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Ekonomski fakultet Univerziteta u Zenici , Zenica , Bosnia and Herzegovina
Ekonomski fakultet Univerziteta u Sarajevu , Sarajevo , Bosnia and Herzegovina
Potential GDP in this paper is analyzed as the highest possible GDP level that could be produced with production factors’ maximum utilization and without causing inflation in economy. GDP gap is difference between potential and real GDP levels. Potential GDP and GDP gap are latent variables that are not measured or published in the System of national accounts. Estimation of GDP gap is used for the assessment of business cycles. In this paper GDP gap in economy of Bosnia and Herzegovina is estimated for period 2005-2020 based on Cobb-Douglas production function. Findings of the paper indicate to existence of GDP gaps, in three periods. The first one is observed before the Great Recession in 2009, the second one during the Recession up to 2015, and the third period in years between 2016-2019 in economy of Bosnia and Herzegovina. Negative GDP gap with real GDP lower than its potential level was computed in period 2010-2015. Economic growth rates in Bosnia and Herzegovina of annual 2,3% in period 2005-2020 do not promise the country’s soon convergence to EU average GDP per capita. Achievement of higher economic growth rates is constrained by limits of potential GDP. In the future, impediments of potential GDP should be addressed by decision makers. Some initial analysis is discussed in this paper. Structural changes are needed for improvements in potential GDP. Some areas for improvements are: reduction of (public) consumption and increase in capital formation.
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