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Investment and Credit Constraints in Transition Economies: Micro Evidence from Poland, the Czech Republic, Bulgaria and Romania

  • Jozef Konings
  • Marian Rizov
  • Hylke Vandenbussche

In this paper we investigate to what extent firm investment in transition countries is sensitive to internal finance. We use accounts data of over 4000 companies in four countries at different stages of transition. We find that firms in Bulgaria and Romania are less sensitive to internal financing constraints, in contrast to firms in Poland and the Czech Republic. A likely explanation is that Bulgaria and Romania, which are the least advanced in the reforms towards market economy, have a stronger persistence of soft budget constraints than in the other two more advanced countries.

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File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp112.pdf
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Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 11202.

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Length: 13 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:lic:licosd:11202
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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  3. Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
  4. Aghion, Philippe & Blanchard, Olivier & Burgess, Robin, 1994. "The behaviour of state firms in eastern Europe, pre-privatisation," European Economic Review, Elsevier, vol. 38(6), pages 1327-1349, June.
  5. Kornai, Janos, 2001. "Hardening the budget constraint: The experience of the post-socialist countries," European Economic Review, Elsevier, vol. 45(9), pages 1573-1599, October.
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