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Institute of Economic Forecasting INWARD PROCESSING TRADE AND 2 IMPLICATIONS FOR THE BALANCE OF PAYMENTS CURRENT ACCOUNT (THE CASE OF ROMANIA) George GEORGESCU Abstract The study is focusing on the Romanian foreign trade by approaching distinctly its two components, i.e. the final goods under definitive custom regime and the intermediate goods imported under temporary custom regime, which are subject to processing (IPT-Inward Processing Trade), followed by their exports. While the IPT flows entered a slowdown trend, due to gradual diminishing of comparative advantages of Romania, the trade deficits almost doubled as compared to two years ago. The separation of the IPT component from the foreign trade data highlights the importance of the final exports, allowing also for the assessment of related implications on the BoP current account and on the long-term external position of Romania. Keywords: Foreign Trade, Balance of Payments, Economic Growth Jel Classification: F13, F15, F43 1. The Foreign Trade Contribution to Economic Growth The theory of international trade, the past experience of the developed countries and the recent lessons of many emerging countries (mostly from Asia) show a straight link between foreign trade and economic growth. This contribution is seen in terms of effects on the production factors, technological improvements, improved work skills, productivity and increase in competitiveness. Both in the static and dynamic approaches a positive correlation between exports and GDP seems obvious. The specialization in expanding export sectors is considered to create more value added than the specialization in other sectors. The improvement of resources allocation by trade openness has often argued this