National Development Strategy Croatia 2030: Roadmap for a Better Future

Boosting productivity is essential to sustain growth in the long run. 
Croatia’s overall productivity 
only marginally increased over the last 15 years, compared to a significant rise in most other CEE countries. 
Partly this reflects the composition of economy, with large and rising share of tourism and other low-
productivity services that is not conducive for significant leap in overall productivity in the economy. 
However, while drivers of productivity are difficult to identify, quality of national institutions and regula-
tions as well as business environment are often put to the forefront. These reflect restrictive product market 
regulation, ineffective public administration, persistent weaknesses in the judiciary, high perceived corrup-
tion, comparatively weak innovation ecosystem, and inefficient management of state assets, including 
SOEs. Furthermore, adverse productivity developments in Croatia reflect insufficient quality of labor and 
capital inputs in the production process, as well as low mobility of these factor that resulted in misallocation 
of resources. Finally, the 
The regulatory environment 
18.
A weak business environment strongly contributes to the generally low level of productivity of 
Croatia’s economy.
A comparison with peer countries reveals the slow pace of business environment 
reforms in Croatia. The 2019 WEF Global Competitiveness Report ranks Croatia 63
rd
globally, the lowest 
position among EU member states. Croatia also continues to lag peer EU countries in key Doing Business 
indicators, including starting a business, dealing with construction permits, access to credit and resolving 
insolvency. 
19.
Remaining restrictive regulation distorts market functioning, especially in service sectors, with 
negative consequences for economic efficiency and growth
. According to the OECD Product Market 
Regulation (PMR) index, policies in Croatia in 2018 were broadly in line with the average of the OECD 
and CEE countries. Croatia has made significant progress in closing the gap with prevalent OECD prac-
tices, significantly improving its performance since 2013. Observed measures contributing to this progress 
include liberalization of taxi services, simplifying the procedures for opening a business, and aligning pub-
lic procurement procedures to best practices. On the other hand, Croatia scores particularly badly compared 
to the OECD average in terms of high state involvement in the economy, and particularly in the network 
sectors (i.e. energy, rail, water and air transport). Impediments to competition stemming from state involve-
ment refer to SOE presence in and dominance over a large number of sectors, as well as to other forms of 
government controls and restrictions to competition (e.g. price controls, mandatory licenses for market 
entry, etc.). In addition, some services and professions remain very restrictive of competition, in particular 
notaries, lawyers, and pharmacies.
Public administration, management of state assets and SOEs 
20.