engleski

Capital Flows and Determinants of Economic Growth

The relationship between capital flows and growth is a two-way one. Higher capital flows stimulate growth and economies that display higer rates of growth tend to attract more capital flows. During a financial crisis capital slows down or stops flowing freely between countries. Those economies that have become dependent on foreign financing to make up for the insufficient domestic saving, will eventually experience a reduction in growth. The intensity of this reduction will be determined by how much the intrinsic determinants of growth have developed and strengthened under the influence of capital flows, economic policies and structural reforms. This paper looks at the determinants of economic growth in Croatia and how they evolved during the 15 years of capial flow bonanza in the region. The outlay of the paper is as follows: first we identify main traditions in modeling growth. Next, we base our exposition on the Cobb-Douglas production function and on the empirical analysis and assessment of different determinants of economic growth. We compare our analysis with the existing work that has been done on Croatia.

financial globalization; sudden stops; growth accounting; total factor productivity

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