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Do Market Pressures Induce Economic Efficiency: The Case of Slovenian Manufacturing, 1994-2001

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  • Orazem, Peter F.

    ()
    (Iowa State University)

  • Vodopivec, Milan

    ()
    (International School for Social and Business Studies, Celje, Slovenia)

Abstract

The Slovenian transition represents a slow but steady liberalization of constraints on competition. Using a unique longitudinal data set on all manufacturing firms in Slovenia over the period 1994-2001, this study analyzes how firm efficiency changed in response to changing competitive pressures, holding constant firm attributes. Results show that the period was one of atypically rapid growth of total factor productivity (TFP) relative to levels in OECD countries, and that 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 impact on firm efficiency. Rather, 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. Market competition from new entrants, foreign-owned firms, and international trade also raise firm efficiency in the industry. Results strongly confirm that market competition fosters efficiency.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 901.

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Length: 39 pages
Date of creation: Oct 2003
Date of revision:
Publication status: published in: Southern Economic Journal, 2009, 76(2), 553-576
Handle: RePEc:iza:izadps:dp901

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Keywords: growth; efficiency; competition; total factor productivity; Slovenia;

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References

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Cited by:
  1. King, Elizabeth M. & Montenegro, Claudio E. & Orazem, Peter, 2010. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Staff General Research Papers 31641, Iowa State University, Department of Economics.
  2. 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.
  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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