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Workshop: Evaluating the Impact of FDI in SEE Role of FDI in the Croatian Economy

Overview. Size and forms of FDI in Croatia in international comparison Green-field vs. acquisition (privatization) FDIForeign penetration in manufacturing in international comparisonImpact of FDI on foreign tradeImpact of FDI on employmentImpact of FDI on budget revenuesPolicy conclusions. Siz

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Workshop: Evaluating the Impact of FDI in SEE Role of FDI in the Croatian Economy

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    1. Workshop: Evaluating the Impact of FDI in SEE Role of FDI in the Croatian Economy Gbor Hunya The Vienna Institute for International Economic Studies, wiiw, hunya@wiiw.ac.at with contribution of Alen Skudar, Croatian National Bank

    2. Overview Size and forms of FDI in Croatia in international comparison Green-field vs. acquisition (privatization) FDI Foreign penetration in manufacturing in international comparison Impact of FDI on foreign trade Impact of FDI on employment Impact of FDI on budget revenues Policy conclusions

    3. Size and form of FDI in Croatia FDI data from the balance of payments and from the FDI questionnaire of the CNB FDI inflow per capita FDI by form (equity, reinvestment, other) Profit rate of the foreign sector (FDI related income per FDI stock) FDI by mode of entry (green-field vs. acquisition) FDI by economic activities

    4. FDI inflow per capita in EUR, 2002-2005

    5. FDI inflow by form in SEE EUR mn, 2002-2005

    6. FDI income per FDI stock, in %

    7. Croatia: FDI equity investment by mode of entry, %

    8. Croatia: Cumulated FDI equity and reinvestment inflow into new and old firms by activity, 2003-2005, %

    9. Croatia: Cumulated FDI equity and reinvestment inflow 2003-2005 by NACE2 activity

    10. Size and forms of FDI summary FDI inflow to Croatia is not small in international comparison FDI slightly increasing role of reinvested earnings FDI income per FDI stock 6% - lower than in other countries of the region In 2003-2005 more green-field than acquisition related FDI Only 10% of manufacturing FDI is green-field Record FDI inflow in 2006 again privatization-related FDI contributed a lot to restructuring in financial services and trade, but had little impact on manufacturing

    11. Role of the foreign investment enterprises FIEs in the Croatian economy FIE: More than 10% foreign equity of one foreign investor Source: FINA database ownership from CNB Level of foreign penetration: FIE/Total economy FIE sales specialization by industry Productivity gap between FIE and the average of the economy Export sales per sales by industry Employment impact Impact of FIEs on budget revenues

    12. Croatia: Share of FIEs in the economy, %

    13. Croatia: FIEs compared to the average of the economy, %

    14. Croatia: Distribution of sales by main activities, in % (total economy and all FIEs = 100)

    15. Share of FIEs in manufacturing employment, sales and exports, %

    16. Share of FIEs in manufacturing sales, %

    17. Croatia: Export sales per sales in DEs and FIEs, 2004, %

    18. Distribution of export sales by technology level of industries, %

    19. Share of newly established and M&A FIEs in exports and imports, %

    20. Croatia: Employment dynamics of FIEs t (year of establishement or takeover) = 100

    21. Share of newly established FIEs in tax revenues and in profits before tax, %

    22. Role of the foreign investment enterprises FIEs in the Croatian economy summary Relatively low level of foreign penetration FIE sales specialization: higher manufacturing share than trade Productivity gap between FIE and average constant Profitability gap high but domestic companies catch up to FIEs Impact on foreign trade: high deficit except geenfield, high dynamics FIEs are over-represented in the more export-oriented sectors, not in high and medium-high-tech industries Employment impact job loss due to privatization, but employment growth 4 years later Impact of FIEs on budget revenues: higher rate of profit results in higher tax revenues, little loss of revenues due to incentives

    23. Policy conclusions FDI size adequate but not its composition: more green-field and more in manufacturing would be desirable FDI in manufacturing carries export-growth, could support structural upgrading Lack of information on ITC-related FDI FDI advantages can be supported by economic policy FDI strategy and economic strategy must be integrated Government strategy: FDI inflow target 6% of GDP not integrated into economic strategy, excluded from privatization and restructuring chapter why is the example of the banking sector irrelevant for manufacturing? Needed: pro-modernization, pro-FDI strategy

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