Competitiveness, restructuring and firm behaviour in transition: The case Of Croatia

Abstract
The ability of nations to grow and to provide their citizens with a better standard of living depends on the competitiveness of their firms. During the transition from a centrally-planned to a market economy firms had to face the challenging task of restructuring in order to become more competitive. It was expected that through changes in their behaviour they would be able to replace once dominant price-driven competitive profiles with quality-based profiles which can generate higher value added and can lead to higher rates of growth. The aim of this thesis is to investigate competitiveness of firms and industries in Central and East European Countries (CEECs) in general and Croatia in particular. We argue that the competitiveness of firms and industries is a dynamic process closely related to their restructuring activities, characteristics and environment. With that in mind we apply dynamic panel methodology and dynamic shift-and-share analysis to two large firm and industry level datasets for the period 2000-2007, the most recent year for which data was available to us. We compare the behaviour of Croatian firms with that of their rivals from several advanced CEECs, assess the competitive profile of Croatian exporters and examine the competitiveness of Croatian industries on the EU15 market. Our findings indicate that in an advanced stage of transition the behaviour of firms in CEECs and Croatia was typical of price competitive firms with improvements in labour productivity and cost efficiency being their most important forms of restructuring. Furthermore, we identified several agglomeration externalities and government policy measures such as free trade zones as factors which can facilitate the ability of Croatian firms to compete on international markets. We have also demonstrated that Croatian trade with EU15 is mainly of the vertical intra-industry type. Finally, stronger capital and innovation intensity in combination with higher pressure of imports have positive effects on the relative quality of exports from Croatian industries to the EU15 market. Based on these findings we have developed a set of recommendations for Croatian policy makers and managers which we hope can stimulate the innovativeness of firms and industries and increase their ability to compete through quality.