1 © The Author(s) 2019 Z. Petak, K. Kotarski (eds.), Policy-Making at the European Periphery, New Perspectives on South-East Europe, https://doi.org/10.1007/978-3-319-73582-5_1 CHAPTER 1 Croatia’s Post-communist Transition Experience: The Paradox of Initial Advantage Turning into a Middle-Income Trap Kristijan Kotarski and Zdravko Petak 1.1 INTRODUCTION Understanding the political and economic development of Croatia after it gained independence and left the Yugoslav federation in 1991 requires an understanding of the dynamics of the political and economic development that preceded these events. At the peak of industrialization and the devel- opment of the capitalist system in Europe (which took place rather late in Croatian lands, in the late nineteenth century), Croatia—then part of Austria-Hungary—was a peripheral European country. Croatia, Slavonia and Dalmatia were among the most underdeveloped parts of the Austro- Hungarian Empire (Good 1994: 877). No essential change ensued after Croatia had joined the Kingdom of Serbs, Croats and Slovenes in 1918. On the eve of World War II, Yugoslavia was a backwater Balkan country, less developed than Czechoslovakia, Hungary and Poland of the day. 1 Although Croatia (together with Slovenia) was located in the western part K. Kotarski (*) • Z. Petak Faculty of Political Science, University of Zagreb, Zagreb, Croatia e-mail: kristijan.kotarski@fpzg.hr; zdravko.petak@fpzg.hr