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Do Market Pressures Induce Economic Efficiency? The Case of Slovenian Manufacturing, 1994–2001

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  • Peter F. Orazem

    ()
    (Department of Economics, 267 Heady Hall, Iowa State University, Ames, IA 50011-1070, USA)

  • Milan Vodopivec

    ()
    (World Bank, 1818 H Street NW, Washington, DC 20433, USA)

Abstract

Using a unique longitudinal data set on all manufacturing firms in Slovenia from 1994 to 2001, this article analyzes how firm efficiency changed in response to changing competitive pressures associated with the transition to market. Results show that the period was one of atypically rapid growth of total factor productivity (TFP). The rise in firm efficiency occurs across almost all industries and firm types: large or small, state or private, domestic or foreign owned. Changes in firm ownership type have no direct impact on firm efficiency. However, increased market competition related to rising market share of private firms, new market entrants, foreign-owned firms, and international trade raises TFP across all firms in an industry, whether private or state owned. In addition, competitive pressures that sort out inefficient firms of all types and retain the most efficient, coupled with the entry of new private firms that are at least as efficient as surviving firms, prove to be the major source of TFP gains. Results strongly confirm that market competition fosters efficiency.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2009)
Issue (Month): 2 (October)
Pages: 553-576

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Handle: RePEc:sej:ancoec:v:76:2:y:2009:p:553-576

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  1. Andreja Bohm & Joze P. Damijan & Boris Majcen & Marko Rems & Matija Rojec & Marko Simoneti, 2001. "Secondary Privatization in Slovenia: Evolution of Ownership Structure and Company Performance Following Mass Privatization," CASE Network Reports 0046, CASE-Center for Social and Economic Research.
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  5. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter.
  6. Milan Vodopivec & Peter F. Orazem, 2000. "Male-female differences in labor market outcomes during the early transition to market: The cases of Estonia and Slovenia," Journal of Population Economics, Springer, vol. 13(2), pages 283-303.
  7. Tito Boeri & Katherine Terrell, 2001. "Institutional Determinants of Labor Reallocation in Transition," William Davidson Institute Working Papers Series 384, William Davidson Institute at the University of Michigan.
  8. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers.
  9. Vodopivec, MIlan, 1993. "Determination of Earnings in Yugoslav Firms: Can It Be Squared with Labor Management?," Economic Development and Cultural Change, University of Chicago Press, vol. 41(3), pages 623-32, April.
  10. David BLANCHFLOWER & Stephen MACHIN, 1996. "Product Market Competition Wages and Productivity: International Evidence from Establishment-Level Data," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 219-253.
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  13. Stephen Nickell, 1993. "Competition and Corporate Performance," CEP Discussion Papers dp0182, Centre for Economic Performance, LSE.
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Cited by:
  1. Milan Vodopivec & Lilijana Madjar & Primoz Dolenc, 2009. "Empirical Analysis of the Severance Pay Non-Performance in Slovenia," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 7(4), pages 333-348.
  2. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2012. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Economic Development and Cultural Change, University of Chicago Press, vol. 61(1), pages 39 - 72.
  3. Machek Ondrej, 2012. "Data Issues In Total Factor Productivity Benchmarking: A Central European Perspective," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 219-225, December.

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