INSTITUTIONS AND THE EFFICIENCY OF THE EUROPEAN UNION PRODUCT MARKET WITH AN EMPHASIS ON CROATIA - DYNAMIC PANEL DATA ANALYSIS

The positive relationship between product market efficiency (PME) and productivity has been established in the existing literature. An important component of productivity is the efficiency of the product market, which, according to theory, is significantly affected by the quality of institutions. Weaker quality of institutions, higher levels of corruption and lower efficiency of product markets have been confirmed in countries that share similar characteristics with Croatia in terms of size and political and cultural background. It is possible that poorer quality of institutions and higher levels of corruption are associated with lower efficiency of EU product markets (EU-28) and this has been explored using dynamic panel analysis. The results of the econometric analysis show a positive relationship between the quality of institutions and PME while the link between corruption control and PME is negative, but influenced by multicollinearity. In the regressions shown, exports and taxes were also significantly correlated with PME. The text additionally comments on the direction of this connection, since it is possible that the stronger efficiency of the product market affects both higher tax revenues and a higher export rate. The link between product market efficiency, institutional quality and corruption is particularly commented on in the context of Croatia and Slovenia as these are two areas that share a common past of approximately 500 years. For Croatia, significantly poorer quality of institutions and significantly lower efficiency of the product market were highlighted, which is evident in the more complex business conditions in Croatia compared to Slovenia. Therefore, to improve the PME, a prerequisite for greater productivity and consequently economic growth, it is necessary to change the institutional framework.