Advanced Search
MyIDEAS: Login

Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?

Contents:

Author Info

  • Klara Sabirianova Peter

    (University of North Carolina, Chapel Hill, CEPR, IZA)

  • Jan Svejnar

    (Columbia University, CERGE-EI, CEPR, IZA)

  • Katherine Terrell

    (University of Michigan, CERGE-EI, CEPR, IZA)

Abstract

Economic development implies that the efficiency of firms in developing countries starts approaching that of firms from advanced economies. Various development policies have been pursued to achieve this convergence. We test for this convergence in two economies that represent alternative models of implementing market-oriented development policies: the Czech Republic and Russia. Using 1992–2000 panel data on virtually all medium and large industrial firms in each country and accounting for endogeneity of ownership, we find that foreign ownership markedly improved the efficiency of firms, whereas domestic private ownership did not; domestic firms are not catching up to the (world) efficiency standard given by foreign-owned firms. This is due in part to a slower growth of efficiency in domestic firms over time. However, foreigners' acquisitions of more efficient domestic firms are also contributing to the gap. Domestic firms closer to the frontier are not more likely to catch up than firms farther from the frontier, although foreign firms do exhibit this behavior. The distance of Russian firms to the efficiency frontier is much larger than that of Czech firms. Nevertheless, after nearly a decade of reforms, neither model of development has resulted in convergence of domestic firms to the world standard. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00315
File Function: link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 4 (November)
Pages: 981-999

as in new window
Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:981-999

Contact details of provider:
Web page: http://mitpress.mit.edu/journals/

Order Information:
Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

Related research

Keywords: efficiency; economic development; foreign direct investment; ownership; convergence; frontier; Czech Republic; Russia;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  2. Rachel Griffith & Stephen Redding & Helen Simpson, 2003. "Productivity convergence and foreign ownership at the establishment level," LSE Research Online Documents on Economics 3666, London School of Economics and Political Science, LSE Library.
  3. Haskel, Jonathan & Pereira, Sonia & Slaughter, Matthew, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," CEPR Discussion Papers 3384, C.E.P.R. Discussion Papers.
  4. Wendy Carlin & Mark Schaffer & Paul Seabright, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," William Davidson Institute Working Papers Series 2004-670, William Davidson Institute at the University of Michigan.
  5. Andrew B. Bernard & Fredrik Sjoholm, 2003. "Foreign Owners and Plant Survival," NBER Working Papers 10039, National Bureau of Economic Research, Inc.
  6. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  7. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
  8. 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.
  9. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
  10. Peter, Klara Sabirianova & Svejnar, Jan & Terrell, Katherine, 2004. "Distance to the Efficiency Frontier and FDI Spillovers," IZA Discussion Papers 1332, Institute for the Study of Labor (IZA).
  11. Jan Hanousek & Evžen Ko?enda & Jan Svejnar, 2004. "Ownership, Control and Corporate Performance After Large-Scale Privatization," William Davidson Institute Working Papers Series 2004-652, William Davidson Institute at the University of Michigan.
  12. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  13. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  14. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  15. Richard E. Ericson, 1991. "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 11-27, Fall.
  16. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
  17. Brown, J David & Earle, John S, 2001. "Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data," CEPR Discussion Papers 2758, C.E.P.R. Discussion Papers.
  18. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  19. Williamson, John, 2000. "What Should the World Bank Think about the Washington Consensus?," World Bank Research Observer, World Bank Group, vol. 15(2), pages 251-64, August.
  20. J. Bradford Jensen & Andrew B Bernard, 2002. "The Deaths of Manufacturing Plants," Working Papers 02-15, Center for Economic Studies, U.S. Census Bureau.
  21. Shirley, Mary & Walsh, Patrick, 2000. "Public versus private ownership : the current state of the debate," Policy Research Working Paper Series 2420, The World Bank.
  22. F. Zilibotti & P. Aghion & R. Burgess, 2004. "The Unequal Effects of Trade Liberalization: Theory and Evidence from India," 2004 Meeting Papers 40, Society for Economic Dynamics.
  23. Fox, Merritt & Heller, Michael, 2000. "Lesson from Fiascos in Russian Corporate Governance," Berkeley Olin Program in Law & Economics, Working Paper Series qt42z3f7z0, Berkeley Olin Program in Law & Economics.
  24. Nandini Gupta & John C. Ham & Jan Svejnar, 2000. "Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic," William Davidson Institute Working Papers Series 323, William Davidson Institute at the University of Michigan.
  25. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  26. Lubomír Lízal & Jan Svejnar, 2002. "Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 353-370, May.
  27. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  28. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers.
  29. Sachs, Jeffrey D, 1996. "The Transition at Mid Decade," American Economic Review, American Economic Association, vol. 86(2), pages 128-33, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2010. "Globalization and Innovation in Emerging Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 194-226, April.
  2. Bakanova, Marina & Estrin, Saul & Pelipas, Igor & Pukovich, Sergei, 2006. "Enterprise Restructuring in Belarus," IZA Discussion Papers 2148, Institute for the Study of Labor (IZA).
  3. Commander, Simon & Svejnar, Jan, 2007. "Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries," IZA Discussion Papers 2637, Institute for the Study of Labor (IZA).
  4. Evzen Kocenda & Jan Hanousek & Michal Masika, 2011. "Financial Efficiency and the Ownership of Czech Firms," William Davidson Institute Working Papers Series wp1016, William Davidson Institute at the University of Michigan.
  5. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA).
  6. Jana P. Fidrmuc, 2006. "Channels of Restructuring in Privatized Czech Companies," Working Papers wpn06-18, Warwick Business School, Finance Group.
  7. Gupta, Nandini & Ham, Jhon C. & Svejnar, Jan, 2008. "Priorities and sequencing in privatization: Evidence from Czech firm panel data," European Economic Review, Elsevier, vol. 52(2), pages 183-208, February.
  8. Barbara M. Roberts & Steve Thompson & Katarzyna Mikolajczyk, 2008. "Privatization, Foreign Acquisition and the Motives for FDI in Eastern Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(3), pages 408-427, October.
  9. Gorodnichenko, Yuriy & Sabirianova, Klara, 2006. "Public Sector Pay and Corruption: Measuring Bribery from Micro Data," CEPR Discussion Papers 5585, C.E.P.R. Discussion Papers.
  10. Klara Sabirianova Peter & Jan Svejnar & Katherine Terrell, 2004. "Distance to the Efficiency Frontier and FDI Spillovers," William Davidson Institute Working Papers Series 2004-721, William Davidson Institute at the University of Michigan.
  11. Jan Svejnar, 2006. "Strategies for growth : Central and Eastern Europe," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 205-233.
  12. Marina Bakanova, & Saul Estrin & Igor Pelipas & Sergei Pukovic, 2006. "Enterprise Restructuring in Belarus," William Davidson Institute Working Papers Series 823, William Davidson Institute at the University of Michigan.
  13. Andrei Medvedev & Alena Zemplinerová, 2005. "Does Competition Improve Performance? Evidence from the Czech Manufacturing Industries," Prague Economic Papers, University of Economics, Prague, vol. 2005(4), pages 317-330.
  14. Serguey Braguinsky & Sergey V. Mityakov, 2012. "Foreign Corporations and the Culture of Transparency: Evidence from Russian Administrative Data," NBER Working Papers 17731, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:981-999. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.