so important to understand and trace the roots, dimensions, and dynamics of Moldova’s developmental predicament? To be more blunt, why should the average economist, political scientist, or scholar of international economic development or international political economy (IPE) pay a moment’s notice to a tiny, politically inconsequential, and seemingly marginal state like Moldova? What makes the Moldovan case relevant and consequential to international development and international politics? Put simply, the Moldovan case is important because it affords scholars of IPE and of economic development a case study of post-Soviet development sans heavy industry and with high emphasis on agriculture and food processing, allowing them to examine and answer the question of whether economic development is possible without large-scale industrialization and investment in heavy industry. It provides a case-in-point (or lack of one) on which to base a model for economic development that emphasizes investment in non-industrial sectors such as agriculture and food processing, which together make up around 36% of Moldova’s Gross Domestic Product (GDP), according to a 2013 Food and Agriculture Organization of the United Nations report authored by John Millns. For these reasons, the Moldovan case bears special relevance to studies of international economic development and of IPE and as such merits closer attention and scrutiny from scholars of these two disciplines.

 

Literature Review

According to a Food and Agriculture Organization of the United Nations Regional Office for Europe and Central Asia report entitled Agriculture and Rural Cooperation: Examples from Armenia, Georgia, and Moldova by John Millns (2013), Moldova is “the poorest country in Europe in terms of GDP and has barely reached the economic level it maintained in 1994 and still only 40% of the GDP registered in 1990” (Millns, 2013). The country’s GDP per capita is a mere $2,100, which is “4.5 times lower than the world average”, according to Millns (2013). Furthermore, the Moldovan economy suffers from major structural flaws that render it vulnerable to natural disasters as well as to unfavorable external conditions and stressors. The reasons for these structural defects are many and can be traced back to the dynamics surrounding the country’s independence and the socio-economic-political realities that preceded its emergence as a modern, sovereign republic. According to Millns (2013), Moldova’s attempts to liberalize its economy following its 1991 declaration of independence from the Soviet Union by freeing up prices and interest rates, ending preferential credits to state enterprises, privatizing housing and land, and removing controls on exports “resulted in rapid inflation and from 1992 to 2001 Moldova suffered a serious economic crisis and energy shortages that contributed to sharp production declines” (Millns, 2013). In addition, the ensuing waves of emigration and resultant decline in the Moldovan population had tangible and concrete implications for the country’s economy: According to Millns (2013), the decrease in the percentage of the agricultural and industrial population in Moldova led to the rapid growth of the service sector until it began to dominate GDP. High emigration rates continued through the early 2000s up until the present day, to the point that “Moldovans abroad account for almost 38% of Moldova’s GDP, the second-highest percentage in the world” (Millns, 2013). Moldova also runs a massive trade deficit and “is dependent on imports to cover 97% of its energy needs” (Millns, 2013), an untenable situation that puts the country at the mercy of foreign exporters and leaves it saddled with the unacceptable risk of unfavorable external factors outside of its control.

Given the prevalence of the agricultural and food processing sectors in the country’s economy, Moldova is also uniquely vulnerable to yet another factor outside of its control: natural disasters. This structural flaw is becoming increasingly more problematic as climate change makes its effects more and more felt. According to a 2021 report published by ClimateChangePost, droughts are a major problem in Moldova and since the 1980s have increased in frequency and intensity, “mostly due to increased temperatures and decreased precipitation in the region” (ClimateChangePost, 2021). Moldova suffered two severe droughts in 2007 and 2012 which “sharply reduced agricultural production” and “had a negative impact on the well-being of rural households…because of rising production costs which resulted in an increased incidence of extreme poverty in rural areas” (ClimateChangePost, 2021). Given that agriculture is a major pillar of the Moldovan economy (36% of GDP, as mentioned above), and combined with the fact that droughts are increasing in frequency and intensity due to changing climate patterns, blowback from climate change has the potential to wreak debilitating havoc on Moldova’s economy and to plunge large segments of the Moldovan population into poverty.

