Bright Cityscapes: a research about Timișoara's industrial ecosystem

This comprehensive study delves into the economic history of Timișoara from different angles. The Prewar Era (1850-1910) marked the city's initial industrial growth, while the Interwar Period (1918-1940) saw interlinking of rural and urban areas through industrial investments. The Socialist Era (1950-1990) brought mechanisation and growth in agriculture and industry. Economic restructuring (1990-2020) attracted foreign investments and shifted migration patterns. Timișoara's economic structure (2022) revolves around manufacturing, services, and the automotive sector. The study also examines the role of foreign direct investments (FDI) in the economy and their impact on domestic companies, highlighting sector-specific trends and ownership networks.

Pre War era (1850-1910)

The initial phase of industrial growth in Timișoara can be traced back to the annexation of Banat by the Habsburg Empire, with Count Mercy emerging as a pivotal political figure during his governorship from 1718 to 1734. Under his leadership, several factories were established on the city's outskirts, laying the groundwork for the city's industrial development.

With the establishment of the dualist pact, Timișoara underwent significant transformations. The region benefited from a favourable economic climate, driven by robust agricultural productivity from the 1860s. This encouraged efforts to incentivize the industrial sector, leading to the establishment of new companies. Notably, milling experienced significant expansion due to Timișoara's advantageous geographical position.

However, optimism surrounding economic growth in the 1850s and 1860s was dampened by a severe crisis that struck the Austro-Hungarian Empire in 1873, leading to a substantial decline in Timișoara's industrial workforce. By 1881, the number of employed workers had significantly decreased from 8,639 to 5,017.

During the 1880s, the industrial sector experienced a resurgence, though it fell short of the previous economic peak. The 1890s marked a pivotal period, setting the stage for Timișoara's subsequent economic boom. Large companies gained momentum, aided by foreign investments as local capital was scarce. Governmental authorities at various levels played a significant role in encouraging industrial investment. Hungary implemented laws to stimulate industrial development, motivating local authorities to pursue their projects. The shift in capital movements allowed local institutions more autonomy, spurring proactive roles in fostering regional economic development.

In 1900, Timișoara's population surged by approximately 141% compared to 1850, reaching nearly 50,000 inhabitants. The industrial sector was the primary employer, engaging around 9,100 individuals. By 1910, the 44 largest companies in Timișoara employed 6,051 workers, with a combined installed motive power of approximately 6,133 horsepower.

Timișoara's pre-war era marked a period of industrial growth, influenced by governmental policies across scales, favourable external circumstances, and foreign investments, leading to the city's emergence as a significant industrial centre in the Austro-Hungarian Empire.

Inter-war period (1918-1940)

The year of establishment of businesses in a city provides valuable insights into its development trajectory. In the case of Timișoara, around 23% of enterprises emerged before 1914, while the majority (approximately 66%) appeared during 1919-1930. The rest were either registered during the war or have undisclosed ages.

Excluding individual enterprises, Timișoara has the second-highest number of businesses after Bucharest. Out of this total, approximately 60% (222) are joint-stock companies, 24% (87) are partnerships, and 8% (30) are publicly owned enterprises. Timișoara ranks second after Bucharest in the number of joint-stock companies, followed by Cluj-Napoca, Oradea-Mare, Brașov, and Arad. The industrial sector comprises about 42% (93) of these companies, with manufacturing, clothing, food, textile, metallurgical, and chemical industries being dominant sub-sectors.

Regarding motive power, Timișoara ranks second nationally, with Bucharest in the lead. In terms of overall machine capacity, Timișoara is fourth, following Bucharest, Câmpina, and Reșita. Timișoara's industrial sector possesses a driving capacity of 28,149 horsepower, with 59% generated by the city's own plants.

At the national level, Timișoara ranks second in total employed personnel, following Bucharest, with 23,178 individuals engaged in local businesses. Other urban areas with significant employment figures include Arad, Cluj, Ploiești, and Brașov. Within Timișoara, around 73% of the workforce is employed in the industrial sector, and 19% in commercial activities. The textile, clothing, metallurgy, and food industries have the highest number of employees.

Timișoara stands out nationally for its businesses with employee counts ranging between 51 and 100, as well as between 101 and 200, employing approximately 4,600 individuals. This indicates a strong presence of medium-sized enterprises in the city.

Timișoara's industrial growth and distribution of enterprises have positioned it as a prominent economic centre in Romania. Its substantial number of joint-stock companies and significant industrial capacity contribute to its economic prowess and employment opportunities for the local population.

Socialist era (1950-1990)

The Socialist Era (1950-1990) in Romania witnessed significant social and economic changes, and Timiș County played a pivotal role in the country's industrialization and agricultural development. Petrovici's indexes were used to assess the impact of socialist investments in different regions and economic activities. Timișoara received substantial agricultural investments due to its geographical advantages, and while it also saw investments in various manufacturing branches, they were somewhat concentrated compared to Bucharest.

Over the years, the total number of employees in Timiș County increased, with notable changes in the proportion of blue-collar and white-collar workers. The formation of cooperatives led to increased agricultural productivity and modernization of production methods, making Timiș County a leader in the agricultural industry. The industry sector also experienced growth, with an increasing proportion of employees over the years.

