It is often stated that the growth prospects of nations are closely related to patterns of competitiveness exercised by their firms and industries in the international market. Building on foundations of endogenous growth and new trade theories academics and policy-makers postulate that quality-driven competitiveness bears higher growth potential than the ability to compete in terms of prices. The transition of Central and Eastern European Countries has been characterised by movement from the

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... ter towards the former pattern of competitiveness. This process was facilitated by the transfer of knowledge and skills through the outsourcing of production from their most important trading partners, the West European members of the European Union (EU-15 countries), which paved the way for the development of intra-industry trade. This paper explores the competitiveness of manufacturing industries from Croatia and Slovenia in the EU-15 market. Using dynamic panel analysis we find that between 2002 and 2007 producers from the two countries followed different patterns of competitiveness. While in Slovenia the quality of exports is the main determinant of EU-15 market share, the competitiveness of Croatian producers still depends on their labour costs. We also find a strong impact of intra-industry trade on the competiveness of industries from the two countries in the EU-15 market.