Does international trade cause regional growth differentials in Croatia?

The purpose of this research is to investigate the role of international trade in the process of regional convergence in Croatia. Previous empirical and theoretical studies usually argued that international competitiveness and export orientation promotes regional convergence and enables less developed regions to increase economic growth through enhanced productivity and efficiency. The main hypothesis tested is that international trade is less significant in explaining regional growth differentials in Croatia. The method used for the analysis is a panel data model which is based on conditional convergence hypothesis. The model is oriented to identification of factors which explain growth differentials of Croatian counties, including variables related to international competitiveness. The fundamental result obtained is empirical evidence for conclusion that international trade is not to be assumed as a key determinant of the regional convergence process in Croatia. Regional growth in Croatia is primarily determined by quality of human capital, investments in fixed assets and structural features of individual Croatian counties. The main conclusion on the basis of the results is that in the past period, regional growth was primarily determined by domestic demand of households and government. The highest growth was recorded in counties in which public funds were invested in infrastructural projects and counties specialised in production of services for personal consumption. However, the role of international trade in the regional economic growth can be more pronounced in the future as a result of limited domestic demand. Improved international competitiveness is a prerequisite for successful and sustainable regional development.