Chapter 2. Investment trends and sustainable growth in Croatia

This chapter reviews investment trends in Croatia. It provides information on the evolution of inward and outward FDI flows and stocks and compares Croatia’s performance to other similar countries. It also provides information on the relative importance of greenfield FDI and mergers and acquisitions. The country has performed relatively strongly in attracting foreign investment, but there is need to diversify FDI by destination sector, source country and mode of entry as well as support further internationalisation of domestic firms.

Since the late 1990s, the process leading to Croatia's gradual integration and accession to the European Union (EU) has shaped the country’s economic development, with a profound impact on the institutional framework and policy-making, not least in the area of investment policies. Croatia has made a successful transition to a stable market economy and achieved notable progress on institutional and policy reforms. Its achievements have been reflected in a strong pre-crisis record of economic growth, a sustained increase of foreign direct investment (FDI) inflows in the decade preceding the global financial crisis and indicators of social development that have been among the highest in the region. At the time of its accession to the EU, Croatia was the wealthiest of the three member states in the Balkans.

However, as the global financial and economic crisis continued to spill over to Croatia, the economy entered into a sharp downturn, and at 12.5% in 2013-17 the growth of GDP per capita (in PPP, constant 2011 international USD) has been much slower than in countries such as Romania (23.2%) and Bulgaria (16.7%) (World Development Indicators). The slowdown in investment exposed serious structural shortcomings and while the rate of fixed capital formation investment has been slowly growing, achieving a sustained pace of private investment rests on a precondition of important structural reforms (Chapter 3). This chapter presents Croatia’s situation in terms of its overall economic performance and FDI trends over the past two decades to provide key insights on the role – and evolution –of foreign investment in the Croatian economy.

Croatia’s economic development

Croatia’s overall economic performance has been solid over the past two decades, though the country deeply suffered from the global financial crisis and a protracted six-year recession (Figure 2.1). Real GDP growth averaged some 4.5% annually over 2000–07, before a sudden deceleration in 2008 and six consecutive years of contraction. The recovery began in 2015 and Croatia’s economy since then has been growing at 3% annual in the three years to 2017 – a pace well above the EU annual average at 2.3%. Nonetheless, output has not yet fully recovered to its pre-recession level. Croatia’s GDP per capita (USD 13,237 in 2017) is one of the lowest among all EU countries; in 2017, GDP per capita expressed in PPP (constant 2011 international USD) was 61% of the EU average.

Figure 2.1. GDP growth, 2000-2017 (year-on-year percentage rate in constant prices)

Following a period of high inflation, year-on-year inflation has been declining since 2012 (Table 2.1): in February 2019, the rate was 1.4%. Wage growth was also moderate as unemployment remained high (7.5% in February 2019, the fifth-highest EU rate), although declining (10.9% in July 2017) (Eurostat unemployment statistics).

Near-term prospects are favourable, supported by strong tourism and private consumption: the Ministry of Finance and the Central Bank, as well as international organisations and other institutions, project GDP growth at around 2.5% for 2018 and 2019. Nonetheless, the relatively low level of investment and indications from business surveys suggest that the economy is operating close to potential. Despite a significantly improved fiscal position that allowed Croatia to exit the European Union’s Excessive Deficit Procedure in June 2017, in the medium run there is a risk of growth deceleration unless long-standing structural constraints are not addressed. The external environment is also becoming less supportive.

Table 2.1. Main economic indicators
	2014	2015	2016	2017	2018^a
Inflation	-0.2	-0.5	-1.1	1.1	1.5
Gross domestic products (GDP) growth	-0.1	2.4	3.5	2.9	2.6
Domestic demand (growth contribution)	-1.4	2.2	3.7	3.6	3.6
Net exports (growth contribution)	1.2	0.3	-0.1	-0.7	-0.8
Domestic investment (GDP share)	18.8	20.0	20.8	20.9	20.6
a. estimates.
Source: National Bank of Croatia and International Monetary Fund

Moreover, the benefits of economic growth have been unevenly distributed. The absolute poverty rate (at USD 5.5 2011 purchasing power parity [PPP] per capita) increased from 4.7% in 2009 to 5.8% in 2015 (World Bank 2018c). The post-2008 recession had a significant negative impact on the dispersion of the regional development index, regional GDP per capita and regional productivity (GDP per employee) (Đokić et al., 2015). Small towns and settlements in the east and the southeast regions of the country - mainly along the border with Bosnia and Herzegovina and Serbia (areas that suffered the most from the Homeland Wars in the 1990s), as well as in rural areas – have lagged behind.

