Max Kantor
Macroeconomics 100
Dr. Hartman
03-21-08
Croatian Economy
The Republic of Croatia is a small country in Central Europe that steadily increases as an economic power in Europe and the world. As Croatia struggled to gain independence from the former Communist Yugoslavia, the once prosperous nation suffered economic losses during its revolutionary war that started in 1991. After coming out of a recession at the turn of the millennium, the Croatian economy has become increasingly successful. In the world rankings, gross domestic product is an indication of the wealth and prosperity of a nation. GDP is used as a base of comparison indicating nations’ wealth comparable to other countries. Currently Croatia ranks seventy-seventh highest GDP in the world with a purchasing power of 69.4 billion dollars. Croatia has a population of 4.5 million people, ranking 121st in the world. The gross domestic product per person is rough $15,500 found in 2007, ranked seventy-first on the international scale. (CIA)
Croatian internal industries play a huge part in making its economy excel and prosper. An indicator of economic growth is the comparison of monetary value to other surrounding countries in terms of an individual country’s currency. Although currently the Euro, Pound and a few other currencies are more valuable than the US dollar, it is still common to compare currency valued in American dollars. Croatia uses a Kuna, which is worth roughly 5.5 American dollars (CIA). Economists then compare this number to countries surrounding the one in question. Croatia is surrounded by Slovenia, which adapted the Euro in 2007, but is still a great indicator of Croatian prosperity because Croatia has $15 billion more dollars of purchasing power the Slovenia. Hungary, another bordering nation, has their currency, the Forints, set at 186 per US dollar (CIA). By these measurements you can see that it would take Croatia much less Kuna to make one American dollar then Hungary, which is a possible indication that Croatian Kuna is worth more the Hungarian Forints. Serbia, another bordering nation to Croatia, uses the Serbian Dinar which is about 56 to 1 American dollar. By comparing the currency exchange rates of Croatia’s bordering nations, one can see the Croatian Kuna is worth more than most of its boarding countries’ currencies. Currency exchange rates can be skewed as well because goods and services in Croatia may be more expensive than those in bordering countries. Economists also consider this skew in their data, and allow the exchange rate to only play a small role as an economic indicter. (CIA)
Croatia, like many other nations, continues to use gross domestic product as an indication of economic growth in the nation. Gross domestic product is a hard measurement to make. “The GDP can be expressed equally as well as the market value of goods and services, total expenditures (consumption, investment, government purchase, and net exports), and total income” (Bernanke and Frank, 128). These figures are important as they factor into the most accurate GDP Croatia can come up with. For example, the Croatia’s GDP can be measured as the total value of market goods and services. This however leaves out the services and goods the nation trades that are not valued or priced. Many economists argue that this type of GDP measurement is skewed because it does not take into consideration the time the non-labor force uses to do other productive things that are not priced. This is an important consideration for Croatia because it has a population of 4.5 million people but only a labor force of 1.714 million people. Economists would argue that the difference of people that do not work or produce final goods or service in the labor force still have a large unmeasured effect on gross domestic production.
The next measurement of GDP is expenditures, and this method is more realistic for Croatia’s use. As Croatia’s economy is based majorly off of services, Croatia can more accurately count its total gross domestic product by adding consumption prices, investment amounts, government purchases and net exports together (Bernanke). Consumption indicates any products or services absorbed by Croatia in a given span of time, usually yearly. Investment is the next variable in the expenditure equation for GDP, and according to the CIA World Factbook Croatia’s investment is rather high, about 30.8% of the GDP. In this instance, investment refers to capital goods, or goods that are used to make another, and investing in new equipment and into banks. Croatia is ranked 17th in gross investments making it a leading country in this region of gross domestic production. This again indicates Croatia’s positively growing economy. Government expenditures buy capital goods, produce investment projects, build infrastructures and government business and are collected in taxes, tariffs and fees citizens pay. Croatian net exports are the dollar amounts of exports subtracted by the dollar amounts of imports. In Croatia’s instance exports are $12.11 billion and the net imports are $25.78 billion resulting in a $13 billion deficit. The expenditure method of measuring GDP is much more concise and better recognizes a country like Croatia who has money flow, but not necessarily out of the country.
