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

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Author Info
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)

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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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Publisher 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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Find related papers by JEL classification:
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
P3 - Economic Systems - - Socialist Institutions and Their Transitions
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
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  2. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter. [Downloadable!] (restricted)
  3. Roman Frydman & Cheryl Gray & Marek Hessel & Andrzej Rapaczynski, 1999. "When Does Privatization Work? The Impact Of Private Ownership On Corporate Performance In The Transition Economies," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1153-1191, November. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
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  5. Joskow, Paul L. & Rose, Nancy L., 1989. "The effects of economic regulation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 25, pages 1449-1506 Elsevier. [Downloadable!] (restricted)
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  6. 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.
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  9. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  10. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August. [Downloadable!] (restricted)
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  11. David Blanchflower & Stephen Machin, 1996. "Product Market Competition Wages and Productivity: International Evidence from Establishment-Level Data," Annales d'Economie et de Statistique, ADRES, issue 41-42, pages 11, Janvier-J. [Downloadable!]
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  12. Nancy Benjamin & Michael J. Ferrantino, 2001. "Trade Policy And Productivity Growth In Oecd Manufacturing," International Economic Journal, Korean International Economic Association, vol. 15(4), pages 95-115, December. [Downloadable!] (restricted)
  13. Anderson, James H & Lee, Young & Murrell, Peter, 2000. "Competition and Privatization Amidst Weak Institutions: Evidence from Mongolia," Economic Inquiry, Oxford University Press, vol. 38(4), pages 527-49, October.
  14. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter. [Downloadable!] (restricted)
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  15. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier. [Downloadable!] (restricted)
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  16. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter. [Downloadable!] (restricted)
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