engleski

Challenges of abandoning the CEFTA-agreement and entering the EU: the case of Croatia

Although it is generally expected, based on both theoretical and empirical literature, that benefits of economic integration outweigh costs, this paper takes a critical position towards potential net-benefits of Croatian membership in the EU in the short run. Investigation of Croatian trade flows reveals the large importance of the two trading blocs – the EU and CEFTA. The analysis demonstrates that the CEFTA-membership has been advantageous for Croatia and a formal investigation of revealed comparative advantages across 23 industries indicates that despite a relatively large number of industries in which Croatia realizes comparative advantages with the EU, it achieves significantly higher values of the RCA-index with CEFTA. In addition, our findings suggest that Croatian comparative advantages lie mostly in the low- and medium-low-technology goods with CEFTA, while in respect to the EU this pattern is somewhat unclear indicating both low- and medium-high technology industries. The paper concludes with a concern that the impact of a changing tariff structure on comparative advantages may be going against sectors in which Croatia achieves a stronger competitive position, especially on the CEFTA-market, possibly resulting in costly adjustments and unfavourable reallocation of resources.

customs union; revealed comparative advantage; EU-membership; CEFTA; Croatia

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