Foreign trade – discussed in detail in Chapter 3 – has followed broad trends consistent with Croatia’s accession to the WTO in 2000 and then with updating trade-related legislation with the objective of bringing it into line with the EU trade policy and internal market rules. The simple average MFN tariff has fallen from 12.1% in 2000 to 4.1% in 2016 and the degree of openness of the economy has risen since the turn of the century.

Nonetheless, the merchandise trade/GDP ratio in Croatia is lower than in Slovenia (that started from a slightly higher level and pulled ahead due to EU membership) and Serbia (that started from a much lower level, caught up around the crisis years, and accelerated during the recovery). The gap vis-à-vis Slovenia is particularly large for exports, which account for 78% of GDP (in 2015) and 51% of GDP in Croatia (in 2016).

The trade balance for goods has been constantly negative over the past ten years. A dramatic reduction in the deficit was recorded at the height of the financial crisis (from USD 16.6 billion in 2008 to USD 8.3 billion in 2010), largely due to the decrease of imports, but the deficit widened again as the recovery took hold. Nonetheless, in the 2006-17 period the rate of growth of exports (72%) has been much faster than for imports, resulting in a shrinking trade imbalance as a share of GDP (from 22% in 2006 to 16% in 2017).

Foreign investment trends

Importance of FDI in the Croatian economy

Foreign direct investment has played a significant role in the recent development of Croatia’s economy. In 2017, FDI accounted for one fifth of all financial assets and nearly half of all financial liabilities in Croatia (Figure 2.2). Meanwhile, portfolio investment, has played a less prominent role, for example.

Over the last two decades, inward foreign investment has increased considerably, reflecting Croatia’s well-established openness towards foreign investors as further discussed in Chapter of the present Review, though foreign investment has come in phases. From almost nothing at the end of the military conflict in 1995, the share of inward FDI stock in GDP has increased dramatically, peaking at EUR 28 billion in 2007 (or about 60% of Croatia’s GDP). Following the financial crisis, FDI activity contracted drastically (the share of inward FDI stock to GDP increased from 48% in 2006 to 69% in 2007, and fell to 40% in 2008). It has resumed an upward trend since then, peaking again at EUR 29 billion in the first quarter of 2018 (Figure 2.3 and Figure 2.4).

Figure 2.2. Croatia’s financial account by functional type of investment, 1999-2017

Overall, direct investments by foreign-owned firms in Croatia far outweigh investments by Croatian firms abroad. As such, Croatia sustains a negative net FDI position, of USD -22.9 billion in the first quarter of 2018, with the FDI liabilities of USD 28.9 billion outweighing the assets of USD 6 billion (Figure 2.4). Relative to the size of the Croatian economy, the share of inward FDI stock to GDP stands at 61%, above the OECD and EU averages (of 39% and 53%, respectively); and the share of outward FDI stock to GDP at 11%, below the OECD and EU averages (of 48% and 62% each, Figure 2.6). These levels are similar to those found in comparable economies (e.g. the Czech Republic, Slovakia and Slovenia).

Figure 2.3. GDP, trade and FDI in the Croatian economy, 1995-2017

Considering data on the activities of foreign affiliates, in 2016, foreign-invested companies made up for almost one third of total investments by non-financial companies in Croatia and employed more than 15% of the labour force, while their share in exports had increased by almost one third since 2002, approaching 40% (Croatian National Bank, 2017). In addition, foreign-controlled firms located in Croatia accounted for 2% of all foreign-controlled firms in the EU (above Croatia’s share in EU’s GDP – of 0.3%) in 2017, while the share of foreign affiliates of Croatian firms in the EU total equalled 0.2% (Figure 2.5).

