Finance and Investment in Transition: Czech Enterprises, 1993-1994
We use enterprise data to study the determinants of investment in Czech industry during the period from 1993 through 1994, a period when the transition toward a market economy was rapidly gaining momentum. We investigate accelerator type models modified to include financial variables intended to reflect the possibility of credit rationing. Overall, we find that finance is an important determinant of investment for firms in a transition economy. In particular we find that de novo private firms and firms privatized early invested heavily during 1993 and that they were financially constrained in 1993 and even more so in 1994. In contrast, state owned enterprises including those that were privatized in the course of 1994 invested relatively little in 1993 and were less financially constrained in 1994 than in 1993. This evidence is consistent with a pattern that state owned enterprises were placed under financial discipline relatively early in the Czech transition and that their financial access improved with the approach of their privatization.
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