REWRITING THE EXPORT FUNCTION: THE ROLE OF NON-PRICE COMPETITIVENESS FACTORS IN BOOSTING EXPORTS IN THE REPUBLIC OF CROATIA

The goal of this paper is to empirically reveal the role of non-price competitiveness factors in encouraging exports in the Republic of Croatia. Based on a traditional view on export function, exports depend on foreign demand and the real exchange rate that catches price competitiveness factors. However, for a small open economy that is part of the European Union market, it is crucial to think outside of the standard definition of an export function. Croatia is competing on the integrated international market with other EU and non-EU countries, among which eastern non-EU countries enter the market with very low unit labor costs. In such conditions and in societies with growing needs and developed new, innovative products, it is not enough to compete with price, especially not through lowering the unit labor costs. Such economic policy measures do not contribute to export growth as much as they adversely affect the well-being of the domestic economy. In order to test the impact of non-price competitiveness in boosting Croatian exports, in this paper is applied regression analysis. Results of the econometric analysis indicate that the cause of the weak export performance in the Republic of Croatia may exist due to low non-price competitiveness. In addition, the results of the research highlight the importance of fostering the non-price competitiveness factors in order to reset the Croatian export structure that is currently mostly based on products with low technology intensity. In other words, the complexity of the Croatian export basket is unfavorable. This paper contributes to finding the answers to the causes of low exports in the Republic of Croatia.