The OECD Review of Croatia’s Innovation Policy is part of a series of OECD country reviews of innovation policy.* It was carried out in the framework of the Investment Compact for South East Europe by the OECD Directorate for Science, Technology and Industry (DSTI) – in co-operation with the OECD Investment Compact for South East Europe (SEE), Global Relations Secretariat, (GRS, OECD) – under the auspices of the Committee for Scientific and Technological Policy (CSTP).

In the aftermath of independence, Croatia underwent a period of reconstruction and institutional transformation. It has made much progress since, moving successfully to a market-based economy that has become closely integrated into the European and global economy through international trade and cross-border flows of investment and knowledge. Over an extended period, Croatia’s solid economic growth resulted in partial convergence to the average European level of income. While it still has considerable room for improvement, Croatia’s accession to the European Union can be seen as the culmination of a reform effort aimed, among other things, at facilitating investment, strengthening competition and reducing bureaucracy, and implementing the acquis communautaire.

This chapter gives a short overview of Croatia’s macroeconomic performance and highlights important features of its economic development, including its integration in European markets and the world economy, and its openness to international trade and foreign direct investment. It sketches some salient features and patterns of structural change in production and trade, including the emergence of services and the relative decline in the comparative advantage of key exporting sectors. It also looks at the current state of important framework conditions for innovation. It concludes with a discussion of the potential role of innovation in Croatia’s economic development in the longer term.

Croatia’s innovation performance lags behind that of similar countries. Gross national expenditure on R and D (GERD) as a share of gross domestic product (GDP) is far below that of most EU countries. Business expenditure on R and D (BERD) as a share of GDP also lags most EU countries and is below what would be expected given the country’s industrial structure. In terms of mobilising human resources for innovation, Croatia’s performance is modest, with shortcomings in the quantity and quality of mathematics and science education, employment of scientists and engineers, tertiary education graduates, and employment of R and D personnel. Croatia also lags with regard to innovative outputs. Most Croatian firms did not engage in innovation activity during 2008-10. Patenting activity is also low, in relation to both the population and the amount of BERD. The above-average productivity and relative cost-effectiveness of Croatian scientists are the positive exceptions in a system that appears to be operating below potential. Finally, the Croatian innovation system is considerably less internationalised than those of comparable countries and the economic impact from innovation appears to be small. While there is modest improvement over time in some indicators (especially for scientific publications and, to a lesser extent, patenting), there have been setbacks: most notably, volatile and ultimately declining R and D expenditures (including by the business sector) and a relative decline in the standing of engineering.

This chapter describes the main actors in the Croatian innovation system, their linkages and the main challenges. The business sector includes a number of internationally well integrated and innovative companies. Yet, the general picture is still one of rather low absorptive and innovative capacity. Overall the Croatian economy faces challenges as regards productivity and resilience which strengthened innovation can help to address. The university sector has many successful individual research groups. Higher education institutions and public research institutes have a traditionally strong position in the system, with a high degree of devolution of powers and some experience to integrate basic and industry-oriented research. Transfer and collaboration patterns are influenced by the organisational set-up of the public research sector, including numerous dedicated transfer institutions and programmes. However, some features of public research governance and funding have been detrimental to sustained innovation capacity building.

The first section outlines the evolution of Croatia’s post-independence innovation policy, from the transition period, the period of building infrastructure and initial transfer of approaches and solutions from more advanced countries, the 2000s up to the crisis which saw a move towards an articulated innovation policy and attempts to strategic planning, and the following phase lasting up to the present which was strongly shaped by preparations for EU accession. The second section describes the overall configuration and main actors of the STI governance system – primarily ministries, councils and agencies –with their respective roles. The next section discusses the innovation policy mix currently in place in Croatia, dealing with resource transfers in the form of direct public support and tax incentives for R and D and innovation, and the transfer of authority and institutional reconfigurations associated with an ongoing process of delegation of tasks and competences. The potential role of regulation and public procurement is also discussed. The fourth section focuses on international sources of funding for innovation which has played an important role in the past decade and is set to increase further in the wake of Croatia’s recent accession to the EU, with full access to Structural Funds in addition to the already established full participation in the Framework Programmes. The final section summarises some major results of the review by discussing strategic tasks of Croatia’s innovation policy from a functional assessment perspective.