The investment strategies in Timiș County evolved over time, with a shift towards industry and agriculture investment in later years. The highest total amount of investments occurred during the seventh five-year plan (1981-85). The services sector also received a significant portion of investments, particularly in communal households and collective housing.

The historical variation in investment and manufacturing branches is linked to the larger national socialist context. Timișoara experienced socialist investment in manufacturing during three distinct periods: 1948-1955, 1965-1980, and the 1980s. These investments aimed to refurbish and expand productive capacities, build new factories, and focus on the chemical industry as a driver of economic growth.

Migration patterns during this era saw three waves, including rural-urban migration and inter-regional movements. Timiș County recruited labour from adjacent Western counties and Transylvania. The migration patterns were influenced by economic and political factors such as industrialization, collectivization, and foreign loans.

The Socialist Era in Timișoara marked a significant period of growth and transformation in both industry and agriculture. The county's strategic geographic position, coupled with targeted investments, contributed to its economic development and productivity. The changes in employment patterns and migration further shaped the region's economic landscape during this era.

Economic restructuring (1990-2020)

Economic Restructuring (1990-2020) in Eastern Europe was marked by significant population decline and a decrease in overall employment levels. Romania, like other countries in the region, experienced a dramatic reduction in the number of wage earners. In the 2000s, migration patterns shifted towards Western Europe, where Romanians sought low-paying jobs in both formal and informal secondary markets. International migration intensified after the 2008 crisis and Romania's accession to the European Union.

Timiș County played a crucial role in receiving industrial investments that continued the tradition of interlinking rural and urban areas, creating strong networks of interconnected industries. The failure of some supply chains in the post-1990s era highlighted the importance of economic policies and supply chain integration. Since 1997, the proportion of Romanian employees working in companies owned by foreign investors steadily increased, with Timiș County standing out as the highest recipient of foreign direct investments (FDI) outside of the capital and its surrounding regions.

Between 2011 and 2020, Bucharest and Cluj emerged as primary beneficiaries of FDI in the business services sector, with Timișoara ranking third. The Timisoara Metropolitan Area showed impressive turnover, dominated by the industrial sector, especially the automotive sector. Timiș consistently outperformed other regions in export performance, with a high export-to-GDP ratio, indicating a significant contribution of exports to its GDP.

Despite experiencing a decline in FDI in recent years, Timiș remained among the top FDI destinations in Romania outside of the capital. The county's economic restructuring and attractiveness to foreign investors have contributed to its prominence in the Romanian economy. Timiș, in terms of export performance, consistently outperformed other regions, with the highest export-to-GDP ratio in all years except for product trade in 2021. This indicates that a significant portion of Timiș's GDP comes from exports. While Timiș ranks third in terms of the euro value of exports, it trails only behind Bucharest and Ilfov. Timiș is ranked third 3 after Bucharest and Ilfov in terms of destination of FDI in the period of 2013-2021. The proportion of FDI in Timiș has ranged between 5.01% in 2021 and 5.62% in 2017.

Economic Restructuring from 1990 to 2020 saw Timiș County emerge as a significant player in attracting industrial investments and foreign direct investments. The region's integration of rural agricultural production with urban industrial circuits and its strong export performance have played key roles in its economic development. Although facing challenges, Timiș continues to be a major destination for foreign investors, solidifying its position in the Romanian economy.

Labour migration and commuting (1990-2021)

The population of Timișoara is evenly divided between natives and internal emigrants (48%). Among the emigrant population, one-fourth originates from a municipality within the Timiș region. Another one-fourth comes from adjacent counties, while 19% originate from the second ring of counties. Notably, a significant proportion of emigrants, accounting for one in three, originate from more distant parts of Romania. 

A notable trend, especially from 2002 onwards, is the increasing number of urban and educated immigrants in Timișoara. This trend is particularly pronounced among emigrants coming from neighbouring regions, who tend to be well-educated urban individuals with at least a high school education. As the influx of rural workers diminishes, the composition of long-distance emigrants has shifted towards young urban populations who enrol in university programs in Timișoara. After completing their studies, this population chooses to settle in the city, drawn by the expanding labour markets that provide employment opportunities for graduates.

The population of the metropolitan municipalities of Greater Timișoara is evenly divided between native residents and internal emigrants (the last category comprising 46% of the total population). Notably, approximately 42% of the emigrant population originates from the city of Timișoara itself, while an additional 14% comes from other municipalities within Timiș County.

Population dynamics in Timișoara exhibit a strong correlation with the fluctuations in the local labour market. From 2008 to 2022, Timișoara experienced a population decline of approximately 20,000 residents, while the surrounding metropolitan municipalities witnessed a notable increase of around 62,000 inhabitants. This equates to a relative decrease of about 6% in Timișoara's population, contrasted by a 9% increase in the metropolitan area, primarily concentrated in the municipalities of the first ring.

A noteworthy point is that a quarter (25%) of employees reside in municipalities outside of Timiș county. This observation highlights a strong statistical association between higher education and having a legal residence outside of Timiș, as individuals who immigrate from greater distances tend to have more years of education on average and typically maintain their original legal residence. 