Figure 2.4. Assets, liabilities and net direct investment position in Croatia, Q1 2018

Figure 2.5. Number of enterprises by type of control and location, 2017

Figure 2.6. FDI inward and outward stock as a share of GDP (in %), 2017.

Evolution of FDI over time

The importance of FDI in the Croatia economy has been growing over the past two decades (Figure 2.7). Overall, the trend in the incidence of inward FDI to GDP in Croatia has been similar to other economies in the region. It has, however, also shown a relatively high volatility, including due to a significant build-up and a later reduction in FDI around the global crisis. The ratio of outward FDI stock to GDP has also steadily increased, with few exceptions (e.g. in 2010), at a pace similar to, or higher than, in other economies in the region.

In absolute terms, the FDI liabilities stock has increased significantly over the past two decades (Figure 2.8). In addition, investment by foreign firms in Croatia has grown at a higher pace than investment by Croatian firms abroad (of 17% a year, on average, over the past two decades compared to 13% growth in investment by Croatian firms abroad). For example, Croatia’s liabilities increased from about EUR 25 billion to EUR 29 billion (by 16%) from the first quarter in 2016 till the first quarter of 2018, while assets remained relatively stable during the same time period, leading to a widening in Croatia’s net negative direct investment position to EUR -23 billion in 2017 (Figure 2.7-2.8).

FDI flows have followed a similar trend – with inward flows peaking in 2007, at EUR 3.7 billion (8% of GDP), and outward FDI flows in 2014, at EUR 1.6 billion (3% of GDP). In 2017, they reached EUR 1.8 billion and EUR 0.6 billion, respectively, or 4% and 1% of GDP (see Figure 2.10).

Figure 2.7. The share of FDI stock to GDP in Croatia and selected EU countries, 1995-2017.

Figure 2.8. Assets, liabilities and net direct investment position in Croatia, 1999-2017.

Figure 2.9. Quarterly FDI assets and liabilities in Croatia, Q1 2017- Q1 2018.

Figure 2.10. Net acquisition of FDI assets and incurrence of liabilities in Croatia, 1993-2017.

Greenfield and brownfield FDI in Croatia

According to previous studies, most of FDI in Croatia has been via so-called brownfield investments (i.e. via privatisations and mergers and acquisitions, M&A) rather than greenfield investment.1 In order to verify whether this is currently the case, Croatia’s recent FDI trends by mode of entry could be assessed.Comparisons over time using more up-to-date data are difficult, however, as publically available data on both types of FDI come from different sources and include different types of information.2 Still, generally, the number of M&A deals involving a Croatian target has been relatively stable over time and the number of acquisitions reduced after the crisis (Figure 2.11). The average deal value for acquisitions involving a Croatian target has been USD 55 million between 2003 and 2017, with spikes in the number of deals and deal value taking place at different times. The number of announced greenfield FDI projects, and their total values, have meanwhile fallen somewhat in recent years (Figure 2.12).

Compared to other economies, Croatia attracts relatively fewer FDI projects than other former transition economies from which it receives a higher overall amount of FDI such as Lithuania or Slovakia (Figure 2.13 and Figure 2.15). This could potentially be one of the reasons why – besides its sectoral distribution, for example – FDI in Croatia has been associated with relatively limited job creation (e.g. Kersan-Škabić and Zubić, 2009). Yet, the literature on the comparative economic impact of brownfield and greenfield FDI remains inconclusive; countries can also spur structural change in the economy through M&As.3In addition, according to the FDI Greenfield Performance Index, that relates the country’s share in the world’s total of announced greenfield FDI projects to the country’s share in world GDP, Croatia attracted more greenfield FDI than suggested by the size of its economy between 2006 and 2016 (Figure 2.14).

