Public investment: catalyst for sustainable growth

Investment1 is an important instrument of economic growth. Apart from having a positive effect on aggregate demand, it enables future production growth. Through capital accumulation, investments directly impact a country’s potential GDP, i.e. the maximum sustainable level of output achievable by a country without creating inflationary pressure. Furthermore, new technologies can increase productivity and the utilization of factors of production. Potential GDP growth rate in the EU declined by half after the onset of the 2008 crisis: in the 2002-2008 period, average potential GDP growth rate in the EU was 2%, but dropped to 0.9%2 in the 2009-2016 period. This decline in growth is a consequence of, primarily, a significant reduction in total factor productivity and, secondarily, poor capital accumulation. The contribution of the labour factor has not been diminished to the same extent. Croatia has experienced more unfavourable trends than other EU member states, with the pre-crisis potential GDP average growth rate exceeding 3%, then declining or stagnating in the 2009-2014 period, and experiencing modest growth only in 2015. The primary factor contributing to post-crisis potential GDP growth slowdown was the capital factor, as its contribution in the post-crisis period was 2.5 times lower than when compared to the pre-crisis period, which was in line with investment trends in Croatia

Unpublished Greek Dishes of the Museum of Slavonia

Most of 27 here published greek dishes, were donated by wholeseller of the city of Osijek Mr Franjo Sedlakovic, in the period between 1877 and 1893. Nothing is known about the circumstances nor the period of invention of certain dishes. There are available data for just a few dishes regarding the spots of their investigation. Beside those indistinctness, these ceramics material is of big importance, mainly because they have been produced by virtual mas¬ters, and the dishes with ornaments have been decorated by very good or first-class painters and/or their apprentices. In spite of vast literature availability, it was not possible to determine exact period of production of certain dishes, nor the territory where the same have been produced. Therefore, data given here are not epressed as final assertions. Exceptional preservation of all of the di¬shes, especially most of their ornaments, as well as data on territory of their origin, manifest that almost definitely all these dishes have been discovered in the graves with hard walls and covers, most probably on Necropolis and/or separate crypts in Greece and its colonies in Eastern parts of Europe as well as in South Italy (nos. 10, 17, 22, 24). Greek dishes of the Museum of Slavonia originate from the period between VI and II century B. C

Foreign Direct Investment and the Productivity of Croatian Companies in the Industrial Sector

U ovom se radu analiziraju učinci izravnih inozemnih ulaganja na produktivnost hrvatskih poduzeća u djelatnosti industrije. Na uzorku od 3.336 poduzeća u razdoblju 1999.-2005., koristeći se metodama regresijske analize na panel podacima, analizirani su efekti inozemnog kapitala na produktivnost hrvatskih poduzeća i ukupnog gospodarstva. Analiza se temeljila na proizvodnoj funkciji, pri čemu se učinci izravnih inozemnih ulaganja razmatraju kao dva segmenta ukupne faktorske produktivnosti. Prvi je promatranje učinaka na produktivnost samih poduzeća primatelja izravnih inozemnih ulaganja, a drugi je promatranje efekata na produktivnost ostalih poduzeća u djelatnosti industrije. Rezultati analize pokazuju kako je priljev izravnih inozemnih ulaganja u djelatnosti industrije u promatranom razdoblju imao pozitivne učinke na produktivnost hrvatskih poduzeća, kako samih primatelja, tako i ostalih poduzeća.This paper attempts to analyze the effects of foreign direct investment on the productivity of Croatian companies in the industrial sector. Given the sample of 3,336 companies in the period 1999-2005, regression analysis on panel data was used in order to investigate whether foreign capital has brought positive effects to the Croatian companies in the sense of increased productivity. The analysis was based on the production function, in which the effects of foreign direct investment were recognized as two segments of total factor productivity. The first segment is the so-called own-firm effect of foreign direct investment, which implies that companies in foreign ownership are on average more productive than domestic ones. The other segment is the so-called spillover effect of foreign direct investment, which means that foreign capital penetration brings positive effects to other domestic companies in different sectors of economy in the sense of transfer of technology and know-how. The results suggest that foreign direct investment in the industrial sector has brought positive own-firm as well as spillover effects

HOW TO REGIONALIZE CROATIA OPTIMALLY?

