The possible effects of the eastern EU-enlargement on Croatia - a trade analysis

Economic integration in Europe will have significant effects not only on participating countries, but also on countries remaining outside of the EU-structures. Starting from the theory of custom union and the trade creation and trade diversion effects, this paper tries to apply the theoretical inferences relating to the countries participating in economic integration to those countries which do not take part in it. The ex ante-analysis focuses mainly on long-term dynamic effects which follow from increasing export possibilities and advantages from economies of scale. Taking into account the foreseen dynamics of trade barriers elimination as well as the effects of trade liberalization so far, the paper estimates the expected effects of further trade liberalization and the adjustment costs arising from increased competition and changing pattern of specialization. In doing so, it makes use of the export similarity index and the methodology of intra-industry trade measurement. Key words: customs union, economies of scale, intra-industry trade, EU, Croatia

The state of external equilibrium in Croatia and its long term stability

From the outset of transition Croatia faces a serious problem of external imbalance as a consequence of unfinished structural and institutional reforms. The external balance crisis can be seen through raising international trade deficit and structural characteristics of trade flows. To these unfavorable characteristics belong export reorientation from developed to less developed countries, increasing number of industries in which Croatia has position of net-importer and export structure in which dominate low-value-added products. Increasing trade deficit in 2001 and 2002 followed by further growth in external indebtedness cause increasing burden of debt service and limit the possibilities for economic growth. Taking all this as well as real limits in further external imbalance growth into consideration it can be said that Croatia realizes high level of external disequilibrium. In contrast, advanced transition countries achieve fairly good and stabile external positions thanks to successful economic restructuring and strong export growth

The state of external equilibrium in Croatia and its long term stability

From the outset of transition Croatia faces a serious problem of external imbalance as a consequence of unfinished structural and institutional reforms. The external balance crisis can be seen through raising international trade deficit and structural characteristics of trade flows. To these unfavorable characteristics belong export reorientation from developed to less developed countries, increasing number of industries in which Croatia has position of net-importer and export structure in which dominate low-value-added products. Increasing trade deficit in 2001 and 2002 followed by further growth in external indebtedness cause increasing burden of debt service and limit the possibilities for economic growth. Taking all this as well as real limits in further external imbalance growth into consideration it can be said that Croatia realizes high level of external disequilibrium. In contrast, advanced transition countries achieve fairly good and stabile external positions thanks to successful economic restructuring and strong export growth

Financial Integration and Financial Crisis: Croatia Approaching the EMU

The breakdown of command economies has significantly increased growth potentials all over Europe and opened up prospects for economic development. Encouraged by that, the EU embarked on the process of deeper economic integration. Its main aspects – economic liberalization and monetary integration – coincided with the worldwide globalization of trade and capital flows. As a laggard country in the process of economic integration, Croatia is in a particularly difficult position – besides soaring trade deficit, it is highly indebted and strongly dependant upon foreign capital. Appreciating theoretical inferences and empirical evidence on monetary integration, while taking reference to the realized level of international financial integration and external vulnerability, the aim of the paper is to find out if Croatia fulfils the criteria for successful monetary integration

Effects of Trade Liberalization in Croatia: An Approximation of the Integration Effects with the EU

Economic integration can cause significant adjustment costs and call for economic structure flexibility which will make the relocation of production factors within or between industries less expensive. Based on new trade theory, the integrated economy approach allows an insight into different patterns of trade as an approximation of the expected adjustment costs. In light of the EU-enlargement and the expected Croatian accession the aim is to analyse the effects of Croatian trade liberalization in order to stress the importance of structural adjustment in the process of economic integration and point at industries which will be exposed to significant adjustment costs

EFFECTS OF THE EASTERN EU-ENLARGEMENT ON CROATIA – A TRADE ANALYSIS

Starting from the theory of customs union and recent contributions to it, the paper tries to apply the theoretical inferences about welfare effects of trade integration within the EU on Croatia and its business sector. The analysis focuses on static and dynamic effects which follow from increasing export possibilities and advantages from economies of scale. Taking into account the pace of trade liberalization, the paper estimates the effects of Croatian non-participation in the EU and the potential adjustment costs arising from increased competition from the new EU-member countries and the changing pattern of specialization. In doing so, the export similarity index and the methodology of intra-industry trade (IIT) have been applied. Implications on the business sector and management practice have also been included

JE LI HRVATSKA SPREMNA ZA EMU?: EX ANTE ANALIZA NOMINALNOG I REALNOG PRIBLIŽAVANJA

Abstract The EU-enlargement and the advanced process of economic integration have brought attention to monetary integration and the conditions for its successful functioning. The main theoretical framework of the analysis – the OCA-theory – foresees three main requirements for that – mobility of production factors, fiscal solidarity and trade integration. Although not theoretically founded, the Maastricht criteria of price and exchange rate stability, balanced public finance and long-term interest rates should contribute to successful monetary integration in the EU which faces inter-regional differences in the level of development and the possibility of external shocks. The analysis of nominal convergence shows that Croatia approaches the reference values of the EU and achieves a high degree of macroeconomic stability. However, it lags behind the successful new EU-member states in respect of trade integration and production structure similarity which can be regarded as important indicators of the long-term advantages of monetary integration.Proširenje EU i uspješni proces ekonomske integracije ukazali su na monetarnu integraciju i uvjete za njeno uspješnije djelovanje. Glavni teorijski okvir analize – OVP(Optimalno Valutno Područje) -teorija – predviđa tri važna uvjeta za to – mobilnost proizvodnih faktora, fiskalna solidarnost i trgovinska integracija. Iako nije teorijski utemeljeno, Maastricht kriterij cijene i stabilnost deviznog tečaja, uravnoteženo javno financiranje te dugoročne kamatne stope trebale bi doprinijeti uspješnoj monetarnoj integraciji u EU koja se suočava s među regionalnim razlikama na razini razvoja i vjerojatnosti vanjskih udara. Analiza nominalnog približavanja pokazuje da se Hrvatska približava referentnim vrijednostima EU i da postiže visoki stupanj makroekonomske stabilnosti. Ipak zaostaje za uspješnim novim zemljama-članicama EU u pogledu trgovinske integracije i sličnosti proizvodne strukture, koje su veoma važni pokazatelji dugoročnih prednosti monetarne integracije

