engleski

Has the accession of Croatia to EU affected business sentiment in industry? Synthetic control method approach

Synthetic control methodology (SCM) has become more interesting in economic research in the last decade, since seminal papers of Abadie & Gardeazabal (2003) and Abadie et al. (2010). This methodology was developed to look at “what if” scenarios and impacts of “treatments” being applied to one observation unit in a sample of interest. The main assumption is that one unit has undergone a treatment in a point in time, whilst other units (e.g. countries, people, stocks, markets, etc.) have not. The methodology is then useful to estimate the value of an output of interest of the unit which has undergone the “treatment” and compare it to the real output which has been realized. In that way, the researcher can estimate the impact of the “treatment”. In this study, we observe the impacts of Croatia’s accession to the European Union in 2013 on the Industrial confidence indicator (ICI) as a measure of business sentiment in industry. The main hypothesis in the research is that Croatia’s entrance to the EU had a positive impact on the ICI, which can be explained as euphoria. This will be tested by applying the SCM methodology on quarterly data. Variables in the model are: ICI, index of industrial production, employment in industry, domestic and non-domestic output prices in industry, in the period 2008Q3 – 2017Q4. In the study included EU countries which have similar characteristics of factor variables are included, in order to construct a synthetic Croatian ICI counterpart, , due to recommendations in SCM literature.. The study will try to estimate relative importance of the factor variables in the model, as well as relative weights of countries used in the sample. This is the first study of this type in Croatia, so, conclusions derived from the research will be a pioneer attempt to the methodological improvement of Business and consumer surveys (BCS).

Industrial confidence indicator, synthetic control method, business and consumer survey, counterfactual methodology

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