U ovom radu propituje se izbor optimalne varijante statističke regionalizacije Hrvatske na NUTS II razini. Kriteriji za izbor varijante jesu: kriteriji Eurostata o broju stanovnika, maksimalan financijski učinak od pristupa strukturnim fondovima u dugoročnom razdoblju i kriterij homogenosti pojedinih regija kao osnovica za vođenje dugoročne konzistentne politike regionalnog razvitka. Autori propituju osam varijanti statističke regionalizacije i pokazuju što za Hrvatsku izbor svake od njih znači s financijskog i razvojnog stajališta. Ispitane su varijante statističke regionalizacije sa dvije, tri i četiri NUTS II regije i sve dobre i loše strane pojedine varijante. Dalje autori propituju pitanje povezanosti koncepta vođenja regionalne politike (bottom-up i top-down) i adekvatnost pojedine varijante statističke regionalizacije za vođenje regionalne politike u Hrvatskoj.This paper questions the choice of the optimal variable of the statistical regionalization of Croatia on the NUTS II level. The choice criteria are the following: Eurostat population number, maximum financial effects gained from structural fund access in the long term and the criteria of homogeneity of specific regions as the basis for consistent, long term regional development policy. The authors examine the eight alternatives of statistical regionalization and demonstrate the implications for Croatia, from the fi nancial and development viewpoint. The tested alternatives were the statistical regionalization with two, three and four NUTS II regions and all of the advantages and disadvantages for each of the examined variables. In continuation, the authors question the link between the regional policy approach (bottom-up and top-down) and the suitability of the specific choice of statistical regions for regional policy management in Croatia

FOREIGN CAPITAL INFLOW - THE EFFECTS ON NATIONAL SAVINGS, DOMESTIC INVESTMENTS AND BALANCE OF PAYMENTS OF COUNTRIES IN TRANSITION IN CENTRAL AND EASTERN EUROPE

U radu se analiziraju učinci bruto priljeva inozemnog kapitala na domaće investicije i na nacionalnu štednju. Hipoteza je rada da priljev inozemnoga kapitala u tranzicijskim zemljama, u prosjeku, pozitivno utječe na domaće investicije, ali ne i na stopu nacionalne štednje. Primijenjena je metoda analize panel podataka (11 tranzicijskih zemalja Srednje i Istočne Europe u desetogodišnjem razdoblju) s uporabom fi ksnih efekata. Priljev inozemnoga kapitala u tranzicijske zemlje stvarao je efekt poticanja (“crowding-in ef-fect”) domaćih investicija. Najjaču i statistički najznačajniju vezu imala je varijabla inozemnih kredita. FDI su se također pokazale signifikantnima u objašnjavanju kretanja domaće investicijske aktivnosti tranzicijskih zemalja, no slabijeg su intenziteta i značajnosti. Priljev portfolio investicija ne utječe na domaće investicije. Za razliku od utjecaja na investicije, inozemni kapital i njegove pojedine komponente nisu se pokazale značajnima u objašnjavanju kretanja nacionalne štednje tranzicijskih zemalja, što implicira da nacionalna i inozemna štednja nisu supstituti. Stoga bi ograničivanje inozemnog zaduživanja utjecalo na smanjenje domaćih investicija, ali ne i na povećanje nacionalne štednje.This paper analyses the effects of the gross foreign capital infl ows on the national savings and domestic investments. The hypothesis put forward is that the foreign capital infl ows into transition countries increase, on average, the levels of national investments but not the national savings levels. The panel data analysis with so called fixed effects method has been applied to 11 transition countries (CEEC) over a ten-year period. The dependant variables are the national investments and savings. Foreign capital infl ows into transition countries have had a positive “crowding-in effect” on the national investment. The strongest and statistically most signifi cant correlation has been found for the other foreign investment variable (credits). The FDI have also been shown as signifi cant although with weaker correlation. Portfolio investment inflows have no significant influence on national investments. As opposed to the investment effects, total foreign capital inflow and its individual components turned out to be insignifi cant in explaining the national savings in transition economies. This result implies that national and foreign savings are not substitutes in transition countries. Therefore, limiting the access to foreign fi nancing would decrease national investments without increasing the level of national savings

