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Do market pressures induce economic efficiency ? The case of Slovenian manufacturing, 1994-2001

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Author Info
Orazem, Peter F.
Vodopivec, Milan

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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, the authors analyze 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, and 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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3189.

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Date of creation: 01 Jan 2004
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Handle: RePEc:wbk:wbrwps:3189

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Keywords: Economic Theory&Research Labor Policies Microfinance Environmental Economics&Policies Small and Medium Size Enterprises Environmental Economics&Policies Economic Theory&Research Microfinance Private Participation in Infrastructure Small Scale Enterprise

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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)
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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. 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)
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  14. 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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  15. 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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  16. D Blanchflower & S Machin, 1996. "Product Market Competition Wages and Productivity: International Evidence from Establishment-Level Data," CEP Discussion Papers 0286, Centre for Economic Performance, LSE.
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