In this paper we analyze the effects of international capital flows on growth in Croatia. The impact of financial integration is assessed by looking at the determinants of real convergence of income per capita to that of the Euro area. Our conclusions are that total factor productivity and capital accumulation played the main roles in generating economic growth in Croatia. That was an immediate consequence of the liberalization of the capital account, which was a prerequisite for starting negotiations with the European Union. Global financial crisis is affecting and will continue to affect all countries but particularly hard hit are the economies whose growth has become dependent on foreign capital This paper also assesses the macroeconomic and financial stability challenges that Croatia and other emerging European economies are likely to face in the global financial turmoil.

Ekonomija