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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
Klara Sabirianova ()
Jan Svejnar ()
Katherine Terrell ()

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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 behavior. 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.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number wp734.

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Date of creation: 01 Jan 2005
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Handle: RePEc:wdi:papers:2005-734

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Related research
Keywords: efficiency; productivity; economic development; foreign direct investment; ownership; convergence; frontier; Czech Republic; 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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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.:
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  4. 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 Stephen M. Ross Business School. [Downloadable!]
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  5. 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 Stephen M. Ross Business School. [Downloadable!]
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  6. Wendy Carlin & Mark Schaffer & Paul Seabright, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," CERT Discussion Papers 0402, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
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  7. Andrew B. Bernard & Fredrik Sjoholm, 2003. "Foreign Owners and Plant Survival," NBER Working Papers 10039, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," NBER Working Papers 8724, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03. [Downloadable!] (restricted)
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  21. repec:bep:eapcon:v:3:y:2004:i:1:p:1284-1284 is not listed on IDEAS
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  23. Griffith, Rachel & Redding, Stephen J & Simpson, Helen, 2002. "Productivity Convergence and Foreign Ownership at the Establishment Level," CEPR Discussion Papers 3765, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  24. William L. Megginson & Jeffry M. Netter, 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. [Downloadable!] (restricted)
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  27. 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. [Downloadable!] (restricted)
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  28. Ericson, Richard E, 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. [Downloadable!] (restricted)
Full references

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. 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:
  2. 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!]
  3. 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:
  4. 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!]
  5. Jan Svejnar, 2006. "Strategies for growth : Central and Eastern Europe," Proceedings, Federal Reserve Bank of Kansas City, pages 205-233. [Downloadable!]
  6. 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:
  7. 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!]
  8. 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:
  9. 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!]
  10. 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)
  11. 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!]
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