Firm Performance in the Western Balkan States: the Impact of European Union Membership and Access to Finance

This study examines the productivity performance of Balkan firms within and outside the European Union (EU). In addition to evaluating the efficacy of membership it also studies the influence of loans, since evidence suggests a correlation between the macro- economic element of EU membership and the micro influence of loans. A multi treatment model is used to compare the effect on productivity of membership and loans, both separately and collectively, which in the case of loans allows a separate analysis of their influence on firms in non-member states. The use of conditional quantile regressions, which divide a frequency distribution into equal groups each containing the same fraction of the total population, measures the effect on productivity of membership and loans separately as treatment variables. This provides an analysis of where the treatment influence is greatest and identifies the significance of selected control variables on the outcome. The analyses are conducted for firms in all states and disaggregated to provide results for the manufacturing and service sectors. Within the full sample, the findings indicate that EU membership and loans have a positive effect on productivity; membership being more important than loans. Outside the EU, firms in receipt of loans are more productive than those without. However, the significance of both membership and loans is restricted to the lower end of the productivity distribution curve. The manufacturing sample shows that membership is positive across 70% of the distribution, while loans are restricted to the bottom quantiles, with rental capital also positively significant. In the services sector however, membership is significant up to 90% of the distribution, with loans at 60%. Foreign ownership, age and size are also significant across the productivity distribution curve. Policy implications indicate the advantages of EU membership allied to improvements in financial intermediation, particularly within the manufacturing sector.