Effects of the concentration of manufacturing industry on Croatian regional growth

Spatial concentration of economic activity is a phenomenon that has important implications for the development potential of the local, regional and national economy. This statement stems from two facts: first, there is a tendency of people and economic activity to concentrate in major cities and regions; and second, similar and connected companies sometimes agglomerate together at a particular location to take advantages of the external economies. This paper examines the effects of spatial concentration of manufacturing industry on Croatian regional growth. The industrial concentration (especially of the manufacturing sector) improves competitiveness among firms, enhances knowledge spillovers and increases the demand for labor and industrial products, leading ultimately to potentially higher growth rates. To examine the effects of concentration of manufacturing industry on Croatian regional growth, a panel analysis is conducted combining spatial (21 Croatian counties) and time (16 time periods) dimensions. The best way to measure concentration is by using the location formula to calculate location quotients weather on the basis of employment or gross value added. Therefore, the location quotients are independent variables of interest in the model whereas GDP, GDP p.c. and Gross value added of manufacturing put, regional economic prosperity and industrial output, respectively. Based on the results of the panel analysis it can be concluded that manufacturing industry is still an important factor of regional growth in Croatia, although its relative significance in Croatian economy is continuously declining over the last two decades.