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Integration of economic activity between the Euro area and Croatia

This paper analyses the integration of Croatian and the euro area’ s industrial production indices in order to see whether Croatia and the euro area form an optimum currency area. More precisely, it is of interest to determine would future Croatian adoption of euro be of benefit to Croatia (of course, once Croatia joins the EU). First, unit root tests are employed, then cointegration analysis and finally Granger causality test. Results indicate that there is no long run relationship between Croatian and the euro area’ s industrial production indices. However, Granger causality test shows that in the short run the euro area’ s industrial production causes Croatian. But, this is not enough to conclude that Croatia and the euro area form the optimum currency area.

optimum currency areas; integration of economic activity; Croatia

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