Growing Together Croatia and Latvia - Ifo Institute for.pdf

Growing Together: Croatia and Latvia Thorvaldur Gylfason Eduard Hochreiter CESIFO WORKING PAPER NO. 3202 CATEGORY 6: FISCAL POLICY, MACROECONOMICS AND GROWTH OCTOBER 2010 An electronic version of the paper may be downloaded • from the SSRN website: www.SSRN.com • from the RePEc website: www.RePE • from the CESifo website: Twww.CES/wpT CESifo Working Paper No. 3202 Growing Together: Croatia and Latvia Abstract We compare and contrast the economic growth performance of Croatia and Latvia since the collapse of communism in 1991 in an attempt to understand better the extent to which the growth differential between the two countries can be traced to increased efficiency in the use of capital and other resources (intensive growth) as opposed to sheer accumulation of capital (extensive growth). On the basis of a simple growth accounting model, we infer that advances in education at all levels, good governance, and institutional reforms have played a significant role in raising economic output and efficiency in both Croatia and Latvia. The EU perspective made a more significant contribution to growth in Latvia than in Croatia, even if Latvia’s immediate post-accession boom proved unsustainable. JEL-Code: O16. Keywords: economic growth, governance, transition economies. Thorvaldur Gylfason Eduard Hochreiter Department of Economics Joint Vienna Institute University of Iceland Mariahilfer Strasse 97 101 Reykjavik