Croatian Terms of Trade; Historical Perspective, Movements and Welfare Effect

Daniel Tomic

Economic Research-Ekonomska Istraživanja, 2012, vol. 25, issue S1, 117-139

Abstract: Croatia is a small –open –import dependent economy with strong trade imbalances. Thus it implies certain effect on national welfare. The aim of this paper is to examine the impact of the trend and volatility of terms of trade on economic growth of Croatia using time series data. Moreover, the paper in an indirect way evaluates the effectiveness of the openness on economic performance of Croatian economy. In such manner we can assess the dynamics of import and export prices on economic growth. Results are consistent with the theory, however they suggest that terms of trade do not have substantial welfare effect on the economy. Estimation is based on Prais-Winsten regression of iterative procedures which eliminates the problem of serial correlation, as one of the frequent problems in these types of estimation. In addition, stationary VAR was obtained in order to present the dynamics of changes in terms of trade.

Date: 2012
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DOI: 10.1080/1331677X.2012.11517559

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