Wild Wild East: The Next European Renaissance

Milana Mihic

Wild Wild East is an exclusive feature that covers Eastern Europe via international affairs, culture, and economics. The Mindthis team believes Eastern Europe is overlooked in discussions about the future of the EU.  Far too often we see the failures of Western Europe flood the media markets which drown out the success stories of Eastern Europe. 

This ends today.

With columnists from Eastern Europe we will provide a rare look into the the true potential of the Wild Wild East. Alongside the success stories, contentious issues and failures will be highlighted for our readers. Our columnists will guarantee easy reads on hard topics on the successes and failures of Eastern Europe. 

Hard topic number one: Croatia and Serbia. Milana took charge on this testy subject with a clear message of economic unity over the politics of division. I am confident our readers from around the world will enjoy this new feature. 


After the collapse of Yugoslavia, there has always been tension between Serbia and Croatia. Even if there are still some issues about political relations to be resolved between the two countries, the business and economic relations seem to be warmer and improving.  And the topic here is economics, not politics. I hate politics. From the recent news, we can observe that the two neighboring economies are more and more starting to look similar, with the Serbian economy slowly catching up to the Croatian. Before looking at the trade and business opportunities between the two countries, let’s look at their individual economic performances first.

How do we measure the economic performance of a country?

There are different key indicators of the economic state of a country.  First, there are the income indicators: the resources and means that a country has; and there are human development indicators: outcomes, ends, achieved functioning.  That means that we can’t only compare two countries by their incomes, but we have to look at the educational system, the health care system, etc. Economists are always trying to find a way to put a measure on the level of development because it is easier to compare.

The Evolution of the Serbian Economy

Even if Serbia was called Yugoslavia in the 90’s and then Serbia & Montenegro in the 2000’s, for simplicity, we will call it only Serbia. The point here is to see the evolution of the current country (Serbia) according to its past state. We will first look at an income indicator: GDP per capita in Purchasing Power Parity terms.  We often look at income measure in PPP terms because the GDP per capita comparisons tend to increase the differences in wealth between the residents of two countries.  For example, with 10 US dollars, I’m richer in Serbia than in the US because I have more purchasing power; I can buy more things.

With economic tools, we can correct that difference to adjust the incomes of countries so that there is a more realistic comparison. As we can see, GDP was around 12,000 international dollars in 1990, dropping to 5,000 during the war. In a span of 20 years, there is a second drop in income per capita due to the NATO bombings that destroyed part of the infrastructure in Serbia, coupled with a trade embargo imposed by the president Clinton, which did not help the country’s economy to re-bounce fast enough. In 2008, a slight drop in income is observed due to the most recent recession. In 2011, the Canadian GDP per income (PPP) is estimated to be slightly less than 4 times stronger than the Serbian. For the human development index, which is an economic indicator with an educational, income and health component, Serbia is ranked 59th out of 187 countries.

Serbian GDP per Capita from 1990 to 2010

The Croatian economy

The neighboring country, Croatia, has an enormous economic potential that is currently expanding. First, let’s have a look at an income indicator: the income per capita in PPP terms. From the graph, it seems like the Croats have more than doubled their incomes from the beginning of the 90s.  During the war, the economy was very harsh, hitting a bottom income of a little over 2000 int’l dollars and the trend shows a general increase until the recent recession.  Just like in Serbia, there was a slowdown around 1998, but much smaller than in their neighbor’s case. A suggestion of explanation would be that even if the bombings were not located in Croatia (1999), the instability of a country is likely to provoke the same effect in the countries surrounding it (but a much lighter effect!).  For the HDI, Croatia is ranked 46th out of 187 countries.

Croatian GDP per Capita from 1990 to 2010

Economic Ties between the two Countries

There is no doubt that by comparing the two countries according to the inflation and unemployment rates, the Croatian economy seems to be doing better than the Serbian. However, leaving the Serbians another couple of years will show a better representation of the economic capacity differences between the two.

Unemployment rates in Serbia and Croatia

Inflation in Croatia and Serbia

Both economies have similar decompositions of their GDPs. Serbians have twice as more revenue coming from the agricultural sector. With new technologies and the recent end of embargo on their economy, I would expect an even higher share of GDP in the agricultural sector due to their favorable natural resources and endowments for that sector of the economy.

Decomposition of Serbian GDP

Decomposition of Croatian GDP

Bilateral direct investment

Net Croatian investment in Serbia is approximately 42.5 million euros in 2010, and the other way around is almost 1 tenth of that amount. Why is there such a big difference? Obviously there are different stories to why there is such a big discrepancy between the two investment sums. According to the Croats, the Serbian economy is simply weaker and there are not enough investors that are capable to invest. According to the Serbs, there are too many Croatian trade barriers that create this difference. Let’s just say it is a mixture of these two components.

On another positive note, there was a meeting in Zagreb in 2005 concerning the CEFTA (Central European Free Trade Agreement), which includes Croatia and Serbia (not exhaustive). The CEFTA helps promote free trade and it is imperial for the members to also be a member of the WTO and of any European Union association agreement. Hopefully, this will encourage even more trade, since most of the exports of each country are sent to Italy, B&H, Slovenia and Germany (Cro).  For the Human Development index, the Croatian index is almost 15 points ahead from the Serbian, but that doesn’t mean that the Croats have better scores in every component. In fact, it seems like the Health system is better in Croatia and that the educational system is better in Serbia (according to the IMF stats).

The Final Word

From a personal point of view, I would say that there is a major opportunity of ‘trade in tourism’ between the two countries. Croatia has spectacular beaches and nature’s gifts while Serbia has more cultural events and festivals (Exit Festival, Belgrade Beerfest, etc.). While the political tension barriers are a big deterrent to these kinds of exchanges, it would be interesting to be able to measure the evolution of the trend in this type of trade since the end of the war. I expect both countries to put aside their political differences for the greater good of economic prosperity. The Wild Wild East can only become a real force when our people can focus on our future rather than dwell in the past. Through stability earned by a collective sense of economic unity, Serbia-Croatia has a chance to attract scared investors from BRICS and EU. Eastern Europe, if we settle our differences, we can lead the next true European renaissance.

Talking about who did what in 1943 or 50 years later is a waste of precious time and intellectual capacity. If you live in the past, you will never control your future but changing a cultural thought is much easier said than done.