The 2011 census reveals that Timișoara had a significant proportion of its college-educated employees (18%) working in manufacturing, whereas Iași and Cluj had a lower percentage (10% and 9% respectively).

Economic structure (2022)

According to the 2021 Labor Force Survey by the National Institute of Statistics, Timiș County had 261 thousand employees, accounting for 55% of the county's total workforce. The number of employers reached 9.7 thousand, constituting 3% of the total workforce, surpassing the national average of 2.3%. Additionally, there were 51.2 thousand self-employed workers and unpaid family workers. Timiș County ranked third, following Bucharest and Cluj, in terms of the intensive use of employed persons, accounting for 68% of the county's labour resources, and it held the second-largest labour force volume after Bucharest, with 476 thousand people.

The unique economic profile of Timișoara Metropolitan Area is primarily characterised by its combination of economic resources, with a focus on the manufacturing industry and to a lesser extent, commercial services. This sets it apart not only from the national economy but also from other metropolitan areas centred around urban growth poles in Romania.

In the municipality of Timișoara, the highest number of salaried workers is found, largely due to the presence of numerous companies and institutions headquartered there. Most employees in Timișoara are engaged in services and industry, with a significant portion working in the automotive sector.

Other municipalities in Greater Timișoara also contribute to the region's employment. Sânandrei, as the second-largest municipality, houses employees primarily in the industrial area, working at Artemis Industrial Park, Ipso Timișoara, B. Braun Pharmaceuticals, or Simultan. Giroc is also a significant contributor to employment, with labourers mainly employed at the Incontro Industrial Park in Chișoda. Dumbrăvița plays a crucial role in the employment landscape, housing employers in specialised economic sectors like logistics and transport. Ghiroda, along with the component village of Giarmata, completes the top 5 municipalities with the highest number of employees in Greater Timișoara. The automotive industry is the primary employer in Ghiroda, represented by companies such as Hella Electronics and Akwel.

Timișoara stands out in terms of the number of managers and specialists it hosts. Despite its size relative to the national population, Timișoara concentrates around 3% of the total number of managers and 4% of specialists in the country.

The industrial sector holds a significant share in Timișoara's economy, contributing 43% of the turnover in 2020 and ranking as the second largest field after services. The manufacturing industry subsector plays a dominant role in positioning Timișoara's economic profile, comparable to Iasi, Brasov, Oradea, and Ploiești. Timișoara and Craiova exhibit lower values for the construction sector, indicating that Greater Timișoara's development primarily centres around metropolitan areas rather than the city itself.

Ownership networks

CEE occupies a unique position globally, Timișoara being no exception, acting as a key facilitator of the cost competitiveness of West European-centric global value chains, compared to their global rivals, mostly from Asian regions (Éltető and Medve-Bálint, 2023; Ban and Adăscăliței, 2022). 

Our findings suggest limited horizontal spill-over of FDI into the domestic economy of Timișoara, even though FDI companies, being larger in terms of turnover and employees, are more likely to expand within the same sector by forming new companies within the region or at the national level (as indicated by the logistic regression results showing a prevalence in tradable sectors like electrical and electronics, chemicals, real estate, automotive, clothing & textiles, and IT&C). 

Domestic capital is more prevalent in non-tradable sectors like education, sports, and medical. The ERGM results demonstrate that FDI companies have a higher likelihood of forming ownership ties compared to domestic companies, but these ties are primarily intra-sectorial.

Foreign Direct Investment (FDI) companies constitute a significant portion (16%) of the entire network of companies, and they have a notable impact on the economy as they employ 54% of the total workforce and contribute to 74% of the aggregated turnover in Timiș, amounting to €15.32 billion.

The sectoral distribution of companies in the entire network reveals a dominant presence of the Services sector, accounting for 42% of all companies, followed by the Industry sector at 30%, Trade & Logistics at 21%, and Agriculture at 7%. However, when focusing solely on the top 1000 companies, the Industrial sector takes the lead with 42% representation, and Services come in second with 28%.

Our analysis demonstrates that while FDI-companies dominate key economic sectors with advanced technologies, the financial sector and medical companies stand out as examples of how domestic and foreign elements coexist in Romania's investment landscape, contributing to its economic growth. Specifically, FDI-companies hold significant sway in crucial economic branches such as electrical and electronics, chemical, real estate, automotive, textile, and IT&C. Interestingly, apart from IT&C and real estate closely tied to business services, these sectors primarily operate within the sphere of manufacturing outsourcing. 

The results revealed that domestic companies were less likely to form ownership ties compared to FDI companies. Domestic companies seem to have lower levels of tie formation, potentially indicating differences in their networking strategies or access to resources. In contrast, FDI companies exhibit a higher propensity to form ties, particularly with other FDI companies, potentially indicating a preference for collaboration within their own network. 

Companies with medium and low technical levels have a lower propensity to form ownership ties, while those with a medium technical level may have a slightly higher likelihood of tie formation. The results indicated significant effects of technical level on tie formation.

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