Impact of the transition on the total factor productivity in Croatia

The goal of this paper is to determine the impact of transition on the total factor productivity (TFP) in Croatia. Hypothesis of our paper is that transition had a positive impact on the growth rate of TFP and its share in the GDP growth. We employ growth accounting methodology to estimate TFP and structural break tests to estimate total number and location(s) of structural break(s) in the estimated TFP series. In order to test for the robustness of our results we combine different sets of assumptions and derive 18 different TFP series. The fundamental results of the paper imply that transition had a positive effect on the TFP growth rate, but it did not have statistically significant effect on the relative importance (share) of TFP in GDP growth rate. Structural break tests have indicated two statistically significant break locations in the TFP growth rate data. The first break in 1979 is closely connected with overall slowdown of growth, while the second break location in 1993 can be attributed to the transition reforms. Estimated locations of the structural breaks are robust over all 18 estimated TFP series. The basic conclusion from this research is that transition reforms have managed to spark the growth of the overall economy as well as TFP, but the relative importance of the TFP vis a vis other growth factors such as human or physical capital did not significantly change.