engleski

The Reflection of EU Enlargement on FDI in Croatia

The European Union (EU) enlargement does not represent one of the most important political and economic events only for the accession of the Central and Eastern European Countries (CEEC) and the existing EU member states, but also for the non-accession CEEC. Although the EU enlargement on May 1, 2004 will not by itself produce dramatic changes in the FDI inflows, especially in the short run, it will cause the redirection and relocation of some kind of efficiency and resources driven investment from the existing EU member states to the accession CEEC, and from the accession to the non-accession CEEC. The later is particularly connected to the labor-intensive production and production based on the low-skilled and cheap labor. The main purpose of this paper is to analyze the short-run implications of EU enlargement on the foreign direct investment (FDI) inflows and investment climate in Croatia. Croatia has made an effort to catch up with the level of economic development of the advanced CEEC and to become a candidate for the next EU enlargement. The foundation for its integration into Europe is the Stabilization and Association Agreement with the EU, signed in October 2001. Even though it has never been the most attractive country regarding FDI inflows due to its not particularly favorable economic and institutional frame of investment, it has belonged to the top 10 most favorable FDI destinations in the CEEC for several years. The striving of Croatia to fulfill the famous three criteria (democracy, market economy, “ acquis communautaire” ) formulated at the European Council summit in Copenhagen (June 1993) and to put the new regulations passed mostly two years ago into the business operation practice has certainly improved and will further advance the investment environment primarily due to increase in economic and political stability, transparency and predictability. However, this is not sufficient condition for enhancing FDI inflows. The most mentioned obstacles to more intensive investment in Croatia by foreign investors and different researchers are institutional in nature. Inert legal system and insufficiency of legal security, too expansive, huge and inefficient government and local administration (for example, complicated and long-lasting procedure governing entry regulation, disorganized land register books), corruption and extremely big tax burden are the main institutional obstacles. As other CEEC, Croatia is especially interested in attraction those FDI which will have enduring favorable consequences on its development. To facilitate such FDI attraction the necessary changes should go in line with the investment regime created for domestic investors.

Croatia; EU enlargement; FDI inflows; investment climate

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