Analysis of market forces and the productivity of companies in Croatia

Commissioned by: EIZ Club
Project duration: April 1, 2017 – November 14, 2017
Project manager: Bruno Škrinjarić
Collaborators: Vedran Recher, PhD, Edo Rajh, PhD

In Croatian public domain we can often hear that Croatian economy is neoliberal and that neoliberalism is one of the main causes of social issues that this country faces. Neo-liberalism in this context is often related to the over-exposure of households to the market and market forces and the creation of negative role of private companies in the society. However, public opinion on market and market forces doesn't have empirical grounds, and according to previous research conducted for Croatia, market forces in economy are relaitvely weak and thus the economy countinually stagnates. Market forces are measured as the rate of entry and exit of companies on the market. The dynamics of entry and exit of companies on the market points to degree of flexibility of entrepreneurs to adapt their businesses to the current macro-economic climate. The analysis of market forces, more specifically, determining the rate of entry and exit on the market, would enable us to see wherther the market in Croatia functions on optimal level in the sense that it eliminates unproductive companies from the market and keeps the innovative, dynamic and productive companies.  

Within the analysis, it was necessary to create an overview of sectors in order to explore the productivity of companies. For that cause, we analyzed the microeconomic data on the level of companies. In order to recognize the patterns of decrease and increase of productivity growth, as well as of entry and exit from the market, we analyzed the microeconomic data of companies from 1993-2015. A long period of analysis providing over 20 years of data enabled the discovery of influences of external shocks (i.e. financial crisis) on the companies' producitvity. The data were analyzed on regional level in order to gain insight into regional differences, but also on industrial level in order to empirically discover which industries were most vulnerable to the particular shock. 

The project objective was to offer policy makers and entrepreneurs reliable empirical data on basis of which it is possible to bring optimal decisions on business on macro, and regional level, as well as on the level of a company itself. The project identified factors that influenced the companies' productivity, singled out the most productive industries and determined which industries were most resistant in the conditions of economic uncertainty.   

The empirical research provided managers, company owners and policy makers with scientifically determined information on specific characteristics and successes of most productive companies in Croatia. The results enabled the comparison of relevant indicators of productivity through regions and industries and thus identified the leading branches of economy, as well as those to which more attention must be given. On the basis of the reserch results, a discussion could be initiated on the improvements of industrial policy in Croatia in the sense of the increase of competetiveness of Croatian companies in both domestic and foreign markets.