The structure and quality upgrading of Croatian exports to EU15 market

This paper aims to explore the changes in the structure of Croatian exports to EU15 market. Our analysis is nested in the wide body of literature which postulates that the structure of exported products has important role for explaining the ability of nations to grow and to provide their citizens with better standard of living. Substantial body of evidence points that, following demise of central planning, most transition economies penetrated market of EU15 countries as producers of price-competitive products but that over time some of them shifted to quality-competitive segments of market. Our investigation aims to identify whether there has been a change in the structure of Croatian exports to EU15 market, if any change was of inter- or intra-industry type and how the quality of Croatian exports to this market can be improved. To address these issues we apply dynamic shift and share and dynamic panel methodologies to a panel of 89 3-digit manufacturing industries in the period between 2001 and 2007. Our results indicate that, over the years, Croatian exporters to EU15 market have shifted from low technology intensive towards high technology intensive industries but within these sectors Croatian trade with EU15 had all the characteristics of vertical intra-industry trade, a pattern typical for exchange between developed and developing economies. Furthermore, investment in new technology, innovations and import-led spillovers have key role in improvements in the relative quality of exports.