FOREIGN CAPITAL INFLOWS – INFLUENCE ON DOMESTIC INVESTMENT AND TRADE STRUCTURE

Liberalizacija međunarodne trgovine bila je jedna od značajnijih strukturnih i institucionalnih reformi koje su tranzicijske zemlje na početku devedesetih godina20. stoljeća pokrenule. Započele su s liberalizacijom tekućeg računa bilance plaćanja, koji je potom slijedila djelomična liberalizacija kapitalnog računa. Priljev inozemnoga kapitala u zemlje u tranziciji u razdoblju 1993.- 2003. bio je vrlo značajan ali su učinci priljeva inozemnoga kapitala na rast gospodarske konkurentnosti i na rast specijalizacije u međunarodnoj razmjeni raznoliki. Neke su tranzicijskih zemalja uspjele značajno povećati investicije i promijeniti strukturu izvoza, s druge su bile manje uspješne, pa se suočavaju s rastućom neravnotežom u međunarodnoj robnoj razmjeni. Rad se sastoji od dva dijela. U prvome se dijelu propituju učinci priljeva inozemnoga kapitala na razinu investicijske aktivnosti u Hrvatskoj i u 6 odabranih tranzicijskih zemalja. Priljev inozemnoga kapital sastoji se od FDI, portfolio investicija i ostalih stranih investicija. U radu se koristi regresijskom panel analizom i ocjenom metodom tzv. fiksnih efekata uz uporabu instrumentalnih varijabli. Uočeno je postojanje pozitivne, signifikantne veze između ukupnog priljeva inozemnoga kapitala i razine domaćih investicija. Najsignifikantnija su sastavnica priljeva inozemnoga kapitala u tom kontekstu ostale strane investicije, a FDI ima očekivan pozitivni predznak, ali s nižom razinom značajnosti. Varijabla portfolio investicija nema signifikantnu vezu s razinom domaće investicijske aktivnosti. U drugom dijelu rada zasebno se propituje utjecaj FDI na promjenu strukture robnog izvoza, komparativnih prednosti i razinu specijalizacije. Za skupinu analiziranih tranzicijskih zemalja, kao cjelinu, korelacijska analiza pokazuje postojanje očekivane pozitivne veze između FDI, razine specijalizacije i promjene izvozne strukture tranzicijskih zemalja u korist proizvoda s većim sadržajem dodane vrijednosti. No, Hrvatska se pokazuje kao iznimka. Naime, iako je privukla relativno mnogo FDI investicija po stanovniku, nema naznaka značajnijih promjena u strukturi robne razmjene, ni rasta specijalizacije, a time niti jačega uključivanja u međunarodne tehnološko-proizvodne lance. Po sličnosti strukture robne razmjene, Hrvatska je sve više slična zemljama s nižim razinama BDP-a po stanovniku u promatranoj skupini (Poljska i Rumunjska), dok je sve udaljenija od najrazvijenijih zemalja iz promatrane skupine (Slovenija, Češka).One of the structural and institutional reforms that transition economies took in the beginning of the 90’s was the liberalization of international trade. Transition countries started with trade liberalization, followed by partial capital and financial account liberalization. The magnitude of foreign capital inflow to transition countries in the 1993-2003 period played significant role. However, countries share different experience concerning the impact on competitiveness and trade specialization. Some countries managed to increase domestic investments substantially in order to change export structure, while the others were less successful and experienced the rising foreign trade imbalances. The paper consists of two sections. In the first one we analyze the implication of capital inflows on domestic investment for Croatia and six selected transition countries. A foreign capital inflow comprises FDI, portfolio investments and other foreign investments. For that purpose, we conducted regression analysis on panel data and used so called fixed effects model with instrumental variables. Our findings point to a positive relation between capital inflows and the level of domestic investment. Other foreign investments (mainly foreign loans) have the highest impact on domestic investment while FDIs have a positive but less significant influence. Variable foreign portfolio investments have no significant impact on domestic investment activity. The FDI influence on the change in the export trade structure, comparative advantage and trade specialization is explored in the second section. For the group of analyzed countries there is a positive correlation between FDI, the level of specialization and export trade structure. However, empirical results indicate that Croatia is an exception. Namely, although Croatia has a relatively high level of FDI per capita, it has not recorded a significant improvement in the structure of international trade and sector specialization. This implies the absence of integration in international technology and value added chains. The structure of Croatian trade has an increasing similarity with less developed transition countries (Poland and Romania) while lagging behind the most developed transition economies (Slovenia, The Czech Republic)

Maastricht Criteria and the Inclusion of the Underground Economy - the Case of Croatia

