dražen derado: determinants of fdi in transition countries and estimation of the potential level of croatian fdi financial theory and practice 37 (3) 227-258 (2013) 228 Abstract In a global economy, foreign direct investment (FDI) represents the main form of international business activities. More than the mere cross-border movement of capital, FDI includes transfer of technology and know-how, thus contributing to competitiveness, employment and trade, and consequently, economic growth and the development of the local economy. The recent drop in international capital flows resulting from global financial and economic crisis has caused concerns regarding growth prospects for the world economy in general and that of less advanced transition countries in particular. By hypothesizing that Croatia, as the next member of the EU, has realized sub-optimal effects in attracting FDI, and that international competition in this field is expected to grow further, the aim of the paper is to find out determining factors behind inward FDI to transition countries, in order to detect the capacities of Croatia in hosting new foreign investment. Statistical analysis, focusing on bilateral FDI-flows and country-specific characteristics, proved the importance of typical "gravity"-type variables, as well as those based on increasing returns to scale, while showing that at present Croatia has exhausted its potentials in hosting new FDI.

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Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic setbacks. At the macroeconomic level, this brings about slowdown in economic growth and delayed catching up with more advanced economies. In Europe, the turn of the century brought along political and economic disintegration, on one hand, and economic integration, on the other. Demise of planned economies across Eastern Europe caused serious economic turmoil due to market fragmentation. Meanwhile, creation of new economic architecture in the European Union (EU) has created additional challenges of economic restructuring. Therefore, achieving sustainable economic growth and high income has become the ultimate economic policy objective. Equity investment in form of foreign direct investment (FDI) has proven to be the right choice, because influx of fresh capital and know-how enabled strong economic growth and restructuring through increasing labor productivity and economic efficiency. Stronger competitive pressure through FDI contributed to dynamic restructuring, resembling in increasing exports and stronger integration into global economy. Yet, growth rates across countries were not always proportional to the volume of inward FDI, which indicates a certain level of underperformance for some countries. The aim of the paper is to closer investigate the FDI-growth nexus by differentiating between two types of FDI – mergers and acquisition (M&A) and greenfield investment. Thus, the analysis will take account of the characteristics of the FDI host economy, and those of the investing company, because we find it reasonable to assume that different forms of FDI incorporate different business dynamics and the time horizon of the investor’s expectations. In order to find out the effects of different forms of FDI on economic growth we apply panel data analysis with fixed effects and Prais-Winsten estimator on the sample of European reform countries whereby FDI, M&A and greenfield investment are considered the key variables. Analysis also includes a set of control variables, which combine standard neoclassical growth variables. Results indicate that, with reference to the level of innovativeness, different types of FDI indeed produce different effects on host countries’ economic growth.

The purpose of the paper is to find out how COVID-19 has affected the sector of SMEs, especially in terms of its access to finance. In doing so we hypothesize that problems arising from both supply side and demand side of the business, have additionally restrained SMEs’ access to finance, thus putting their short-to-medium term position to a threat. Research methodology includes descriptive statistical analysis of the results of a company survey of Croatian enterprises with respect to their current access to finance and expectations for the future. The survey was carried out on a sample of 40 small and medium sized companies in Split-Dalmatia County. The findings show that companies do not perceive many of the business risks as particularly threatening to their businesses. Still, this survey reveals a presence of a series of risks closely related to the current situation caused by COVID-19. These include increasing production costs resulting from rising costs of labor, capital, raw materials and other inputs (e.g. transport and logistics services), followed by increasing tax burden and stagnating productivity. Together with increasing costs, a fall in demand on both domestic and foreign markets, as well as a resulting decrease in sales, announce further problems that call for a strong policy response in the future. The main contribution of the paper is the finding that besides the problem of access to finance, the COVID-19 crisis has revealed other serious obstacles for SMEs which threaten to endanger the market position and competiveness of small business in the long run. By far the most serious problems for Croatian SMEs are that of a structural nature which include increasing costs and decreasing productivity. This research has additionally accentuated some serious obstacles from external environment which threaten to restraint SMEs’ capacity to restructure and keep their competitive edge.

The potential of the SGP in preventing future economic crises should not be underestimated.