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Competition and enterprise performance in transition economies: evidence from a cross-country survey

  • Wendy Carlin

    (UCL, CEPR and WDI)

  • Steven Fries

    (European Bank of Reconstruction and Development)

  • Mark Schaffer

    (Heriot- Watt University, CEPR and WDI)

  • Paul Seabright

    (IDEI and CEPR)

This paper uses a survey of 3,300 firms in 25 transition countries to shed light on the factors that influence restructuring by firms and their subsequent performance as measured by growth in sales and in sales per employee over a three-year period. We begin by surveying what a decade of transition has taught us about the factors that determine how firms respond to the new market environment. We go on to analyse the impact on performance of ownership, soft budget constraints, the general business environment and a range of measures of the intensity of competition as perceived by a firm. We find that competition has an important and non-monotonic effect on the growth of sales and of labour productivity: some degree of perceived market power is associated with higher sales growth, but competitive pressure is also important. A similar non-monotonic effect is found upon firms’ decisions to develop and improve their products, but market power has an unambiguously negative impact on purely defensive (cost-reducing) restructuring activity. New firms have grown very fast, but among old firms ownership per se has no significant relationship to performance (though state-owned firms have engaged in significantly less development of new products). Soft budget constraints have a broadly negative and the business environment a broadly positive impact on restructuring and performance.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 63.

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Length: 40 pages
Date of creation: Jun 2001
Date of revision:
Handle: RePEc:ebd:wpaper:63
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  19. Wendy Carlin & Jonathan Haskel & Paul Seabright, 2001. "Understanding ‘The Essential Fact about Capitalism’: Markets, Competition and Creative Destruction," National Institute Economic Review, National Institute of Economic and Social Research, vol. 175(1), pages 67-84, January.
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  22. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
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  25. Joel Hellman & Mark Schankerman, 2000. "Intervention, corruption and capture: the nexus between enterprises and the state," Working Papers 58, European Bank for Reconstruction and Development, Office of the Chief Economist.
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