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This paper examines the factors and constraints that affect recent and potential growth in Croatia, as well as policies that can influence it. On current productivity trends, it estimates Croatia’s potential growth rate at 4–4½ percent, a result reasonably robust to different methodologies. For growth to be sustained at a significantly higher rate, the business environment needs to be improved through further measures to reduce the administrative burden, legal uncertainties, and corruption. The analysis also emphasizes the importance of attracting more greenfield foreign direct investment, and reforms to reduce the role of the state in the economy through fiscal consolidation and faster privatization.