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Firm Growth and Survival in a Transition Country: Micro Evidence from Slovenia

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  • Jozef Konings
  • Ana Xavier

Abstract

This paper investigates the determinants of firm survival and growth in Slovenia, a country in transition from a plan to a market economy. Firm growth (measured using employment) and firm survival (the probability of remaining in activity) are estimated using firm level data for the years 1994 to 1998. Both the OLS and the Heckman selection correction models are used to estimate a basic model of firm growth adjusted to analyse the specific context of transition. The performance of Slovenian firms that survived from 1994 until 1998 is studied using firm and industry pre-transition conditions so as to understand what type of firms best survived and performed in the transition process. Firm performance is assumed to be a function of several factors including initial firm size, ownership, firm innovation, trade orientation, capital intensity, firm financial constraints, firm costs and profitability, sunk costs or minimum efficiency scale, and market structure. Evidence suggests that, in Slovenia, during the first four years of transition, private and foreign owned firms, whose activity involved foreign trade, and potentially more capital intensive, grew the fastest. Small firms grew more than medium firms did, and also did large firms. Large firms or those with initial positive profits were more likely to remain in activity whilst firms with ill financial health, high costs, or involved in foreign trade were more likely to close down. This suggests that firms that are trading internationally are exposed to more competitive pressure and therefore are more likely to fail, however, once they survive they will also have a superior growth performance. It may also indicate that firms in Slovenia face hard budget constraints.

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Bibliographic Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 11402.

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Length: 30 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:lic:licosd:11402

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Keywords: transition economies; Slovenia; manufacturing; firm growth and survival; firm ownership; firm trade orientation;

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References

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Citations

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Cited by:
  1. John Hutchinson & Ana Xavier, 2004. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," LICOS Discussion Papers 15004, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  2. Huong Vu & Steven Lim, 2013. "Exports and Firm survival: The first evidence from Vietnam private manufacturing SMEs," Economics Bulletin, AccessEcon, vol. 33(2), pages 1259-1268.
  3. Crespo Cuaresma, Jesus & Oberhofer, Harald & Vincelette, Gallina A., 2014. "Institutional Barriers and Job Creation in Central and Eastern Europe," Working Papers in Economics and Finance 2014-1, University of Salzburg.
  4. Vu, Van Huong, 2012. "Private manufacturing SMEs survival and growth in Vietnam: The role of export participation," MPRA Paper 42489, University Library of Munich, Germany.
  5. Iwasaki, Ichiro, 2014. "Global financial crisis, corporate governance, and firm survival:," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 178-211.
  6. Valentina Hartarska & Claudio Gonzalez-Vega, 2006. "What Affects New and Established Firms’ Expansion? Evidence from Small Firms in Russia," Small Business Economics, Springer, vol. 27(2), pages 195-206, October.
  7. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  8. Iwasaki, Ichiro, 2013. "Global Financial Crisis, Corporate Governance, and Firm Survival: The Russian Experience," RRC Working Paper Series 37, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
  9. John Hutchinson, 2003. "Is there a Lower Bound to the Firm Size Distribution Comparing Transition Economies with an Established Market Economy," LICOS Discussion Papers 13503, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  10. Katja Zajc Kejžar, 2011. "The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 147(1), pages 169-193, April.

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