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

  • Orazem, Peter
  • Vodopivec, Milan

Using a unique longitudinal data set on all manufacturing firms in Slovenia from 1994-2001, this study 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 raise 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.

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File URL: http://www2.econ.iastate.edu/papers/paper_10727_03025.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 10727.

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Date of creation: 26 Sep 2003
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Publication status: Published in Southern Economic Journal, October 2009, vol. 76 no. 2, pp. 553-576
Handle: RePEc:isu:genres:10727
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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  20. repec:adr:anecst:y:1996:i:41-42 is not listed on IDEAS
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