engleski

On the Determinants of The Croatian Economic Growth 1960-2000

Croatia's economic performance has been impressive in the sixties and much more than just polite in the seventies. Nevertheless, from a long-run perspective, Croatia did not display such an outstanding performance (a far from true) in the stagnant eighties and terrible nineties. This paper provides an attempt at an explanation of Croatia total factor productivity growth along the lines proposed by the neo-classical growth theory using the raw data of capital and labour 1960-2000. Production function estimates for social product are provided using Cobb-Douglas and the constant elasticity of substitution production function (CES). Econometric applications consist of the estimating four specifications of the C/D production function: (a) , (b) , (c) , (d) , and one specification of the CES production function: (e). An econometric testing is employed to investigate the long-run property of the estimated equations. Using the parameters of constant returns to scale production function (e.g. intensive form of Cobb-Douglas production function) we have estimated total factor productivity growth. Growth accounting exercises show the growth rates of Solow residual (as a nearest calculable synonym of TFP). The Solow residual is a measure of productivity shocks: it shows the change in output that cannot be explained by changes in capital and labour. In real business cycle theory, economic fluctuations are caused by productivity shocks, and that implies that the Solow residual should be highly correlated with output. We find that there are cyclical fluctuations in Solow residuals about trend growth in the Croatia's case. The fluctuations in Solow residuals about trend are highly positively correlated with the fluctuations in social product about trend, and. Nonetheless Solow residual is procyclical because it tends to be above trend when real social product is above trend, and below trend when social product is below trend. In fact, the Solow residual moves very closely with social product, so that fluctuations in total factor productivity could be an important explanation for why Croatia's social product fluctuates (this is the key idea in real business cycle theory). The evolution of TFP growth is furthermore analyse by the decomposition of TFP into cyclical and trend components. In this attempt we used Hodrick-Prescott filter to filtering the data of TFP.

Total factor productivity growth; Solow residual; Cobb-Douglas production function; CES; Croatia

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