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Creative Destruction or Destructive Perpetuation: The Role of Large State-owned Enterprises and SMEs in Romania During Transition

  • Rudiger Ahrend
  • Joaquim Oliveira Martins

In this article we investigate the role both the old large enterprises sector and the new SME sector have played during transition in Romania. In the first part, based on micro data for the large SOE sector, we document how heavily loss-making enterprises have been able to survive for a decade, through initially direct and later increasingly indirect subsidies from the state. We show concretely how the 'survival of the unfittest' has led to the emergence of pervasive chains of arrears in the economy, with large negative consequences not only for the budget and state-owned energy suppliers but also for general economic efficiency. We thus show that the lagging privatisation of large SOEs has had negative systemic effects on the Romanian economy, well beyond the question of increased enterprise efficiency. In the second part we show that--in spite of the drain of resources from the large SOEs and a difficult business climate--a sector of SMEs has emerged that has been the main contributor to employment and export growth in recent years. However, the development of the SME sector has been severely constrained by the aforementioned negative forces, as documented by its underdevelopment in comparison with those of other Eastern European transition countries.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/1463137032000139043
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Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 15 (2003)
Issue (Month): 3 ()
Pages: 331-356

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Handle: RePEc:taf:pocoec:v:15:y:2003:i:3:p:331-356
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  1. Aleh Tsyvinski & Martin Petri & Günther Taube, 2002. "Energy Sector Quasi-Fiscal Activities in the Countries of the Former Soviet Union," IMF Working Papers 02/60, International Monetary Fund.
  2. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers.
  3. Neven, Damien J, 1994. "Trade Liberalization with Eastern Nations. How Sensitive?," CEPR Discussion Papers 1000, C.E.P.R. Discussion Papers.
  4. Djankov, Simeon, 1999. "The Enterprise Isolation Programme in Romania," CEPR Discussion Papers 2131, C.E.P.R. Discussion Papers.
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