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

Author

Listed:
  • Orazem, Peter F.

    (Iowa State University)

  • Vodopivec, Milan

    (University of Primorska)

Abstract

The Slovenian transition represents a slow but steady liberalization of constraints on competition. Using a unique longitudinal data set on all manufacturing firms in Slovenia over the period 1994-2001, this study analyzes how firm efficiency changed in response to changing competitive pressures, holding constant firm attributes. Results show that the period was one of atypically rapid growth of total factor productivity (TFP) relative to levels in OECD countries, and that 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 impact on firm efficiency. Rather, 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. Market competition from new entrants, foreign-owned firms, and international trade also raise firm efficiency in the industry. Results strongly confirm that market competition fosters efficiency.

Suggested Citation

  • Orazem, Peter F. & Vodopivec, Milan, 2003. "Do Market Pressures Induce Economic Efficiency: The Case of Slovenian Manufacturing, 1994-2001," IZA Discussion Papers 901, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp901
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    References listed on IDEAS

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    Cited by:

    1. Ichiro IWASAKI & Satoshi MIZOBATA, 2018. "Post-Privatization Ownership And Firm Performance: A Large Meta-Analysis Of The Transition Literature," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 89(2), pages 263-322, June.
    2. Saso Polanec, 2004. "On the Evolution of Size and Productivity in Transition: Evidence from Slovenian Manufacturing Firms," LICOS Discussion Papers 15404, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 699-728, September.
    4. Paul Wabiga & Neil Rankin, 2023. "Foreign acquisition and firm performance in sub‐Saharan Africa: Empirical evidence from Ghana," South African Journal of Economics, Economic Society of South Africa, vol. 91(2), pages 242-269, June.
    5. Philipp Steinbrunner, 2023. "I want a quiet life! On productivity and competition in the Central European energy sector," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 403-428, April.
    6. Sergio Salis, 2008. "Foreign Acquisition and Firm Productivity: Evidence from Slovenia," The World Economy, Wiley Blackwell, vol. 31(8), pages 1030-1048, August.
    7. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2012. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Economic Development and Cultural Change, University of Chicago Press, vol. 61(1), pages 39-72.

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    More about this item

    Keywords

    growth; efficiency; competition; total factor productivity; Slovenia;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects

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