engleski

The Role of Foreign Direct Investment in the Croatian Economy

This paper analyzes the impact of FDI in Croatia at NACE 2 digit level on structural change, employment, fiscal revenue, and foreign trade. International comparisons reveal a low level of foreign penetration and a slow pace of structural change in the Croatian economy. We found that the longer term effects of FDI on employment in both newly established and privatized firms was positive. Regarding fiscal revenues, foreign subsidiaries with their higher than average profit rate, increase the potential for corporate income tax revenue. Finally, FIE's contribute over-proportionally to the huge foreign trade deficit in Croatia while M&A firms mitigate it. The obsolete structure of the Croatian exports, slow structural change, and the lack of high-technology industries may have several reasons, some of which can be related to FDI while others can not. We conclude that more FDI would be supportive to economic growth because foreign affiliates increase the general levels of productivity, export propensity, and profitability in all sectors of the Croatian economy.

foreign direct investment; structural change; employment; fiscal revenues; export structure

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