Low Investment in R&D Will Leave Croatian Industry in the Imitation Zone

The problem of insufficient investment in research and development (R&D) in the domestic economy frequently emerges in the media, especially when discussed in the broader context of what is likely the biggest sore point for Croatian companies – slow productivity growth. Alongside insufficient investment in R&D, employers cite the lack of a quality and educated workforce and a low level of digitalization and automation as reasons for lagging productivity. To address these issues, we spoke with Nebojša Stojčić, the rector of the University of Dubrovnik and one of the most cited Croatian scientists in global contexts. Stojčić is also a full professor at the Dubrovnik Faculty of Economics and the only Croatian author whose research has been repeatedly included by the European Commission in its quarterly recommendations of scientific literature for public policy makers in the field of innovation and research. In addition to the economics of innovation, his scientific interests include urban and regional economics and sustainable tourism.

In European terms, Croatia ranks near the bottom when it comes to investment in research and development (1.39% of GDP, while the European average is 2.22%). What does this mean for the industry in the long term, as well as for the economy as a whole?

– Low investment in research and development threatens to leave Croatian industry in the imitation zone instead of creating new solutions. This position complicates the transition from a cost economy to a knowledge economy, where competitiveness arises from innovation rather than lower wages. The lack of investment in R&D does not only affect the technology sector but also slows the modernization of the entire economy, from agriculture to services. Without systematic support for innovation, domestic companies struggle to enter global value chains at higher levels, and attracting quality foreign investments becomes limited. Ultimately, this affects slower productivity growth, weaker exports of high value-added products, and reduced resilience to global changes. Therefore, we must not view investment in knowledge as a cost, but as an investment in the long-term competitiveness and sustainability of the Croatian economy.

Can the private sector significantly increase investment in research and development, and is tax relief on profits the only way to encourage such investments?

– The private sector can and should play a larger role in financing research and development, but this will not happen solely due to tax incentives. They can be an important stimulus, but they are not sufficient on their own if there is no developed innovation ecosystem, which I mean as a network of universities, research centers, and companies that collaborate with each other. Croatia still has too few examples of successful collaboration between science and the economy and a weak transfer of research results into practice. Stable public programs that share risk with entrepreneurs, such as co-financing programs for innovation projects or public-private partnerships in research, are also crucial. Only then do private sector investments in research become part of a broader technological development strategy, rather than isolated efforts by individual companies….

You are one of the most cited domestic scientists in foreign scientific journals, and you were also a member of the National Council for Higher Education, Science, and Technological Development. How would you assess the relevance of Croatian science in global contexts?

– Croatian science has a number of individuals and research groups that are quite comparable to global standards, but the system as a whole still suffers from fragmentation and teaching-oriented funding of universities. This means that research is often conducted with great personal effort, without stable institutional support. An additional challenge is that the knowledge and experience of internationally recognized scientists who are active in global research networks are rarely systematically used in shaping public policies and strategic documents. This means that the potential of existing knowledge and contacts that could help better align domestic policies with European and global trends is not being utilized. At the same time, I believe we have room for improvement in creating opportunities to attract top scientists from abroad, not only through projects but also through clear career paths and support systems for their integration into domestic research teams. In the context of demographic trends and the declining number of students, Croatia will need universities that are more research-oriented and less teaching-oriented in the long term. Examples from countries like Estonia show how strategic investment in research not only increases the international visibility of universities but also fosters collaboration with the economy and attracts young researchers from abroad. If we want competitive and sustainable higher education, we must transform universities into services for the economy by generating knowledge, innovations, and solutions, rather than just educating personnel.

Is there a link between the low level of innovation in the Croatian economy and dependence on the traditional tourism model?

– It is difficult to speak of a direct cause-and-effect relationship, but there is certainly overlap between them. The Croatian economy has long relied on tourism as a major source of growth, which in many areas leaves little room for the development of other, innovation-intensive sectors. In areas where tourism dominates, high housing costs and the seasonal structure of the labor market further complicate the attraction and retention of professionals, students, and researchers outside the tourism value chain. This weakens local innovation potential in the long term and creates dependence on a model that reproduces short-term gains but does not support sustainable development. The problem is not tourism itself, but the imbalance. When one sector becomes predominant, it gradually pushes out other sources of knowledge, creativity, and entrepreneurship that are necessary for an innovative leap.

During the presentation of the project ‘Opportunities for the Reindustrialization of the Croatian Economy’ in 2019, you emphasized that digital transformation is the only chance for the development of the Croatian economy and that if it is not utilized, it will be too late in five years. From today’s perspective, has that opportunity been seized?

– Partially, but not as much as it could have been. Croatia has made some progress in the past five years. Many public services have been digitized, and some companies, especially in the IT sector, have successfully transformed and proven that global competitiveness can be built from Croatia. However, at the same time, most of the economy is still at the beginning of this process. Digital transformation does not only mean the introduction of software but also a change in business models, culture, and decision-making processes. In this sense, a key opportunity still exists, but the window of opportunity is narrowing. Without accelerating the digital transition of industry, education, and public administration, we risk becoming digital users rather than solution creators. Croatia can still catch up, but only if digitalization becomes the foundation of economic policy, rather than an addition to it.

