Impact of Services LIberalization on Firm Level Productivity in Eastern Europe and Central Asia

Although there is great diversity among the transition countries in the region, as of 2009, the service sectors in transition countries were rated by EBRD about half as liberal as those of advanced industrial market economies. Many service providers in transition countries are still owned by governments, and there remain substantial restrictions and entry barriers for foreign service providers. In the on average substantially more restrictive regulations of trade in services relative to current policies. The latest crisis prompted governments to introduce new regulations in some service sectors, especially in nancial markets. In this work we use EBRD Transition Indicators to measure liberalization in seven service sectors: banking, non-bank nancial institutions, telecommunications, railways, electricity, roads, and water utilities. We merge these variables with data on 19,912 rms with 4 years on average for each rm from the Orbis database provided by Bureau van Dijk. Overall, we cover 21 country over 2000-2009. Our preferred rm xed effects model suggests that rm level productivity is positively affected by liberalization of transportation services. On the other hand, we nd that banking reform that often combines liberalization with introduction of more stringent capital requirements has a negative effect on rm level productivity on average in the short-run.