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

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Author Info
Sabirianova, Klara
Svejnar, Jan
Terrell, Katherine

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Abstract

Economic development implies that the efficiency of firms in developing countries is approaching that of firms in advanced economies. We examine the extent of this convergence in the Czech Republic and Russia, economies that represent alternative models of implementing development policies, often referred to as the Washington Consensus, that have promoted privatization, competition and foreign investment. We also test hypotheses positing that only firms near the efficiency frontier benefit from these policies and catch up. Using 1992-2000 panel data on virtually all industrial firms in each country, we find that privatization to domestic owners did not markedly improve the efficiency of firms; domestic firms are not catching up to the (world) efficiency standard given by foreign-owned firms; and the distance of the Russian firms to the efficiency frontier is much larger than that of the Czech firms and continued to grow for most firms beyond 1997 while remaining constant in the Czech Republic. Domestic firms closer to the frontier are not more likely to catch up than firms further from the frontier although foreign firms do exhibit this behaviour. Foreign-owned firms are increasingly displacing domestic firms in the top deciles of the overall distribution of efficiency, due in part to slower ‘learning’ by domestic firms, higher efficiency of foreign startups, and foreigners’ acquisitions of more efficient domestic firms. The two alternative implementations of the Washington Consensus policies have thus not enabled domestic firms to start catching up to the world standard although the Central European model.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4868.

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Date of creation: Jan 2005
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Handle: RePEc:cpr:ceprdp:4868

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

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
D20 - Microeconomics - - Production and Organizations - - - General
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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Cited by:
(explanations, 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.)

  1. 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 Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  2. Jan Svejnar, 2006. "Strategies for growth : Central and Eastern Europe," Proceedings, Federal Reserve Bank of Kansas City, pages 205-233. [Downloadable!]
  3. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," IZA Discussion Papers 3079, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Marina Bakanova & Saul Estrin & Igor Pelipas & Sergei Pukovich, 2006. "Enterprise Restructuring in Belarus," IZA Discussion Papers 2148, Institute for the Study of Labor (IZA). [Downloadable!]
  5. Yuriy Gorodnichenko & Klara Sabirianova Peter, 2006. "Public Sector Pay and Corruption: Measuring Bribery from Micro Data," IZA Discussion Papers 1987, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Simon Commander & Jan Svejnar, 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). [Downloadable!]
  7. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2008. "Globalization and Innovation in Emerging Markets," IZA Discussion Papers 3299, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. 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 Stephen M. Ross Business School. [Downloadable!]
  9. Renata Kosova, 2006. "Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic," Working Papers 0006, School of Business, The George Washington University. [Downloadable!]
  10. Saso Polanec, 2004. "On the Evolution of Size and Productivity in Transition: Evidence from Slovenian Manufacturing Firms," LICOS Discussion Papers 15404, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
  11. 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. [Downloadable!] (restricted)
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