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Firm Growth and Survival in a Transition Country: Micro Evidence from Slovenia

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  • Jozef Konings
  • Ana Xavier

Abstract

This paper investigates the determinants of firm survival and growth in Slovenia, a country in transition from a plan to a market economy. Firm growth (measured using employment) and firm survival (the probability of remaining in activity) are estimated using firm level data for the years 1994 to 1998. Both the OLS and the Heckman selection correction models are used to estimate a basic model of firm growth adjusted to analyse the specific context of transition. The performance of Slovenian firms that survived from 1994 until 1998 is studied using firm and industry pre-transition conditions so as to understand what type of firms best survived and performed in the transition process. Firm performance is assumed to be a function of several factors including initial firm size, ownership, firm innovation, trade orientation, capital intensity, firm financial constraints, firm costs and profitability, sunk costs or minimum efficiency scale, and market structure. Evidence suggests that, in Slovenia, during the first four years of transition, private and foreign owned firms, whose activity involved foreign trade, and potentially more capital intensive, grew the fastest. Small firms grew more than medium firms did, and also did large firms. Large firms or those with initial positive profits were more likely to remain in activity whilst firms with ill financial health, high costs, or involved in foreign trade were more likely to close down. This suggests that firms that are trading internationally are exposed to more competitive pressure and therefore are more likely to fail, however, once they survive they will also have a superior growth performance. It may also indicate that firms in Slovenia face hard budget constraints.

Suggested Citation

  • Jozef Konings & Ana Xavier, 2002. "Firm Growth and Survival in a Transition Country: Micro Evidence from Slovenia," LICOS Discussion Papers 11402, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:11402
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp114.pdf
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    Cited by:

    1. De Loecker, Jan, 2007. "Do exports generate higher productivity? Evidence from Slovenia," Journal of International Economics, Elsevier, vol. 73(1), pages 69-98, September.
    2. Maria Zuba-Ciszewska, 2017. "The Role Of Small And Medium Enterprises In The Food Industry: The Case Of Poland," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    3. Katja Zajc Kej??ar, 2006. "The Role Of Foreign Direct Investment In The Firm Selection Process In A Host Country: Evidence From Slovenia," William Davidson Institute Working Papers Series wp841, William Davidson Institute at the University of Michigan.
    4. Jesús Cuaresma & Harald Oberhofer & Gallina Vincelette, 2014. "Institutional barriers and job creation in Central and Eastern Europe," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-29, December.
    5. Iwasaki, Ichiro, 2014. "Global financial crisis, corporate governance, and firm survival:," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 178-211.
    6. Doan, Quang Hung & Vu, Hoang Nam & Dao, Ngoc Tien, 2013. "Sub-National Institutions and Firm Survival in Vietnam," MPRA Paper 63653, University Library of Munich, Germany.
    7. Vu, Van Huong, 2012. "Private manufacturing SMEs survival and growth in Vietnam: The role of export participation," MPRA Paper 42489, University Library of Munich, Germany.
    8. Neven Ivandić, 2015. "Gibrat's Law and the Impact of Ownership: A Case Study of Croatia's Hotel Industry," Tourism Economics, , vol. 21(1), pages 105-120, February.
    9. Dirk Czarnitzki & Kornelius Kraft, 2006. "R&D and Firm Performance in a Transition Economy," Kyklos, Wiley Blackwell, vol. 59(4), pages 481-496, November.
    10. Iwasaki, Ichiro, 2012. "Global Financial Crisis, Corporate Governance, and Firm Survival: The Case of Russia," RRC Working Paper Series 37, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    11. Iwasaki, Ichiro, 2013. "Global Financial Crisis, Corporate Governance, and Firm Survival: The Russian Experience," RRC Working Paper Series 37_v2, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
    12. Valentina Hartarska & Claudio Gonzalez-Vega, 2006. "What Affects New and Established Firms’ Expansion? Evidence from Small Firms in Russia," Small Business Economics, Springer, vol. 27(2), pages 195-206, October.
    13. Adina Letitia Negrusa & Iulia Maria Starcu, 2017. "Strategic Features Of The Smes’ Innovation Process: The Case Of Food Services From The Cluj-Napoca Market," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    14. Katja Zajc Kejžar, 2011. "The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(1), pages 169-193, April.
    15. John Hutchinson & Ana Xavier, 2006. "Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy," Small Business Economics, Springer, vol. 27(2), pages 169-179, October.
    16. Maryanchyk Ivan, "undated". "Market Structure and Profitability in a Transition Economy: Ukrainian Case," EERC Working Paper Series 03-06e, EERC Research Network, Russia and CIS.
    17. Manuela Lupu, 2017. "Ethical Behavior Of Romanian Students. Does Gender Matter?," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    18. John Hutchinson, 2003. "Is there a Lower Bound to the Firm Size Distribution Comparing Transition Economies with an Established Market Economy," LICOS Discussion Papers 13503, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    19. Kadri Männasoo, 2007. "Determinants of firm sustainability in Estonia," Bank of Estonia Working Papers 2007-04, Bank of Estonia, revised 08 Mar 2007.
    20. Cornelia Pop & Cristina Balint, 2017. "Romanian Rural Lodgings: How Many Survived Over A Decade? A Preliminary Study Focused On The Rural Localities Hosting 10 Or More Accommodation Units," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    21. Huong Vu & Steven Lim, 2013. "Exports and Firm survival: The first evidence from Vietnam private manufacturing SMEs," Economics Bulletin, AccessEcon, vol. 33(2), pages 1259-1268.

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    More about this item

    Keywords

    transition economies; Slovenia; manufacturing; firm growth and survival; firm ownership; firm trade orientation;
    All these keywords.

    JEL classification:

    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • P3 - Economic Systems - - Socialist Institutions and Their Transitions
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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