FDI and Economic Growth – Perspective of Southeast European Countries

Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic setbacks. At the macroeconomic level, this brings about slowdown in economic growth and delayed catching up with more advanced economies. In Europe, the turn of the century brought along political and economic disintegration, on one hand, and economic integration, on the other. Demise of planned economies across Eastern Europe caused serious economic turmoil due to market fragmentation. Meanwhile, creation of new economic architecture in the European Union (EU) has created additional challenges of economic restructuring. Therefore, achieving sustainable economic growth and high income has become the ultimate economic policy objective. Equity investment in form of foreign direct investment (FDI) has proven to be the right choice, because influx of fresh capital and know-how enabled strong economic growth and restructuring through increasing labor productivity and economic efficiency. Stronger competitive pressure through FDI contributed to dynamic restructuring, resembling in increasing exports and stronger integration into global economy. Yet, growth rates across countries were not always proportional to the volume of inward FDI, which indicates a certain level of underperformance for some countries. The aim of the paper is to closer investigate the FDI-growth nexus by differentiating between two types of FDI – mergers and acquisition (M&A) and greenfield investment. Thus, the analysis will take account of the characteristics of the FDI host economy, and those of the investing company, because we find it reasonable to assume that different forms of FDI incorporate different business dynamics and the time horizon of the investor’s expectations. In order to find out the effects of different forms of FDI on economic growth we apply panel data analysis with fixed effects and Prais-Winsten estimator on the sample of European reform countries whereby FDI, M&A and greenfield investment are considered the key variables. Analysis also includes a set of control variables, which combine standard neoclassical growth variables. Results indicate that, with reference to the level of innovativeness, different types of FDI indeed produce different effects on host countries’ economic growth

Does FDI mode of entry have an impact on the host country’s labor productivity?: An analysis of the EU countries

Economic growth results from the interplay of labor, capital and technology. In that respect, foreign direct investment (FDI) plays an important role, as it brings not only funds, but also intangible assets (technology and know-how) which contribute to the productivity growth of the recipient country. However, empirical findings on the impact of FDI on the host country’s productivity and economic growth are not quite straightforward, as they sometimes indicate not only positive, but also modest, or even negative effects. Hence, the aim of the paper is to investigate the impact of FDI on the host country’s productivity with reference to different FDI modes of entry, as well as the level of innovativeness of the FDI recipient countries. Results of the panel data analysis with fixed effects on the sample of the EU countries cast a new light on the expected effects of FDI, since mergers and acquisitions (M&A) prove to have a stronger impact on the local economy’s productivity with countries at a higher level of innovativeness, while greenfield investments exert stronger positive effects in the case of technologically less advanced economies

INSTITUTIONAL CONDITIONS OF SMALL AND MEDIUM ENTERPRISES’ INTERNATIONALIZATION: THE CASE OF THE SPLIT-DALMATIA COUNTY

Suvremene tendencije na međunarodnome tržištu, primarno određene dinamičnim tehnološkim napretkom i novim potrošačkim preferencijama, otvaraju nove mogućnosti internacionalizacije poslovanja malih i srednjih poduzeća. U uvjetima globalizacije i rastućega ekonomskoga integriranja, taj trend postaje neizbježan i zahtijeva odgovarajuće mjere ekonomske politike radi maksimizacije pozitivnih netoučinaka. Polazeći od teorijskih i empirijskih spoznaja o razvojnim ograničenjima malih i srednjih poduzeća, i prepreka njihovoj uspješnoj integraciji na međunarodno tržište, autor u ovome radu, na primjeru Splitsko-dalmatinske županije objašnjava uvjete internacionalizacije regionalnoga gospodarstva i ukazuje na važnost kvalitetne poduzetničke infrastrukture, koja je u ranoj fazi internacionalizacije primarno usmjerena na stvaranje uvjeta za gospodarski rast i razvitak, a tek u kasnijoj fazi na jačanje međunarodnih konkurentskih pozicija maloga gospodarstva.Recent developments on international market, primarily determined by dynamic technological advance and new consumer preferences, open up new opportunities of business internationalization for small and medium sized enterprises. Furthermore, with globalisation and advanced process of economic integration these developments become inevitable and call for effective economic policy measures aimed at maximising net-benefits. Based on theoretical and empirical inferences on constraints in the development of SMEs, including obstacles to their successful integration on international market, this paper uses the case of the Split-Dalmatia County to discuss the conditions of business internationalization of a regional economy, while showing the importance of good local business infrastructure. The paper proves that in the early phase of internationalization, supporting business services are primarily aimed at creating conditions for growth and development; in a more mature phase, however, improving international competitiveness of local business proves to be a more effective tool for a long-term business internationalization