Another factor contributing to the lack of economic development and the high levels of poverty in Moldova (20% of the population, according to Kristen Reesor (2017) of the Borgen Project) is rampant corruption in the government and within the ranks of state elites. Moldovan public officials and oligarchs are infamously corrupt-according to Kristen Reesor (2017), “one billion dollars- or about one-eighth of the country’s GDP — was stolen from the country’s three largest banks in 2015, and around 40 people, including a former prime minister, either helped or benefitted from the massive theft”. Other important government functionaries that stand accused of corruption include “the capital city’s mayor, the transportation minister, the agriculture minister, the deputy economic minister, and the environmental minister” (Reesor, 2017). Furthermore, the Moldovan government suffers from high levels of inefficiency, which spells negative consequences for the country’s economic development and for the well-being of its citizens. In spite of the importance of agriculture to the country’s economy, the Moldovan government has so far failed to invest in new agricultural technology and support services, leaving farmers “to depend on manual labor instead of large, advanced machinery and technology, which shackles them to a life of subsistence farming” (Reesor, 2017). Moreover, the social support services that the Moldovan government provides for the poor are weak and quite limited. Only one of Moldova’s 15 benefits and services is reserved for the poor, and “money earmarked for the poor does not always end up in the right hands”, according to Reesor (2017).

In the present day, Moldova “remains among the poorest countries in Europe”, according to a World Bank report published in 2021. The Covid-19 pandemic wreaked havoc with the Moldovan economy and reversed hard-earned advancements in poverty reduction in the country. According to the World Bank report published in 2021, Moldova was “among the countries in Europe most affected by COVID-19, which significantly impacted households and businesses across the country”. As a result of the pandemic, the World Bank estimates the country’s GDP declined by a total of 7 percentage points in 2020, a catastrophic decrease for a nation already beset by numerous natural disasters and foreign crises, such as the 2007 and 2012 droughts and the Russian trade ban of 2006. Such unfavorable factors and conditions contribute to rising poverty rates in Moldova, which the UN estimated at around 9.6% in 2016.

 

Analysis

Despite the complex interplay of factors underlying the country’s developmental predicament, the case of Moldova can be easily rendered more clear and understandable by taking recourse to the four levels of analysis and the three dimensions of IPE, as well as the five structures. We shall begin first with an analysis of the factors that make up the economic dimension before moving on to do the same for the social and political dimensions respectively. Analysis shall primarily take the form of examining each factor as belonging either to the individual, state/social, interstate, or global levels, following the four levels of analysis in IPE. Finally, we shall examine Moldova’s predicament through the lens of the five structures of IPE.

As has already been mentioned above, the primary factors behind Moldova’s current predicament can be traced back to the emergence of the country as an independent, sovereign state, or what we shall refer to in this paper as the “post-Soviet” factors. These post-Soviet factors are overwhelmingly economic, and belong mainly to the interstate and state/social levels of analysis. On the interstate level, Moldova’s almost total dependence on the other republics of the former Soviet Union for its supply of energy and raw materials meant that the fall of Communism and the breakup of the Soviet Union in 1991 proved catastrophic for its economy. In addition, the breakaway of Transnistria, a pro-Russian enclave just beyond the Dneister river to Moldova’s east, only served to complicate matters further, and resulted in Moldova losing much of its industrial heartland, which led to a debilitating absence of large-scale industrial production in the nascent republic. Furthermore, on the state/societal level, the free-market, laissez-faire policies introduced by the Moldovan state following its secession from the Soviet Union in 1991 only served to cause rampant inflation and devastating spikes in homelessness and unemployment in the already socioeconomically-fragile country.

Another set of factors belonging to the economic dimension are what we shall refer to in this paper as the “internal Moldovan” factors. These factors belong mainly to the state/societal level of analysis, since they are concerned with issues that are unique to Moldovan society and to the Moldovan state. The most important of these factors is the prevalence of agriculture, to the point where the agricultural and food processing sectors make up around 36% of the Moldovan economy. In spite of this, however, the Moldovan state has so far neglected large-scale investments in the agricultural sector, and Moldovan farmers still lack access to new technology and to financial-agricultural support services, which prevents increases in the quality and quantity of the country’s crop yields and hampers efforts at making them more competitive and exportable. Moreover, Moldova’s high level of dependence on agriculture leaves the country vulnerable to natural disasters as well as to external economic sanctions and turbulences: in 2006, a Russian ban on Moldovan wine and food products wreaked havoc on the economy, and a severe drought in 2007 led to a significant decrease in agricultural output and to an increase in the prices of food products. The Moldovan economy also depends to a large extent on remittances from the diaspora, which account for some 16% of the country’s GDP, among the highest in the world, and which further renders Moldova’s economy vulnerable to economic and political turbulences in foreign countries.

