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FDI in Croatia

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Part of the Economic Geography book series (ECOGEO)

Abstract

During the process of transition from a planned to a market economy, much like other transition economies from Central and Eastern Europe (CEE), Croatia turned to international financial markets to boost growth, transfer technology, increase private ownership in its economy, and finance gross fixed capital formation. Although Croatia has attracted a considerable amount of foreign direct investment (FDI) inflows since its independence, the type of investment has generally been unfavorable for supporting economic growth. Croatian War of Independence and its aftermath, combined with isolation from the international community in the 1990s, largely excluded Croatia from European and global value chains. Subsequently, most of its FDI inflows took the form of acquisitions of existing companies and big market-share firms in non-tradeable sectors such as finance, retail, and real estate. The lack of both domestic and foreign investment in high value-added and high-tech industries such as machines, vehicles, electronics, and chemicals, resulted in a suboptimal industrial production structure and acute deindustrialization that was particularly detrimental for the inland regions of Croatia. Notwithstanding an unfavorable sectoral composition of FDI and lack of greenfield investments thus far, the Croatian economy remains an attractive investment destination. As a European Union (EU) member since 2013, Croatia’s expected accession to the Eurozone in the mid-2020s will eliminate the exchange rate risk, reduce the risk premium, and thus make Croatia even safer as a location for FDI.

Keywords

  • FDI
  • Croatia
  • Former Yugoslavia

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Fig. 3.1

Sources Authors’ calculations, CNB (2019a), Eurostat (2019), MMF—WEO Database (October 2018)

Fig. 3.2

Source CNB (2019a), Eurostat (2019)

Fig. 3.3

Source CNB (2019a)

Fig. 3.4

Source CNB (2019a)

Fig. 3.5

Source CNB (2019a)

Fig. 3.6

Source FINA (2018), CBS (2019)

Fig. 3.7

Source FINA (2018)

Fig. 3.8

Source FINA (2018)

Notes

  1. 1.

    Tourism receipts to GDP ratio is over 20%, and added value of tourism is in vicinity of 10% GDP (DZS 2016).

  2. 2.

    Data on profit and loss statements are provided by FINA on all non-financial companies. Commercial banks and insurance companies are not included in the database. Also, the database does not have observations about the location where companies are operating. It only includes addresses of headquarters of non-financial legal entities. Therefore, due to data limitations, each company's financial figures are matched with geographic locations using the address of their headquarters.

  3. 3.

    In the Croatian territorial organization, the City of Zagreb is formally both a city and a county at the same time. Therefore, it is considered to be 21st county in statistical publications.

  4. 4.

    The County of Zagreb is the “U”-shaped county that surrounds the City of Zagreb “county” from the east, south, and west. The County of Zagreb and City of Zagreb are two different and separate territories without any jurisdictional overlap.

  5. 5.

    Six out of eight of the biggest commercial banks are located in Zagreb.

  6. 6.

    The distributive trades sector corresponds to the wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods.

  7. 7.

    “Too big to fail” describes a bank (or any other company) for which the government will prevent bankruptcy due to bank's systemic importance for the functioning of the economy.

  8. 8.

    Rijeka and Split are alternative locations for bank headquarters.

  9. 9.

    Mostly due to corruption scandals connected with earlier privatizations.

Abbreviations

AN:

Netherlands Antilles

AT:

Austria

BE:

Belgium

CBS:

Croatian Bureau of Statistics

CEE:

Central and Eastern Europe

CH:

Switzerland

CNB:

Croatian National Bank

CRBC:

China Road and Bridge Corporation

CZ:

Czechia/Czech Republic

DE:

Germany

EC:

European Commission

ERM II:

Exchange Rate mechanism

EU:

European Union

EUR:

Euro

FDI:

Foreign Direct Investment

FINA:

Financial Agency

FR:

France

GB:

Great Britain

GDP:

Gross Domestic Product

GF:

Global Financial Crisis

HRK:

Croatian Kuna

HT:

Croatian Telecom

HU:

Hungary

HUP:

Croatian Employers’ Association

ICT:

Information and Communications Technology

IT:

Italy

LNG:

Liquefied Natural Gas

LU:

Luxembourg

MNE:

Multinational Enterprise

NL:

Netherlands

NACE:

Statistical Classification of Economic Activities in the European Community (Nomenclature Statistique des Activités économiques dans la Communauté Européenne)

RU:

Russian Federation

SE:

Sweden

SI:

Slovenia

UNCTAD:

United Nations Conference on Trade and Development

USD:

United States dollar

VAT:

Value-added tax

ZSE:

Zagreb Stock Exchange

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Acknowledgements

This work has been supported in part by Croatian Science Foundation under the projects UIP-2017-05-6785 and IP-2019-04-4500.

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Tica, J., Globan, T., Levaj, M. (2021). FDI in Croatia. In: Deichmann, J.I. (eds) Foreign Direct Investment in the Successor States of Yugoslavia. Economic Geography. Springer, Cham. https://doi.org/10.1007/978-3-030-55739-3_3

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  • DOI: https://doi.org/10.1007/978-3-030-55739-3_3

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