Europska unija uvela je eksplicitnu obvezu za sve nove zemlje članice da u službeni podatak o BDP-u uključe i procjenu sive ekonomije koja je posljedica statističkih ili ekonomskih razloga. U tu namjenu za zemlje kandidate, od kojih je deset postalo punopravnim članicama EU 1. svibnja 2004. godine, osmišljen je tzv. Eurostatov Exhaustiveness program1. U skladu s rezultatima tog programa, nove članice EU u službeni BDP uključuju i korekciju za sivu ekonomiju. Uključivanjem sive ekonomije, Hrvatska po dosegnutom BDP-u po stanovniku mjerenom po paritetu kupovne moći, smanjuje zaostatak za EU-25. Smanjuje se i udio ukupnih izdataka konsolidiranog sektora države, čime se Hrvatska nalazi ispod prosjeka zemalja NMS-8. Glede udjela javnog duga u BDP-u i nakon uključivanja sive ekonomije, Hrvatska se nalazi u lošijoj poziciji od većine NMS-8 zemalja. Glede Maastrichtskih kriterija konvergencije, postupak uključivanja sive ekonomije ne mijenja situaciju sadašnjeg (ne)ispunjavanja kriterija. Uključivanjesive ekonomije utječe na dva indikatora: indikator udjela deficita sektora države u BDP-u i indikator udjela javnog duga u BDP-u. Uključivanjem sive ekonomije ne postiže se ispunjavanje kriterija deficita sektora opće države. Kriterij veličine javnog duga, Hrvatska zadovoljava i bez uključivanja sive ekonomije. Kriteriji inflacije i visine dugoročnih kamatnih stopa nisu izravno vezani uz veličinu BDP-a. Međutim, uključivanjem sive ekonomije, uz pretpostavku nastavka procesa konsolidacije javnih financija, postaje više nego razvidno da će Hrvatska relativno lako ispuniti sve Maastrichtske kriterije prije ulaska u EU, čime će prihvaćanje eura kao službene valute biti moguće u vrlo brzom roku nakon primjene prijelaznog ERMII mehanizma.European Union has introduced an explicit obligation for all member countries that the official GDP data needs to include the estimation of the underground economy, resulting from statistical or economic reasons. For this purpose, the socalled Eurostat Exhaustiveness programme has been developed for the group of candidate countries, of which ten have become full members as of the 1st of May 2004. In line with the results of this programme, the new EU members include the correction for the value of the underground economy into their official GDP figure. With the inclusion of underground economy, the consequent value of Croatian per capita GDP, measured according to the purchasing power parity, reduces the gap in comparison to the EU-25. Furthermore, the proportion of total expenditures in GDP of the general government sector is reduced as well, which places Croatia below the NMS-8 country average. In terms of the Maastricht convergence criteria, the underground economy inclusion procedure does not affect the fact that the criteria are not met. The inclusion of the underground economy influences two indicators: the proportion of the state sector deficit in the GDP and the proportion of the public debt in the GDP. The inclusion of the underground economy does not help fulfilling the criteria concerning the state sector deficit. The criteria concerning the size of public debt is fulfilled by Croatia even without the inclusion of the underground economy. The inflation criteria and the size of the long-term interest rates criteria are not directly linked to the GDP value

INVESTMENT EFFICIENCY AND FDI - OLD STORY, NEW CIRCUMSTANCES

Autori u ovom radu analiziraju kretanja stopa gospodarskog rasta, udjela investicija u BDP i efi kasnost investicija mjerenu konceptom ICOR za 11 tranzicijskih zemalja. Posebna je pozornost posvećena analizi determinanti i efikasnosti investicija za različite sektore gospodarstva u Republici Hrvatskoj. Primjenom Spearmanovog koeficijenta korelacije ranga empirijski je potvrđeno da visina ostvarenih stopa rasta ovisi o efikasnosti investicija (ICOR), a manje o udjelu investicija u BDP. U slučaju Hrvatske potvrđena su iskustva iz prijašnjih istraživanja za druge zemlje, kojima je utvrđeno da je efikasnost investicija najveća (najniži ICOR) u sektoru privatnih usluga, a najniža u sektoru stanogradnje i u sektoru države i javnih poduzeća. Primjenom Spearmanovog koeficijenta korelacije ranga i Kendallovog W-koeficijenta utvrđeno je da zemlje koje bilježe najviše prosječne stope rasta u razdoblju 1993.-2002. (Baltičke zemlje i Hrvatska) imaju prosječan udio investicija u BDP, natprosječnu efikasnost investicija (mjerenu konceptom ICOR), prosječan udio izravnih stranih investicija u BDP, ali i natprosječan udio FDI u tercijarnom sektoru. No, u tom se skupu zemalja (osim Estonije) udio izvoza u BDP u promatranome razdoblju smanjio, što i nije iznenađujuće, jer je veliki dio FDI usmjeren na nontradable sektor. Kao rezultat takvih kretanja u toj je skupini zemalja zabilježen natprosječan rast udjela inozemnoga duga u BDP.In this paper, the authors have analyzed growth rates, share of the gross fixed capital formation in GDP, and investment efficiency based on the ICOR concept for the 11 transition economies. Special attention has been paid to the analyses of determinants and investment efficiency in Croatia for each individual sector of the economy. By using Spearman coefficient of the rank correlation, the authors have empirically proved hypothesis that growth rate primarily depends on the investment efficiency (ICOR) and much less on the share of total investment in the GDP. It has been confirmed that in Croatia, as well as in other economies, the most efficient investments are located in the service sector, while the most inefficient investments are located in the general government and public enterprises sector. Using Spearman coeffi cient of the rank correlation and Kendall W coefficient, it has been established that countries with the highest growth rate among transition economies, in 1993-2002 period, (Baltic countries and Croatia) have had average investment ratio, averaged FDI/GDP ratio, but above the average ratio of FDI invested in the service sector (nontradable sector). But, despite high growth rates, all these high growth countries (except Estonia) also recorded declining share of exports in GDP, since FDI were located in nontradable sector. As a result, most of foreign indebtedness indicators have deteriorated substantially