Factors related to the social dimension also play an important part in explaining why Moldova is so poor. The vast majority of the factors belong to the state/societal level of analysis. The Moldovan state fails to provide adequate economic relief and social welfare services to the Moldovan public; only one of Moldova’s 15 social services and benefits is earmarked for the poor. In addition, government funds do not always make it to those in need of it due to corruption and mismanagement. According to Kirsten Reesor (2017) of the Borgen Project, nearly 17% of social assistance in Moldova is used inefficiently and goes to families who don’t need it. Moldova also suffers from a high youth emigration rate due to the limited educational and employment opportunities in the country, and the birth rate is too low to replenish the percentage of the population that is emigrating. As a result of this, there has been an increase in the number of retired, elderly Moldovans, which has put a lot of pressure on the country’s pension system and state finances. In the political dimension, government corruption is a major factor behind the poverty and lack of development in Moldova. Corruption harms ordinary Moldovans’ interests and makes it extremely difficult to do business in the country. This hampers its growth and development and prevents it from achieving its full economic potential.

With a view to the five structures of IPE, Moldova’s predicament can be analyzed primarily through the lens of three of them: production, trade, and knowledge. Moldova’s agriculture and food-processing based production has concrete implications for its society and economy. Without implementing drastic changes in its production structure, including a shift towards heavy industry, Moldova will find it extremely difficult to challenge the ‘rules of the game’, particularly within the trade structure, that underlie its activities and relationships with other countries. Since trade is heavily dependent on a country’s production, a shift away from agriculture towards a more diversified and more industrialized economy would make Moldova less vulnerable to natural disasters, such as drought, and to unfavorable external conditions, such as the Russian trade ban of 2006. Changes in the knowledge structure through investments in education and technical training would further improve the trade and production structures underpinning Moldova’s economy, since changes in the knowledge structure affects the other four structures of IPE.

 

Conclusion

The key issues that Moldova needs to tackle in order to reduce its poverty rate and achieve economic development are limited investment in the agricultural sector, high levels of corruption in the government, weak and inefficient social services, limited educational levels and employment opportunities, and a high youth emigration rate. Moldova has taken several steps in recent years to rectify these problems. According to Kirsten Reesor (2017) of the Borgen Project, the government has been working with the International Fund for Agricultural Development to create microfinance opportunities for farmers as well as to improve agro-processing in order to make their products more marketable. Moldova is also taking important steps towards dealing with high-level corruption. In 2016, the Moldovan Parliament passed a law “to strengthen prosecutors and double their salaries to make them less susceptible to bribes” (Reesor, 2017). In addition, the Moldovan government’s ‘Moldova 2020’ National Development Strategy aimed at reforming the pension system and developing the labor market in order to reduce the country’s high youth emigration rate. If Moldova continues to strengthen the rule of law and to invest in educational opportunities, it will eventually create a more favorable environment for business and investment and improve Moldovan youth’s access to the labor market, which will ultimately lift the country out of its predicament and set it firmly on the path to economic development.

 

References

1- Droughts in Moldova. (2021). Climatechangepost.Com. https://www.climatechangepost.com/moldova/droughts/

2- Project, B. (2020, July 17). Causes of Poverty in Moldova. The Borgen Project. https://borgenproject.org/causes-of-poverty-in-moldova

3- Moldova. (2021). World Bank. https://www.worldbank.org/en/country/moldova

4- National Human Development Report 2015/2016 | UNDP in Moldova. (2016). UNDP. https://www.md.undp.org/content/moldova/en/home/library/human_development/nhdr-2016.html

5- Personal remittances, received (% of GDP) – Moldova | Data. (2021). The World Bank. https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=MD

6- Millns, J. (2013). Agriculture and Rural Cooperation Examples from Armenia, Georgia, and Moldova. FAO Regional Office for Europe and Central Asia.

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