The aim of this paper is to assess the direct and indirect impacts on a national economy from biodiesel (rapeseed methyl ester (RME)) production using input-output (I-O) analysis. Biodiesel development in Croatia is used as a case study. For Croatia, as for many other countries in Europe, biodiesel is a new activity not included in the existing I-O sectoral accounts. For this reason the I-O table has to be modified accordingly before being able to quantify the effect of an exogenous demand for biodiesel. Impacts in terms of output, income and employment lead to the conclusion that biodiesel production could have significant positive net impact on the Croatian economy despite the high level of subsidies for rapeseed growing. (C) 2007 Published by Elsevier Ltd.