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Measuring the macroeconomic performance of the Croatian economy: An empirical efficiency analysis approach

The unbalanced economic growth of Croatia over the years points to the need for an analysis of certain aspects of its economic performance. Among other things, it would be interesting to focus on the relationship between key macroeconomic indicators and foreign direct investment (FDI) as a growth enhancing component, which is the subject of this paper. The analysis is conducted empirically, using the nonparametric method of data envelopment analysis (DEA). Since this is a single-country study, a time-series of Croatia’s performance data is reported and the performing system of each sub-period (i.e., year) represents a different decision making unit (DMU). Based on FDI, exports, unemployment rate and gross domestic product (GDP) and covering the period from 2003 to 2016, the analysis results in an efficiency index for each year, also identifying and quantifying inefficiency sources together with improvement directions. The obtained relative efficiency results confirmed two hypotheses: first, that there are significant differences in Croatia’s macroeconomic efficiency across the years, and second, that FDI is the most prominent inefficiency source among the selected indicators. A potential limitation of this research is a general guideline of DEA that the number of variables should be less than one third of the number of DMUs (in this case, years). Since data on some of the selected indicators are not available for a longer period, the set of variables could be broadened by using data at the quarterly level. This could also make the conclusions to be drawn in this study more accurate, which is left for future research. The results should serve the economic policy makers in the efforts to improve decisions affecting macroeconomic performance of the country.

macroeconomic performance, foreign direct investment, (in)efficiency, Croatia, data envelopment analysis

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