Title: Foreign direct investment and competitiveness in transition economies: the case of Croatia

Authors: Jasminka Sohinger, Darko Horvatin

Addresses: Institute of European Studies, University of California, 207 Moses Hall, Berkeley, CA 94720, USA. ' Croatian Pension Investment Company Ltd, Bakaceva 5, 10 000 Zagreb, Croatia

Abstract: The aim of this paper is to address the issues of foreign direct investment (FDI) and to give a comparative analysis of its impact on Croatian competitiveness. Our findings show that in the case of Croatia, unlike in the other transition economies, the majority of inflows of foreign capital is concentrated in the service sector. Also, the impact on the overall Croatian competitiveness level has not been significant. High labour costs and production of low value addition in manufacturing were the main reasons why foreign capital sought mostly service sectors, such as telecommunications and banking, which are oriented towards the domestic markets. This did not contribute towards improving the Croatian export competitiveness either. Other transition economies in Central and Eastern Europe, where FDI went to manufacturing, particularly to the export oriented sectors, as well as to services, recorded a noticeable raise in their competitiveness levels.

Keywords: competitiveness; exports; FDI; greenfield investments; value added; foreign direct investment; transition economies; Croatia; service sector; telecommunications; banking; manufacturing.

DOI: 10.1504/IJESB.2005.006969

International Journal of Entrepreneurship and Small Business, 2005 Vol.2 No.3, pp.266 - 282

Published online: 29 Apr 2005 *

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