Institutions and the Efficiency of the European Union Product Market with an Emphasis on Croatia – Dynamic Panel Data Analysis

Abstract

The positive relationship between product market efficiency (PME) and productivity has been established in the existing literature. An important component of productivity is the PME, which 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. The results show a positive relationship between the quality of institutions and PME while the link between corruption control and PME is negative. Exports and taxes were also significantly correlated with PME. The text additionally comments on the direction of this connection. The link between PME, 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. To improve the PME, a prerequisite for greater productivity and consequently economic growth, it is necessary to change the institutional framework.