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International trade and economic growth in Croatia

Author

Listed:
  • Leonarda Srdelić

    (The Croatian National Bank, Croatia)

  • Marwil Jhonatan Dávila-Fernández

    (Bucknell University, Lewisburg, Pennsylvania, USA)

Abstract

This article argues that Croatia’s economic performance over the past two decades is deeply related to the dynamics of international trade. Under the premise that what is bought and sold in international markets reflects the economy’s fundamentals, we show that the rate of growth compatible with equilibrium in the balance-of-payments, i.e. the dynamic Harrod trade multiplier, is a good predictor of the country’s actual long-run growth rate. For this purpose, we apply a State-space model and the Kalman smoother to obtain time-varying parameter estimates of the exports and imports functions. We proceed by using these estimates to investigate the determinants of international non-price competitiveness. Bayesian Model Averaging (BMA) and Weighted Average Least Squares (WALS) techniques are combined to tackle model selection uncertainty. It is shown that R&D investments and human capital accumulation are the most important explanatory variables. We conclude by highlighting the policy relevance of our findings to the evaluation of Croatia’s catching-up performance as part of the European Union.

Suggested Citation

  • Leonarda Srdelić & Marwil Jhonatan Dávila-Fernández, 2022. "International trade and economic growth in Croatia," Working Papers 64, The Croatian National Bank, Croatia.
  • Handle: RePEc:hnb:wpaper:64
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    More about this item

    Keywords

    Economic growth; International trade; State-space model; Bayesian model averaging; Croatia.;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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