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Do Market Pressures Induce Economic Efficiency? The Case of Slovenian Manufacturing, 1994–2001

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  • Peter F. Orazem

    () (Department of Economics, 267 Heady Hall, Iowa State University, Ames, IA 50011-1070, USA)

  • Milan Vodopivec

    () (World Bank, 1818 H Street NW, Washington, DC 20433, USA)

Abstract

Using a unique longitudinal data set on all manufacturing firms in Slovenia from 1994 to 2001, this article analyzes how firm efficiency changed in response to changing competitive pressures associated with the transition to market. Results show that the period was one of atypically rapid growth of total factor productivity (TFP). 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 direct impact on firm efficiency. However, increased market competition related to rising market share of private firms, new market entrants, foreign-owned firms, and international trade raises TFP across all firms in an industry, whether private or state owned. In addition, 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. Results strongly confirm that market competition fosters efficiency.

Suggested Citation

  • Peter F. Orazem & Milan Vodopivec, 2009. "Do Market Pressures Induce Economic Efficiency? The Case of Slovenian Manufacturing, 1994–2001," Southern Economic Journal, Southern Economic Association, vol. 76(2), pages 553-576, October.
  • Handle: RePEc:sej:ancoec:v:76:2:y:2009:p:553-576
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    File URL: http://dx.doi.org/10.4284/sej.2009.76.2.553
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    References listed on IDEAS

    as
    1. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter.
    2. Milan Vodopivec & Peter F. Orazem, 2000. "Male-female differences in labor market outcomes during the early transition to market: The cases of Estonia and Slovenia," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(2), pages 283-303.
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    Citations

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    Cited by:

    1. 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.
    2. repec:eee:jcecon:v:46:y:2018:i:1:p:381-412 is not listed on IDEAS
    3. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2012. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Economic Development and Cultural Change, University of Chicago Press, vol. 61(1), pages 39-72.
    4. 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.
    5. Tyrowicz, Joanna & van der Velde, Lucas, 2018. "Labor reallocation and demographics," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 381-412.

    More about this item

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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