In public discourse, it can be heard that Croatia should not count on the opening of large manufacturing plants, primarily due to insufficient labor supply for mass production. Will we therefore largely miss the trend of shortening supply chains (nearshoring)?

– It is true that Croatia struggles to compete with countries that have a large labor pool when it comes to mass production, but that does not mean we must remain outside the trend of shortening supply chains. On the contrary, it is precisely in this process that space opens up for smart reindustrialization by investing in smaller, technologically sophisticated, and sustainable production capacities. Nearshoring today is not just a matter of labor costs but also of reliability, flexibility, and quality. Croatia can be attractive if it positions itself as a location for specialized production, development centers, and high value-added services. However, this requires better infrastructure, faster administrative procedures, and a system that encourages innovation. These processes are part of the broader picture of global megatrends that, according to recent analyses by UNIDO, will shape the future of industrialization until 2050, from the green transition and the development of artificial intelligence to the digitalization of production, the reconfiguration of global value chains, and profound demographic changes. At the Faculty of Economics in Dubrovnik, we collaborate with UNIDO as a regional partner for Eastern Europe in preparing its most important publication, the ‘Industrial Development Report’, which is expected to be published by the end of the year. This is also the first time that a Croatian economic faculty has been involved in the preparation of this globally relevant publication on industrial policy. Thus, we continue a series of internationally recognized research on industrialization and the transformation of economies in transition. The main message of these analyses is that global trends can no longer be viewed in isolation. The green transition, artificial intelligence, and new configurations of value chains not only change industry but also redefine the role of the state, education, and science in creating competitiveness. Countries that timely align these policies will create more resilient economies capable of adapting to changes and directing them to their own benefit.

Besides the number of arrivals and overnight stays, what are the most important competitiveness indicators that the Croatian tourism industry should monitor to encourage quality growth rather than quantity?

– If we want to measure quality rather than quantity in tourism, we must look at indicators that speak to performance, not just volume. Alongside the number of arrivals and overnight stays, important indicators include revenue per guest and per employee, the share of local suppliers in tourism spending, as well as the level of productivity and investment in innovation. Sustainability indicators such as energy and water consumption per visitor, waste generation, traffic load, and CO₂ emissions are becoming increasingly important. It is also essential to monitor local community satisfaction, housing accessibility, and pressure on infrastructure and public services. Such indicators provide a comprehensive picture of how tourism contributes to the well-being of the community, not just the income balance. Ultimately, the true success of a destination is not in record visitation numbers but in how pleasant and sustainable it is for the residents, which is also a prerequisite for visitor satisfaction.

Part of the public believes that we have repeated all the mistakes made by large tourist countries in tourism, primarily in the burdening of communal infrastructure by mass tourism and the inaccessibility of housing for the local community. Do you agree with this?

– There are problems with affordable housing and the pressure of tourism on infrastructure along the entire Croatian coast today. An increasing number of housing units are being converted into apartments, rental and real estate prices are rising, and local residents, students, and young professionals are struggling to find living space. Dubrovnik has long been the most well-known example of such challenges, but similar patterns are now marking other coastal cities as well. When tourism exceeds local capacities, infrastructure becomes burdened, social cohesion is lost, and the identity of the place gradually weakens. Croatia still has the opportunity to respond thoughtfully – through planning, tax policy, and clear sustainability standards – before short-term benefits become a long-term burden.

How could Croatia utilize EU funds to develop ‘smart destinations’ that integrate digital technologies with sustainability principles?

– EU funds provide an exceptional opportunity for Croatia to develop a new generation of tourism based on data, innovation, and sustainability. The term ‘smart destination’ refers not only to technology but also to thoughtful management of space, resources, and visitor experiences. Thanks to European funds, it is possible to invest in digital systems that monitor traffic, energy consumption, and space load, as well as in the education of professionals who can turn that data into quality decisions. The key is that digitalization serves not for promotion but for the betterment of the local community and environmental protection. Smart destinations can help make tourism more sustainable, evenly distributed throughout the year, and provide greater value, not just income. If we strategically utilize the funds, we can create tourism that is pleasant for residents while also being attractive and responsible towards visitors.

Can public-private partnerships contribute to the development of a circular economy in tourism, especially in the context of waste and water resource management at the peak of the season?

– Public-private partnerships can play a key role in developing a circular economy in tourism, particularly in areas such as waste, energy, and water resource management. At the peak of the season, local communities often reach the limits of their capacities, but collaboration between the public and private sectors can enable more efficient, innovative, and financially sustainable solutions. The private sector can bring in technology and operational efficiency, while the public sector ensures the regulatory framework and care for the public interest. Examples include joint waste collection and recycling systems, digital monitoring of water consumption, or the use of waste heat in hotels and municipal systems. It is crucial that such partnerships are transparent, locally focused, and planned for the long term. The circular economy in tourism must not be just a project but a lasting change in how destinations consume and renew resources.