Figure 2.11. Mergers and acquisitions involving a target or an acquirer in Croatia, 1997-2018

Figure 2.12. Greenfield FDI in Croatia, 2003-18

Figure 2.13. Number and value of greenfield FDI projects in Croatia and selected EU countries, 2008-13

Figure 2.14. Greenfield FDI Performance Index.

Croatian economy’s attractiveness and openness to FDI

Additional insights on the openness and attractiveness of the Croatian economy to FDI can be gained by international comparisons of performance in different periods of time. For example, the share of FDI flows to GDP is used as a metric of the country’s attractiveness for foreign investors in a particular moment of time, while the share of the FDI stock to GDP reflects the degree of the economy’s openness to FDI more generally. Figure 2.14 compares Croatian FDI inflows and outflows relative to other, similar economies in the region in absolute and relative terms (as a share of GDP). Generally, the share of FDI flows to GDP in Croatia – 2.9% of GDP in 2013-17 – is comparable to those found elsewhere (slightly above the EU average of 2.3%). Active internationalisation, on the other hand, is much lower: FDI outflows accounted on average for 0.7% of Croatia’s GDP, below the EU average of 2.4% (see Chapter 3).

Figure 2.15. FDI flows in Croatia and selected EU countries, 2008-17

The evolution of Croatian FDI flows to GDP over the past three decades has also generally followed the patterns in other economies in the region (Figure 2.15). In addition, although Croatia has experienced a lower volatility in the share of FDI flows to GDP than some similar economies in the region over the past two decades (e.g. Estonia and Slovakia), it has a higher variability than the EU average in case of inflows and lower variability for outflows.4Most recently, both in the ratio of inward and outward flows to GDP, Croatia experienced a hike in 2014, which was less common in other economies in the region.

Figure 2.16. Share of inward and outward FDI flows as a share of GDP in Croatia and selected EU countries, 1995-2017.

European countries dominate the FDI landscape

European countries dominate the FDI landscape in Croatia, topping the list of major destination and source countries (Figure 2.17). among the largest investors, some countries are traditionally associated with the presence of special-purpose entities (SPEs), which can serve as a conduit for pass-through capital motivated by tax purposes, e.g. Netherlands, Luxembourg or Hungary (see Box 2.1); other European countries, such as Austria, Italy and Germany, have traditionally been the main sources of FDI and jointly account for over 40% of all net accrued liabilities in Croatia. Meanwhile, outward FDI of Croatia is targeted at the former Yugoslavia – in particular, Bosnia and Herzegovina, Slovenia, Serbia and Montenegro – accounting for nearly half of all net accrued FDI assets between 1993 and 2018. This is congruent with Croatia’s geographic location, history, EU membership and the country’s trade structure; 65% of the country’s exports and 78% of its imports come from the EU and most of Croatia’s main trading partners are European countries (see Annex Figure C.2 and the earlier section on trends in Croatia’s trade).

Figure 2.17. Top 10 destination and source countries: Net acquisition of assets and net incurrence of liabilities by country, 1993-Q1 2018

Box 2.1. Special purpose entities: Why do they matter for FDI statistics?

Special purpose entities (SPEs), such as shell or shelf companies, are companies that do not have substantial economic activity in the country but that are used by companies to raise capital or to hold assets and liabilities. With the proliferation of international activities and increase in intra-frim trade, including in intangibles, it has become increasingly easy for companies to shift profits across jurisdictions according to the most favourable tax environment through corporate structures built for that purpose. Just as gross trade flows may obscure the destination and origin of value-added produced in a given economy due to multiple shipments of goods across borders during the production process that spans several countries, so the passing of funds through SPEs can lead to the inflation of FDI statistics and the obscuring of the ultimate source and destination of FDI.