The last measurement of GDP Croatia could use is called income gross domestic product. This method is probably not the best measure of GDP for the nation, as it measures the labor income and capital income. Labor income is the total gross amount Croatian laborers earn each calendar year. Since Croatia has only half its population in the labor force, this number would be inherently smaller then it would show up in other measurements of GDP; this is because although the labor force does accurately measure revenues, this limits the money retired people have saved, and money that is invested and made greater by interest and other investment means. Capital income indicates Croatia’s capital income owners, and the revenue the pay for maintenance of capital goods. Since Croatian industries are primarily industries, it may not take into proper account the physical labor and social labor put forth. The Republic of Croatia probably would choose to use the first two methods of GDP measurement rather then this particular one because the income method would probably drop Croatia’s GDP unreasonably.
On top of choosing between the three methods of measuring GDP, Croatia can also choose to measure their GDP as real GDP or nominal GDP. Real GDP is based on the value of all goods and services in terms of base year prices, while nominal GDP is based on the value of all goods and services in terms of the current year prices. Croatia favors real gross domestic product because it measures the overall productivity and can be compared and weighed against each individual year. Croatia uses 2000 as a base year indicator because it is when the nation fell out of its recession. In 2000, Croatia had a GDP of roughly 18.4 billion dollars. The following measurement was taken in 2003 and then again in 2004, raking in roughly 24 billion and 34 billion dollars respectively. In 2007 Croatia again measure its real GDP, coming in at roughly $69 billion dollars. The growth displayed by using the real gross domestic product is more beneficial to Croatia because it indicates the economic successes they achieved while rising out of a recession. Real GDP indicates more success in this respect because if Croatia showed its growth in nominal GDP, the numbers would be rather inflated as the total inflation rate over these four year indicators was about 3.5% every year. This inflation would have made the nominal GDP look higher than it actually was. However, by using real GDP, Croatia’s economic growth is more significant, because even though nominal GDP would have bigger numbers, Croatia’s real GDP indicates a significant advance since 2000, advancing from 18 billion dollars to today’s current measurement of 69 billion dollars. According to these numbers, based on Croatia’s total products and services, the nation has economically grown about 300% over the last eight years. (CIA)
Croatia has many facets in its economy. Industrial progressions, agriculture and services are three major industries in Croatia. More specifically, agriculture obtains about 7 percent of the economy, industrial projects about 30 percent and services about 60 percent. Agriculture is important to Croatia; however it is the small industry in the nation. The biggest agriculture products produced in Croatia are corn and wheat, followed by a limited number of vegetables, livestock and dairy animals. Industries take up the next biggest chunk of Croatia’s economy. Chemical products and plastic products are the most populous item in the nation, followed by metal production, and the industries that are based around steel, iron and aluminum production. Services provide the largest percent of the economy and its development. Services in a large part deal with tourism, food industries, customer services, and other ventures on the same page.
Croatia overcame many obstacles in the past century as it struggled with bordering nations to break for Austria-Hungary, and struggled for its own independence from the Communist Yugoslavia. Croatia may still be considered a developing nation economically, continuing growth and development. Croatia has made leaps and bounds from its original place amongst the world’s market, and will continue to grow as the country picks itself up after the recessions and wars of the past and pushes forward in the future economical market.
Bibliography
Bernanke, Ben S. & Frank, Robert H. Principles of Macro Economics. New York: McGraw-
Hill/Irwin, 2007.
Cartoon Stock. 03-03-2007. CSL Cartoon Stock. 04-03-08
http://www.cartoonstock.com/directory/g/gdp.
CIA World Factbook. 03-20-2008. United States Central Intelligence Agency.
03-22-2008 <http://en.wikipedia.org/wiki/Croatia.>
Wikipedia. 04-03-2008. Wikimedia Foundation, Inc. 03-03-2008
http://en.wikipedia.org/wiki/Croatia
