Croatia’s innovation performance lags behind that of similar countries. Gross national expenditure on R and D (GERD) as a share of gross domestic product (GDP) is far below that of most EU countries. Business expenditure on R and D (BERD) as a share of GDP also lags most EU countries and is below what would be expected given the country’s industrial structure. In terms of mobilising human resources for innovation, Croatia’s performance is modest, with shortcomings in the quantity and quality of mathematics and science education, employment of scientists and engineers, tertiary education graduates, and employment of R and D personnel. Croatia also lags with regard to innovative outputs. Most Croatian firms did not engage in innovation activity during 2008-10. Patenting activity is also low, in relation to both the population and the amount of BERD. The above-average productivity and relative cost-effectiveness of Croatian scientists are the positive exceptions in a system that appears to be operating below potential. Finally, the Croatian innovation system is considerably less internationalised than those of comparable countries and the economic impact from innovation appears to be small. While there is modest improvement over time in some indicators (especially for scientific publications and, to a lesser extent, patenting), there have been setbacks: most notably, volatile and ultimately declining R and D expenditures (including by the business sector) and a relative decline in the standing of engineering.