Has the Accession of Croatia to the EU Affected Business Sentiment in Industry? Synthetic Control Method Approach

Abstract

Some economic and political events determine the level and
dynamics of real economic variables on one hand, and business
sentiment as a "soft" variable with a good predictive power for
those variables, on the other. In this paper, we observe the impact Croatia's accession to the European Union (EU) in 2013
had on the Industrial confidence indicator (ICI) as a measure of
business sentiment in Croatia's industry. Entering the EU had a
strong positive impact on the economies of countries that had
joined the Union. Unlike other new EU member states, which
entered the EU in an upward phase of the European business
cycle, Croatia entered this community immediately after the
stabilization of the European debt crisis and in a long period of
recession. Using a novel application of the Synthetic Control
Method (SCM) to the business survey (BS) data, the main hypothesis, that Croatia's accession to the EU had a strong positive
impact on the ICI (which can be explained as euphoria), is
confirmed. Conclusions derived from this research are a contribution to the improvement and popularization of BS and SCM.