The Relationship between Political Corruption and Public Investment - The Case of Croatia

The goal of this paper is to show possible effects of political corruption on public investment, with special reference to Croatia. At the beginning of the paper the correlation between public investment and corruption in the EU countries is observed. Then the case of Croatia is analyzed, where quality of infrastructure, size of capital public expenditure, irregularities in public procurement, role of government in the construction sector, and effects of political corruption on public capital projects are considered. The paper shows that countries with high public investment have bigger (political) corruption. Despite the high share of public capital expenditure in GDP, Croatia's infrastructure is in a bad state. Judging by the size and the structure of public investment, as well as weak control mechanisms, there are plenty of opportunities for political corruption in Croatian public capital projects, for which there are strong indications that they are being used. Instead of investing in new, highly visible projects, policy makers should direct more attention and money towards maintaining and improving the existing infrastructure, because in Croatia billions of kunas are flowing away. Focusing on fighting political corruption would have significant effects on budget expenditure rationalization and economic growth.