Foreign Direct Real Estate Investment and Real Estate Prices: Chicken-or-Egg Causality Dilemma in Croatia
Foreign Direct Real Estate Investment and Real Estate Prices: Chicken-or-Egg Causality Dilemma in Croatia

Summary/Abstract: Croatia’s thriving tourism has attracted investors but caused problems like over-tourism and sky-high real estate prices. Locals struggle with affordability due to competition from wealthier EU citizens. Foreign direct investment in real estate (FDIRE) dominance in Croatia's FDI landscape prompts this study investigating the causal connection amongst FDIRE and rising estate pricing. The study aims to explore the potential cause-and-effect connection amongst FDIRE and real estate prices across panel of Croatian counties from 2007 to 2024. This analysis employed the Dumitrescu-Hurlin panel causality test to determine the existence of a causal relationship amongst these variables. Furthermore, the study aimed to examine issues related to cross-sectional dependence and slope homogeneity concerns within this context. Dumitrescu and Hurlin's causality test at a 1% significance level confirmed FDIRE's causal influence on real estate prices. The authors thoroughly reviewed previous studies on FDIRE and estate pricing. They identified a gap in research focusing on the causal connection amongst FDIRE and real estate prices in Croatia. Additionally, prior studies lacked consideration of cross-sectional dependence and slope homogeneity within panel analyses. This study is the first to investigate this link within a specific country's counties, presenting a unique contribution to this field.

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