Hrvoje Jošić

Testing the validity of the Linder hypothesis for Croatia

Abstract This paper presents empirical evidence on the validity of the Linder hypothesis in the case of Croatia. According to the Linder hypothesis, one of the new theories of international trade, countries with a similar level of income per capita should trade more. In order to investigate the trade pattern of Croatias international trade, a panel regression model is formulated including 184 Croatias import partner countries in the period from 2000 to 2016. The Linder effect was displayed and calculated using the Linder variable expressed as an absolute difference between GDP per capita of the importing and the exporting country. The cross-country panel regression model is estimated using Pooled OLS, Fixed and Random effects models. Results of the analysis have shown that the validity of the Linder hypothesis for Croatia cannot be accepted. Instead, the structure of Croatias trade is in line with the gravity model of international trade.

Alternative measures of internal distance in estimating home bias in trade: the case of Croatia

Abstract The existence of home bias in trade is considered as one of six main puzzles in international economics. The measurement of the average intra-national distance has become the crucial issue in estimating the home bias in goods trade for countries with no internal trade data. The aim of this article is to demonstrate how different internal distance measurement affects home bias in trade. The results of the analysis indicate that sub-unit based weighted measures perform better in the assessment of Croatia’s internal distance than area based and measures based on relation to neighbour countries. In estimating the model, we use data on import values for Croatia according to standard gravity theory. Regression analysis corroborates theoretical assumptions regarding the impact of geographical distance of countries and transport costs on bilateral trade flows; imports from world are positively correlated with the GDP of imported countries and negatively correlated with the distance between them. The values of home bias variable for Croatia’s total imports were slightly higher than results obtained from previous explorations for EU countries meaning that there is still place for Croatia’s deeper integration into EU trade flows.

TESTING THE VALIDITY OF THE FELDSTEIN-HORIOKA PUZZLE FOR CROATIA

Abstract The relationship between savings and investment is one of the fundamental issues in international economics. This topic comes in the centre of attention after pioneering work of Feldstein and Horioka (1980). The aim of the paper is testing of the Feldstein-Horioka puzzle in the case of Croatia since 1994. Johansen’s cointegration approach and Granger causality test were used. In order to determine the dynamics of the savings-investment relation econometric VAR model was introduced. Using innovation analysis impulse response functions and variance decomposition analysis of the observed variables were given.