E-Knjižnica FET "Dr. Mijo Mirković"

Growth and convergence across Croatia: Evidence from country - level data

Šergo, Zdravko (2007) Growth and convergence across Croatia: Evidence from country - level data. In: 4th International Conference "Global Challenges for Competitiveness: Business and Government Perspective", 27-29. 9. 2007., Pula, Croatia.

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Unequal spatial distribution of economic activity within countries continues to be important despite the significant progress of the world economy during the second half of this century. Interest in spatial processes and inequalities has recently been revived by the influential work of Barro and Sala-i-Martin (1991, 1992, 1995) and others on the trends of convergence or divergence across countries or regions, by the theoretical work of Krugman (1991) on geography and increasing returns, and by the work of Matsuyama (1995a, b) on cumulative processes in models of monopolistic competition. The recent literature is concerned with balanced development and has important implications for regional or development policies. Noteworthy in this context is the argument advanced by Kaldor (1970), namely that unequal regional development within a given country poses more serious intellectual challenges for policy than unequal development internationally. Several studies suggest that the existence of selective tendencies, convergence clubs as in Quah (1996), and asymmetric shocks in various economies have led to the persistence and exacerbation of spatial inequalities within the European Union. Nowadays, the economic convergence is an issue that is occupying a lot of the economic research community, mainly in Europe. One of the most important questions around the European enlargement (Croatia is the country which has strong aspirations for accession) is the economic convergence. However, in order to have a sustainable growth in the European countries, it is necessary that one can assist to economic convergence between countries, and also within countries. In this paper we address the problem of convergence in Croatia because we consider that the convergence of the Croatian counties is a precondition to sine qua non in the strategy of Croatian growth. In the socialist self-management phase of development of the former republic of Yugoslavia the proclaimed strategy of balanced development of all the republics and autonomous counties in Yugoslavia was in fact, by different financial transfers, a subsidized policy of convergence income per capita. With the break up of Yugoslavia and the creation of sovereign Croatian state the difference in relative productivity between particular regions in Croatia is increased thus the transition towards capitalist economy marks a drastic disparity in the productiveness of labour. The relative disparity in the productiveness of labour was 3.45 in 1991 – in fact the realised GDP per adult in the city of Zagreb (always maximal in the given structure) was 3.45 times higher than in Ličko – Senjska County. In 2003, the GDP per adult of the city of Zagreb was even 9.48 times higher than that of Vukovarsko-Srijemska County. The pattern and speed of regional income convergence has been an issue for economists since the early 1960s. Recent studies by Barro and Sala-í-Martin (1991) (1992) find a 2% rate of convergence from the mid-1800s until the late 1980s. Carlino and Mills (1993) find similar results with a unit root test. Although the prediction of convergence is based on the neoclassical growth process, these studies do not directly estimate the neoclassical or Solow growth model. The contrasting predictions of endogenous growth models and the neo-classical model have re-ignited interest in empirical tests of the conditional convergence prediction of the neo-classical model. Mankiw, Romer and Weil (1992) – henceforth MRW- have popularized a first-order approximation to the dynamics of the Solow-Swan growth model, yielding a specification that is assumed to be linear, allowing OLS estimation of the rate of convergence. They also developed an augmented model, which allows for the accumulation of human as well as physical capital. Many subsequent empirical studies have used variations of the MRW specification in cross-country, panel and time-series analysis of growth. The Social Science Citation Index reports 367 citations of the seminal paper. As a consequence of the focus on output decline of post-socialist countries in the early transition period, there has been very little work done on the relevance of the standard growth factors framed in the neoclassical growth model (Solow, 1956; Mankiw, Romer and Weil, 1992) in explaining differences in growth performance in transition countries. As far as we know there is not a methodologically similar study on the basis of cross-sectional county data, which elaborated the problem of convergence in Croatian counties during the transitional period. Campos (2001) estimates the standard growth equation for a group of transitional countries (e.g., Mankiw, Romer and Weil, 1992) for the period from 1990 to 1997 and finds that none of the variables (initial per capita income, secondary school enrolment and investment rate) had expected sign. Polanec (2001) confirms these results for extended period from 1989 to 1999. However, when controlling for measures of government failure (corruption) and unobserved differences (year on year panel data estimation), the signs of estimates of the regression coefficients for initial income and investment rates are in line with neoclassical growth theory; Polanec (2004) also find a negative relation between productivity growth on one hand and the speed of price liberalization and initial conditions (measured by initial market distortions) on the other hand, past (lagged) institutional reforms are found to enhance productivity growth in the intermediate and advanced stages of transition. This paper seeks to reconcile the growth empiric’s technique of Mankiw, Romer, and Weil with the empirical technique of Barro and Sala-í-Martin through the application of an econometric analysis on the regional database of Croatia covering the 1991-2003 period. The paper is organized as follows. In the second section, we derive in brief the estimation equation within the neoclassical growth model, and then we discuss the differences between β- convergence versus σ-convergence, and try to augment the explanatory power by adding human capital variable to the model. The third section says something about the data, sources and limitations of the data. In the fourth section, we summarize the empirical results of estimation of steady state and convergence equations and in the last section, we conclude.

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Tip objekta: Materijal konferencije ili radionice (Paper)
Dodatne informacije: 4/2007
Ključni pojmovi: unconditional, Solow and augmented Solow regression, counties, Croatia, bezuvjetno, općine, Hrvatska,
Teme: 3 Društvene znanosti > 33 Ekonomija. Ekonomska znanost > 338 Gospodarsko stanje. Gospodarska politika. Upravljanje gospodarstvom. Gospodarsko planiranje. Proizvodnja. Usluge. Cijene > 338.2 Gospodarska poltika. Kontrola gospodarstva. Upravljanje gospodarstvom. Gospodarsko planiranje
Odjeli: Odjel za ekonomiju i turizam "Dr. Mijo Mirković"
Datum pohrane: 17 Oct 2012 11:37
Zadnja promjena: 08 Jan 2013 10:21
URI: http://eknjiznica.unipu.hr/id/eprint/1588

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