The OECD Revised Benchmark Definition of Foreign Direct Investment (BMD4) recommends that countries compile their FDI statistics excluding resident SPEs, and, then, separately for resident SPEs to provide a more meaningful measure of direct investment into and out of an economy (see OECD, 2008). For the country hosting the SPEs, this recommendation improves the measurement of FDI by excluding inward FDI that has little or no real impact on their economies and by excluding outward FDI that did not originate from their economies. Four countries—Austria, Hungary, Luxembourg, and the Netherlands—have reported FDI flows and positions excluding resident SPEs to the OECD for several years. With the implementation of the latest standards, 30 OECD countries currently report FDI data excluding resident SPEs. In some countries, such as Luxembourg, Netherlands or Hungary, SPEs account for a sizable share of inward FDI stock (see Figure 2.18) and, if not accounted for, could distort FDI statistics. Even in countries where SPEs do not play a significant role currently, it is useful to be able to identify resident SPEs in the FDI statistics so that their role can be monitored, especially as, by their nature, SPEs are easily established and can grow rapidly and can distort investment flows in particular years.

Source: OECD: www.oecd.org/daf/inv/mne/statistics.htm.

Figure 2.18. Inward FDI positions by resident SPEs and non-SPEs in selected OECD countries, 2017

Services account for the majority of foreign investment in Croatia

Services account for the majority of FDI in Croatia. Financial services, real estate related activities, wholesale and retail trade (except for motor vehicles and motorcycles), and telecommunications account jointly for over 80% of the net incurred liabilities in Croatia between 1993 and the first quarter of 2018 (Figure 2.19). The role of real estate, accommodation and construction services is particularly prominent in Croatia, and related to robust growth of the tourism sector as further discussed in Chapter 3. While there is a high variation across countries, generally, real estate, accommodation and construction tend to play a less prominent role in OECD economies (Figure 2.20). Services also account for about three fourths of the net acquisition of foreign assets, with the financial services playing the most prominent role (24% of total), followed by the activities of head offices and management consultancies and wholesale and retail trade (22% each). Manufacturing, in turn, accounts for 18% of total net incurred and 23% of net incurred assets in Croatia, which is broadly in line with its share in the country’s GDP of 15% (Annex C). Services also account for most of M&A in Croatia, with manufacturing responsible for less than 1% of the deal activity (Figure 2.21).

Figure 2.19. Net acquisition of assets and incurrence of liabilities by sector, 1993-Q1 2018

Figure 2.20. Share of real estate, construction and accommodation services in total inward FDI stock of OECD countries, by country, 2017

Figure 2.21. Value of M&A deals involving targets or acquirers in Croatia, by sector, 1997-2018

Activities of Croatian companies abroad

As reflected in total outward and inward FDI stock, the activities of Croatian companies abroad remain significantly less important than activities of foreign-owned enterprises in Croatia. Statistics on outwards activities of foreign-controlled affiliates provide further insights on internationalisation of domestic firms. According to Eurostat, in 2015, the latest available year, there were 179 Croat companies operating outside of the EU that jointly employed over 15 000 people and had a total turnover of EUR 1.91 billion, which represents 0.21% of European firms operating outside of the EU in 2015 (Figure 2.22).

Figure 2.22. Statistics on EU-controlled foreign affiliates in selected EU 28 countries

These levels are comparable to those encountered in EU economies with similar market size and per capita income level but are still among the lowest in the EU. Considering the central and strategic location of Croatia as well as some robust sectors, such as tourism, there could be scope for further growth in future years. In 2018, there were 14 Croatian companies among the top 500 largest firms in Central and Eastern Europe, according to the ranking compiled by COFACE (2018) and there were some new entrants in the list. Utilities and public services as well as oil and minerals and wholesale and retail trade dominated but the list also includes a home-grown pharmaceutical company that turned into a regionally and globally active multinational enterprise (MNE) with foreign capital and most of its products exported, principally to European markets (Box 2.2.) In this context, active export promotion and investment promotion policies (see Chapter 6), including for outward FDI and the overall improvements in the country’s investment climate, can have a role to play.

Box 2.2. The experience of PLIVA: From a home-grown innovator to a large exporter and a foreign-owned enterprise

Zagreb-based PLIVA is one of the leading industrial companies in Southeast Europe and one of Croatia’s leading exporters – it is listed 364th largest company in Central and Eastern Europe (CEE) in the top 500 CEE Ranking by COFACE (2018). It primarily manufactures and sells generic drugs and is one of the world’s largest producers of the generic drug Adderall, and has an undergone an impressive transformation from a home-grown business to a global pharmaceutical supplier.

