The Sling Effect: Croatia and SEE After the Fall of the Berlin Wall

The concentration of real convergence in a short period before the Great Recession (2001-2008) is characteristic shared by many countries, but it was particularly pronounced Croatia, Serbia, Bosnia and Herzegovina Bulgaria. Bulgaria managed to converge after Recession, other mentioned countries meagre; Slovenia even diverged since 2010. Direct effects post-Yugoslav wars belong past, indirect may have had more persistent effects: lost decade ’90s led weak institutional development creation local form state capitalism, which provides fundamentals for economic growth. Monetary policy exchange rate regimes region are mostly centred around stable rates strive introduction Euro (Bulgaria Croatia joined ERM II 2020). However, impact on long-run growth neutral. Preference credibility building monetary legacy past. Financial predictability served as shock absorber substitute good institutions order attract inflows international capital, flooded ex-communist emerging markets crisis late ’90s. when wave capital stopped fundamental factors emerged, explaining slow majority SEE second 21st century.