Toward a long-term strategy of economic development of Croatia: Where to begin, what to do and how to do it?

This paper attempts to elaborate the main principles of an economic development strategy suitable for Croatia over the next 10–15 years. Based on brief analyses of advances made in development theory and policy and experiences of the emerging market economies in Asia, Latin America, and Central Europe, the paper identifies critical factors necessary for launching an accelerated process of economic development. These factors are: leadership commitment to economic development; the level and quality of social and human capital; application of modern (especially information) technology; stable and consistent macroeconomic policies; and efficient market-based institutions. The paper then analyses Croatia’s strengths and weaknesses in terms of these factors in comparison with a select group of economies: Slovenia, Hungary, the Czech Republic, Portugal, Ireland, Chile, Uruguay, Hong Kong and Singapore. In addition, the paper analyses implications of “new economy” developments in the United States and other advanced industrial countries for a small open economy like Croatia. Against this background, the paper proposes seven basic principles for elaborating a long-term strategy of Croatia’s economic development: (i) Setting a clear development goal—the paper proposes a doubling of real per capita GDP to US$10,000 in the next 10–15 years, which would require an average annual growth rate of about 5½%, and that this growth rate is achievable; (ii) Ensuring transparency and equal access to development opportunities, as opposed to following specific industrial policy; (iii) Adjusting to globalisation of economic activity and absorbing “new economy” developments; (iv) Implementing fundamental reform of labour markets, with a view to reducing the high non-wage labour costs through pension and health care reforms; (v) Actively promoting financial market development by accelerating corporate and bank restructuring, and legal and judicial system reforms; (vi) Deciding on the economic role of the state in such areas as education, legal and judicial systems, market regulation, infrastructure, and science and technology; and (vii) Maintaining stable and consistent macroeconomic policies to facilitate structural reforms. The paper briefly discusses the main benefits and costs of a possible “euroisation” of Croatia’s economy, and arrangements for a possible transition from the current monetary and exchange rate regime, characterised by a high degree of factor and commodity price indexation to the Deutsche mark, toward a more flexible interim regime that would facilitate the eventual adoption of the euro and be consistent with the overall development strategy outlined

Toward a Long-Term Strategy of Economic Development of Croatia: Where to Begin, What to Do, and How to Do It?

This paper attempts to elaborate the main principles of an economic development strategy suitable for Croatia over the next 10–15 years. Based on brief analyses of advances made in development theory and policy and experiences of the emerging market economies in Asia, Latin America, and Central Europe, the paper identifies critical factors necessary for launching an accelerated process of economic development. These factors are: leadership commitment to economic development; the level and quality of social and human capital; application of modern (especially information) technology; stable and consistent macroeconomic policies; and efficient market-based institutions. The paper then analyses Croatia’s strengths and weaknesses in terms of these factors in comparison with a select group of economies: Slovenia, Hungary, the Czech Republic, Portugal, Ireland, Chile, Uruguay, Hong Kong and Singapore. In addition, the paper analyses implications of “new economy” developments in the United States and other advanced industrial countries for a small open economy like Croatia. Against this background, the paper proposes seven basic principles for elaborating a long-term strategy of Croatia’s economic development: (i) Setting a clear development goal—the paper proposes a doubling of real per capita GDP to US$10,000 in the next 10–15 years, which would require an average annual growth rate of about 5.5%, and that this growth rate is achievable; (ii) Ensuring transparency and equal access to development opportunities, as opposed to following specific industrial policy; (iii) Adjusting to globalisation of economic activity and absorbing “new economy” developments; (iv) Implementing fundamental reform of labour markets, with a view to reducing the high non-wage labour costs through pension and health care reforms; (v) Actively promoting financial market development by accelerating corporate and bank restructuring, and legal and judicial system reforms; (vi) Deciding on the economic role of the state in such areas as education, legal and judicial systems, market regulation, infrastructure, and science and technology; and (vii) Maintaining stable and consistent macroeconomic policies to facilitate structural reforms. The paper briefly discusses the main benefits and costs of a possible “euroisation” of Croatia’s economy, and arrangements for a possible transition from the current monetary and exchange rate regime, characterised by a high degree of factor and commodity price indexation to the Deutsche mark, toward a more flexible interim regime that would facilitate the eventual adoption of the euro and be consistent with the overall development strategy outlined.economic development, economic growth, new economic paradigm, globalisation, information technology, emerging market economies, transition economies, macroeconomic policies, industrial policy, corporate and bank restructuring, labour market reform, financial market development, exchange rate policy, eurisation.

Fiscal transparency from central banks’ perspective: off-budget activities and government asset funds

This paper reviews how central banks in emerging market countries assess fiscal positions, and discusses two aspects of fiscal transparency that have recently gained importance from central banks’ perspective: off-budget activities and special fiscal funds. By increasing uncertainty about the true fiscal position of the government, these activities are of concern both to central banks that set monetary policy on their own, taking fiscal policy as given, and to those that have adopted an institutional framework for coordinating monetary and fiscal policies.fiscal transparency, public sector accounts, off-budget activities, sovereign wealth funds, emerging market economies.

