IS CROATIA READY FOR THE EMU?: AN EX ANTE ANALYSIS OF NOMINAL AND REAL CONVERGENCE

Drazen Derado and Antonela Mlikota
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Drazen Derado: University of Split
Antonela Mlikota: MICRO projekt d.o.o.

Economic Thought and Practice, 2007, vol. 16, issue 2, 113-146

Abstract: The EU-enlargement and the advanced process of economic integration have brought attention to monetary integration and the conditions for its successful functioning. The main theoretical framework of the analysis – the OCA-theory – foresees three main requirements for that – mobility of production factors, fiscal solidarity and trade integration. Although not theoretically founded, the Maastricht criteria of price and exchange rate stability, balanced public finance and long-term interest rates should contribute to successful monetary integration in the EU which faces inter-regional differences in the level of development and the possibility of external shocks. The analysis of nominal convergence shows that Croatia approaches the reference values of the EU and achieves a high degree of macroeconomic stability. However, it lags behind the successful new EU-member states in respect of trade integration and production structure similarity which can be regarded as important indicators of the long-term advantages of monetary integration.

Keywords: optimum currency area; exchange rate; trade integration; EMU; Croatia (search for similar items in EconPapers)
JEL-codes: F36 (search for similar items in EconPapers)
Date: 2007
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