Charting the Course: Total Factor Productivity Trends in Croatia Post-pre-bankruptcy Act

Abstract

The synthetic control method (SCM) is a valuable tool for unbiased pre-bankruptcy reform analysis in economic policy evaluations. This study utilizes SCM to assess the impact of the Financial Operations and Pre-Bankruptcy Settlement Act (AFOPBS) on Croatia's total factor productivity (TFP). Control units and weights were meticulously chosen to construct a synthetic control for Croatia, creating a counterfactual scenario for the reform's absence. The policy's impact was quantified by comparing TFP growth post-policy between Croatia and its synthetic control. Placebo tests confirmed the results' significance, and further validation was achieved through panel difference-in-differences analysis (PDID). Our findings show that the pre-bankruptcy reform in late 2012 effectively reduced the gap between Croatia and its synthetic control throughout the post-treatment years. However, it had two short-term adverse impacts and a subsequent recovery-like phase. These effects were statistically significant and confirmed by cross-validation. In conclusion, Croatia's pre-bankruptcy reform significantly influenced TFP volatility, highlighting SCM's effectiveness in evaluating economic policies, especially those crucial for economic growth.