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The Impact of Financial Integration on Sectoral Polarization between Croatia and Eurozone Countries

In: Real and Financial Sectors in Post-Pandemic Central and Eastern Europe

Author

Listed:
  • Mario Pečarić

    (University of Split
    University of Rijeka)

  • Ante Tolj

    (University of Split)

  • Helena Blažić

    (University of Rijeka)

Abstract

The purpose of this paper is to analyse the impact of financial integration, as measured by bilateral FDI, on sectoral structures in Croatia and eurozone countries. The research objective is to determine whether there is a “bad” specialisation, i.e., a separation of sectoral structures that increases the costs of monetary integration of Croatia. The “bad” specialisation is the result of the inefficient allocation of productive resources to sectors with lower productivity. The research results show that financial integration promotes Croatia’s specialisation and makes the country more vulnerable to the occurrence of idiosyncratic shocks, which increases the costs of Croatia’s monetary integration. Moreover, the process of structural divergence shifts the specialisation of the Croatian economy to non-tradable sectors, making real convergence with more developed euro area countries more difficult. The impact of financial integration on the sectoral structures of Croatia and eurozone countries in the period 2001–2019 is analysed using a panel model. The panel results show that the impact is stronger if we exclude the crisis years. This suggests a stronger polarisation of sectoral structures between Croatia and eurozone countries during periods of larger FDI inflows to Croatia.

Suggested Citation

  • Mario Pečarić & Ante Tolj & Helena Blažić, 2022. "The Impact of Financial Integration on Sectoral Polarization between Croatia and Eurozone Countries," Contributions to Economics, in: Bojana Olgić Draženović & Vesna Buterin & Stella Suljić Nikolaj (ed.), Real and Financial Sectors in Post-Pandemic Central and Eastern Europe, pages 51-65, Springer.
    • Handle: RePEc:spr:conchp:978-3-030-99850-9_4
    DOI: 10.1007/978-3-030-99850-9_4
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