Growing Together: Croatia and Latvia

With Eduard Hochreiter

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 output 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 seems to have made a more significant contribution to growth in Latvia than in Croatia, even if Latvia’s immediate post-accession boom proved unsustainable.