Croatian Accession to the European Union: Facing the Challenges of Negotiations

This paper investigates how one particular aspect of the freedom of movement of capital – the right of EU residents to acquire real estate in EU member states – might shape Croatia’s EU accession negotiations and affect its real estate market, the tourism industry and the national economy. It identifies potential benefits and risks of unrestricted foreign investment in Croatian real estate, and attendant dilemmas for economic policies. The main conclusion is that Croatia stands to benefit in the long run from foreign investment in the property sector. However, a gradual approach to the opening-up of the real estate market to non-residents can be justified on a number of grounds. These include inadequate legislation limiting property speculation; potential spillovers of price increases from the market for secondary residences onto the local housing market (of which there is already some evidence); costs of the adjustment in the housing market and construction industry to a sudden large increase in demand for secondary residences; loss of competitiveness in the tourism industry if there should be violations of building regulations and the resulting overdevelopment of coastal areas; and macroeconomic pressures arising from large and sudden capital inflows.Croatian economy, European Union accession negotiations, new member states, free movement of capital, real estate market, housing prices, housing finance, secondary residences, travel and tourism, protection of public coastal domains, local government, capital inflows

Determinants of House Prices in Central and Eastern Europe

This paper studies the determinants of house prices in eight transition economies of central and eastern Europe (CEE) and 19 OECD countries. The main question addressed is whether the conventional fundamental determinants of house prices, such as GDP per capita, real interest rates, housing credit and demographic factors, have driven observed house prices in CEE. We show that house prices in CEE are determined to a large extent by the underlying conventional fundamentals and some transition-specific factors, in particular institutional development of housing markets and housing finance and quality effects.http://deepblue.lib.umich.edu/bitstream/2027.42/64380/1/wp894.pd

PRIDRUŽENE ČLANICE EU, KANDIDATI I «ASPIRANTI»: KOLIKE SU RAZLIKE MEĐU NJIMA I KAKO SE BRZO MOGU SMANJITI?

This paper attempts to answer three questions on the status of real economic convergence in central and eastern Europe. First, how large are the differences, measured by key macroeconomic indicators, between the new member states that joined the EU in 2004, the four EU candidates (Bulgaria, Croatia, Romania and Turkey) and the EU “aspirants” from southeast Europe (Albania, Bosnia and Herzegovina, Macedonia and Serbia and Montenegro). Second, how long could it take the EU candidates and aspirants to overcome these differences and catch up with the new member states? And third, how long could it take the 16 countries in central and eastern Europe to catch up with living standards in Greece, Italy, Portugal and Spain? Due to the complexity of cross-country comparisons, answers to these questions are only illustrative. It is shown that differences in terms of macroeconomic indicators between the EU candidates and the new member states are not as large as is often thought. However, the starting position of countries in southeast Europe is considerably less favourable. Second, at the average speed of reforms exhibited by the new member states over the past 15 years, it would take between 1½ and 7½ years for the EU candidates and aspirants to reach the level of transition observed in the new member states at the time they joined the EU. Converging to real per capita incomes of four southern members of EU-15 would take considerable longer: between 25 and 50 years for the new member states (with the exception of Slovenia) and EU candidates; and 65 years or longer for the southeast European countries.Autor u ovome radu pokušava odgovoriti na tri pitanja o statusu realne ekonomske konvergencije u srednjoj i istočnoj Europi. Prvo, kolike su razlike mjerene ključnim makroekonomskim pokazateljima između novih zemalja članica koje su se pridružile EU u 2004,.zatim kolike su razlike između četiri kandidata za EU (Bugarska, Hrvatska, Rumunjska i Turska) i na kraju kolike su razlike između «aspiranata» za EU iz jugoistočne Europe (Albanija, Bosna i Hercegovina, Makedonija i Srbija i Crna Gora). Drugo, koliko bi moglo potrajati da kandidati za EU i «aspiranti» prevladaju te razlike i dostignu nove zemlje članice? I treće, koliko bi trajalo da 16 zemalja u srednjoj i istočnoj Europi sustignu životni standard u Grčkoj, u Italiji, u Portugalu i u Španjolskoj?Zbog složenosti usporedbi između zemalja, odgovori na ta pitanja mogu biti samo ilustrativni. Pokazalo se da razlike u makroekonomskim pokazateljima između kandidata za EU i novih zemalja članica nisu tako velike kao što se to često misli, ali je početna pozicija zemalja u jugoistočnoj Europi znatno slabija. Drugo, prosuđujući prema prosječnoj brzini reformi koju su nove zemlje članice pokazale u prošlih 15 godina, kandidatima i «aspirantima» bit će potrebno 1,5 -7,5 godina da dostignu razinu tranzicije koju su imale nove zemlje članice u vrijeme kad su se pridružile EU. Za konvergenciju pak realnog dohotka po stanovniku, za četiri će južna člana europske petnaestorice trebati znatno više vremena: između 25 i 50 godina za nove države članice (osim Slovenije) i kandidate za EU, a za jugoistočne europske zemlje to će potrajati 65 godina ili duže

Inflation and public finances in the 2020s: editor’s introduction to the thematic issue of Public Sector Economics

Guest Editors’ introduction to the thematic issue of Public Sector Economic

Inflation and public finances: an overview

This paper presents an analytical overview of the effects of inflation on government revenues, expenditure and fiscal positions. Evidence for a range of countries from the current inflation episode and that of the 1980s is compared and contrasted. The key finding is that high inflation initially boosts tax revenues and improves fiscal positions, but expenditure quickly catches up and offsets this improvement. The short-term boost is partly due to structural changes that have made modern tax systems more elastic with respect to inflation. The medium-turn deterioration reflects a shift toward spending items more responsive to inflation. The key risk is that the impression of abundant tax revenues will lead to spending programmes or tax cuts that damage public finances in the long term. As research on inflation and public finances has been dormant since the 1980s, this analysis fills a gap in our understanding of the fiscal consequences of inflation