The company’s origins date back to 1921 when Isis of Zagreb and Chinoin of Budapest established the Kaštel factory in Karlovac to manufacture domestic herb extracts. A research program begun in 1935 under the direction of Dr. Vladimir Prelog, who would go on to win the Nobel Prize in chemistry 40 years later. Kastel was nationalized in the early 1940s and the name Pliva (an acronym for the State Institute for Production of Medicines and Vaccines) was adopted in 1945. A long period of growth ensued. By the mid-1950s, PLIVA had galenical, tablet and injection departments, as well as its own Research Institute, founded in 1952. A major breakthrough occurred in 1980, with the discovery and patenting of azithromycin, a macrolide antibiotic. At the time only nine countries in the world manufactured their own antibiotic. In 1986 PILVA licensed the antibiotic to Pfizer and, in 1991, Pfizer launched azithromycin on Western markets under the brand name Zithromax, helping the company generate large revenues.

The collapse of the Soviet Union, the company’s main export market, led to drastic restructuring and the sale of non-core business areas, such as the food and cosmetics divisions. PLIVA became a joint stock company in 1993 and an IPO was launched in 1996, with dual listing in Zagreb and London, where PLIVA was the first East European industrial company listed. Privatisation was completed in 1998, when the European Bank for Reconstruction and Development reduced its stake from 11% to 8%.

Internationalisation began after the end of the war when an ambitious investment cycle was launched (new production facilities for azithromycin in Savski Marof and oral solid forms in Zagreb, opening of the New Research Institute). PILVA weas listed on the London Stock Exchange in 1996. In 1997, PLIVA acquired control of a leading Polish pharmaceutical company, Polfa Krakow, and then used its Polish subsidiary, PLIVA Krakow, to take over Lachema, in the Czech Republic, in December 1999. Additional acquisitions were made in Germany and the United States in the early 2000s. As azithromycin, its top seller, came off patent, PLIVA shifted to the generic business, which itself was going through a phase of accelerated consolidation. In 2006 PLIVA put itself up for sale after an unsolicited offer from Iceland’s Actavis, leading to an intense bidding war that saw the victory of Barr Pharmaceuticals. In 2008, the US-based company, then the third-largest generics producer, was eventually bought by Teva of Israel, which reinforced its global market leadership.

Over the past ten years, there have been several important business developments in PILVA. First, the company invested continuously in state-of-the-art manufacturing facilities in Croatia. About USD 200 million have been invested in new production facilities in Savski Marof and Zagreb primarily to add capacity and reduce emissions and environmental impact. This represented one of the largest private investment in Croatia in mid-2000s. In 2014, PLIVA and the Agency for Investments and Competitiveness (AIK) won the Award for the Best Investment Project in Eastern Europe at the Annual Investment Meeting, one of the largest global investment conferences held in the United Arab Emirates. Second, PLIVA high-quality generic medicines are being sold throughout Teva extensive distribution network around the world. Third, Zagreb has become one of Teva’s strategic research and development sites, currently employing about 200 scientists and researchers, of whom more than 40 hold M.Sc. and Ph.D. degrees. About 20 projects are completed every year; and Teva has chosen Zagreb for three shared service centers for its EU sites (for IT, human resources and finance).

Today, PLIVA continues to be owned by Teva and the production site in Zagreb, with 80% of products intended for exports, is one of the strategic locations for the Teva Group. Zagreb remains an important generic R&D centre for Teva, and its projects will mostly focus on products for European markets. The company has operations in over 30 countries in the US, CEE and Western Europe; and building upon a strong R&D history, specializes in the discovery, development, production and distribution of generic and proprietary branded pharmaceutical products.

