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The Sling Effect: Croatia and SEE After the Fall of the Berlin Wall

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  • Velimir Šonje

Abstract

The concentration of real convergence in a short period before the Great Recession (2001-2008) is a characteristic shared by many countries, but it was particularly pronounced in Croatia, Serbia, Bosnia and Herzegovina and Bulgaria. Bulgaria managed to converge after the Great Recession, but convergence in other mentioned countries was meagre; Slovenia even diverged since 2010. Direct effects of post-Yugoslav wars belong to the past, but indirect effects may have had more persistent effects: a lost decade of the '90s led to weak institutional development and the creation of the local form of state capitalism, which provides weak fundamentals for economic growth. Monetary policy and exchange rate regimes in the region are mostly centred around stable exchange rates and strive for the introduction of the Euro (Bulgaria and Croatia joined the ERM II in 2020). However, the impact of exchange rate regimes on long-run economic growth is neutral. Preference for credibility building monetary regimes is a legacy of the past. Financial predictability served as a shock absorber and a substitute for good institutions in order to attract inflows of international capital, which flooded ex-communist countries after the emerging markets crisis in the late '90s. However, when the wave of capital inflows stopped in the Great Recession, more fundamental growth factors emerged, explaining the slow convergence of the majority of SEE countries in the second decade of the 21st century.

Suggested Citation

  • Velimir Šonje, 2021. "The Sling Effect: Croatia and SEE After the Fall of the Berlin Wall," Central European Business Review, Prague University of Economics and Business, vol. 2021(2), pages 85-109.
  • Handle: RePEc:prg:jnlcbr:v:2021:y:2021:i:2:id:283:p:85-109
    DOI: 10.18267/j.cebr.283
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    More about this item

    Keywords

    transition; convergence; institutions; monetary policy; exchange rate regimes;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General
    • P37 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Legal

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