On the Causality between GDP and Health Care and Tourism Investment in Augmented Solow Growth Model : Evidence from Croatia’s County Level Data

This paper examines conditional convergence of Croatia’s counties in gross domestic product (GDP) and health care and tourism investment (HCTE) per working-age population. It presents estimation of the augmented Solow growth model suggested by Mankiw, Romer and Weil (1992) to explain variation in output and expenditure per capita across counties. The variation is due to different steady state growth paths resulting from differences in the counties savings rate, education, and population growth. This paper is an extension of the MRW model by incorporating beside human, social capital too, or investment in health care and tourism investment proxied by HCTE to the augmented Solow model. The issue of causality relationship between GDP and explanatory variables is investigated. The empirical analysis is based on crosssectional counties’ data for the period of 1991-2003. We try to find if HCTE has positive effect on the economic growth and the speed of convergence