Outlook and policy recommendations

Most recent Croatian quarterly GDP data have shown signs of recovery, FDI flows reached new heights in early 2018, and business surveys point to a positive overall business sentiment (AmCham, 2019; PWC, 2018; and Figure 2.23). Hence, unexpected events notwithstanding, an outlook for FDI in Croatia appears positive.

Several broad conclusions emerge from an assessment of investment trends in Croatia Overall, Croatia has performed relatively similarly to other transition economies over the past two decades albeit it has been affected in important ways by the financial crisis. The relative concentration of FDI in the real estate, construction and accommodation sectors – related to the prominent role of tourism in the economy – suggests that there could be scope for diversifying the portfolio of FDI projects in Croatia, including through improvements in the business climate and active investment promotion policies, discussed in the following chapters.

Also, Croatia appears to have recorded fewer greenfield FDI projects than similar economies in the region, even if their value was still higher than implied by the size of the Croatia’s economy in many years. In addition, while the prominence of European countries is easily explainable, extra efforts may be put in attracting investments from other geographies, including large emerging economies. Finally, there is considerable potential to increase outward investment and the internationalisation of Croatian companies, especially as non-EU economies in the Balkans accelerate their journey towards European integration. More generally, the rise of the Balkans may pose a threat to Croatia as other countries in the region become an attractive locations for FDI. This threat of competition may suggest a certain urgency in implementing some of the business climate reforms outlined in this report.

Figure 2.23. Results of a business survey on investment environment in Croatia, 2019

References

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Ashraf, A., D. Herzer, and P. Nunnenkamp (2016), “The effects of greenfield FDI and cross-border M&As on total factor productivity”, World Economy, Vol. 39, No. 11.

Croatian Bureau of Statistics (2018a), First Quarterly Gross Domestic Product Estimate, Second Quarter of 2018, www.dzs.hr/default_e.htm.

Croatian Bureau of Statistics (2018b), “Population Estimate”, www.dzs.hr/Hrv_Eng/Pokazatelji/Procjene%20stanovnistva.xlsx.

European Commission (2018), European Neighbourhood Policy and Enlargement Negotiations: Croatia, https://ec.europa.eu/neighbourhood-enlargement/countries/detailed-country-information/croatia_en.

EUROSTAT (2018), Statistics on the structure and activity of foreign affiliates (FATS), https://ec.europa.eu/eurostat/web/structural-business-statistics/global-value-chains/foreign-affiliates.

Đokić, I., Z. Fröhlich, and I. Rašić Bakarić (2015), “The impact of the economic crisis on regional disparities in Croatia,” Cambridge Journal of Regions, Economy and Society, Vol. 9, No. 1.

Hunya G. and A. Skudar (2007), The Role of Foreign Direct Investment in the Croatian Economy, OECD Publishing, Paris, https://doi.org/10.1787/9789264034013-en.

Kersan-Škabić, I. and C. Zubić (2009), “Utjecaj izravnih stranih ulaganja na rast BDP-a, na zaposlenost i na izvoz u Hrvatskoj”. Ekonomski pregled, Vol. 60, Nos. 3-4.

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Notes

← 1. For example, Hunya and Skudar (2006) use the FDI questionnaire of the Croatian Central Bank to show that, in the period 1993-2005, the share of privatisation-related FDI inflows was nearly 50%. According to the authors, retail and wholesale trade and financial intermediation accounted for over 65% of total greenfield FDI in Croatia, while manufacturing was responsible for only 10% in that period. See also Chapter 3 for information on Croatia’s privatisation waves.

← 2. While M&A data include information on concluded deals, greenfield FDI refers to announced projects.

← 3. For example, some studies find that brownfield FDI is associated with increases in total factor productivity (Ashraf et al., 2016) and can lead to more greenfield FDI in the following periods (Loayza et al., 2004). Other studies, on the other hand, find that M&As – unlike greenfield FDI – have no statistically significant effect on the countries real GDP growth (Harms and Méon, 2016) or only have it when the host country has high levels of human capital development (Wange and Wong, 2009).

← 4. Variability is assessed based on standard deviation for the values shown in Figure 2.15 for 1995-2017.

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