engleski

Foreign Direct Investment Inflow Effects: The Croatian Experience

This paper examines determinants, flows and structure of foreign direct investment (FDI) inflow in Croatia since gaining independence, as a case study of a small developing European Union (EU) new member state (NMS) that has recently experienced the transition process to market economy. It discusses the fact that Croatia has been trapped at the lower stage of the net FDI development path and it hasn′t still experienced significant changes since joining the EU. The aim of this paper is to show a case filling the literature through pointing out to high heterogeneity of the FDI effects, while considering the host country circumstances role as FDI flows and effects determinant. In this case we revisit endogenous growth theory which points out FDI as an important determinant of the long-term growth rate of income, through examining FDI as a main technology transfer channel and a human capital development driver with positive spillover effects on the rest of the economy. We investigate whether FDI has served as a way of taking resources out of the host country through repatriated profits/dividends and we point out the role of transfer prices within multinational companies. Furthermore this paper argues on several economic distortions that might jeopardise the positive effect of FDI and lead foreign investors to make use of profit opportunities and not to follow higher efficiency. The main purpose of this paper is to show how specific country circumstances and several economic distortions affected the FDI inflow, its structure and trends, determining its effect on the Croatian economic growth.

Foreign direct investment, FDI determinants, economic growth, repatriated income, EU NMS

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