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The Dutch Disease in Unwonted Places. Why has Croatia been Infected while Slovenia Remains in Good Health?

Author

Listed:
  • Tanja Broz

    (Institute of Economics Zagreb)

  • Dinko Dubravcic

    (Institute of Economics Zagreb)

Abstract

Comparing developments in Croatia and Slovenia, the paper tests the proposition that the Dutch disease results from excessive total foreign exchange inflows from various sources - exports of natural resources not necessarily being one of them. It is shown that the sum of foreign exchange inflows from foreign tourism, workers' remittances and net capital inflows (the sum of direct and portfolio investment and changes in the foreign debt position) in Croatia were almost three times as high as those in Slovenia. The consequences were an appreciation of the domestic currency (Kuna) in Croatia, while the Slovenian Tolar exhibited a constant tendency to depreciation. In contrast to Slovenia, Croatia appears to suffer from strong symptoms of deindustrialization. The steeper rise of real wages in Croatia, as the consequence of the overflow of foreign exchange windfall, is seen as the decisive reason for the deteriorating competitive position of producers of tradables in Croatia.

Suggested Citation

  • Tanja Broz & Dinko Dubravcic, 2011. "The Dutch Disease in Unwonted Places. Why has Croatia been Infected while Slovenia Remains in Good Health?," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 9(1), pages 47-66.
    • Handle: RePEc:seb:journl:v:9:y:2011:i:1:p:47-66
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    2. Tanja Broz, 2010. "Introduction of the euro in CEE countries - is it economically justifiable? The Croatian case," Post-Communist Economies, Taylor & Francis Journals, vol. 22(4), pages 427-447.
    3. Kristian Orsini & Mario Pletikosa, 2019. "Croatia's Tourism Industry – Part 2: Curse or Blessing?," European Economy - Economic Briefs 047, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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    More about this item

    Keywords

    Growth; Business Climate; Entrepreneurship; Strategies; Montenegro;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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