DOES TRADE LIBERALIZATION CAUSE FDI INFLOW OR VICE VERSA? THE CASE OF CROATIA

In the last ten years Croatia has achieved significant breakthroughs in global and regional trade liberalization. Simultaneously, it has built a stimulating investment framework and attracted big amounts of FDI per capita. The aim of the study is to determine whether there is a relationship between trade and FDI inflow in Croatian economy and in what directions. Using the cointegrating vector approach and the VECM model, it has been established that there is no direct connection between FDI and trade flows. The results imply unidirectional casual relationship that runs from import to FDI and the one that runs from export to import. This could be explained by the unfavourable structure of Croatian export as well as the brownfield investment domination in Croatian economy.