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Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey

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  • Wendy Carlin
  • Steven Fries
  • Mark Schaffer
  • Paul Seabright

Abstract

This paper uses a survey of 3,300 firms in 25 transition countries to shed light on the factors that influence restructuring by firms and their subsequent performance as measured by growth in sales and in sales per employee over a three-year period. We begin by surveying what a decade of transition has taught us about the factors that determine how firms respond to the new market environment. We go on to analyse the impact on performance of ownership, soft budget constraints, the general business environment and a range of measures of the intensity of competition as perceived by a firm. We find that competition has an important and non-monotonic effect on the growth of sales and of labour productivity: some degree of perceived market power is associated with higher sales growth, but competitive pressure is also important. Similar competition effects are found upon firms' decisions to develop and improve their products, but market power has an unambiguously negative impact on purely defensive (cost-reducing) restructuring activity. New firms have grown relatively fast, but among old firms ownership per se has no significant relationship to performance (though state-owned firms have engaged in significantly less development of new products). Soft budget constraints have a broadly negative and the business environment a broadly positive impact on restructuring and performance.

Suggested Citation

  • Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2001. "Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey," William Davidson Institute Working Papers Series 376, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2001-376
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    References listed on IDEAS

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    More about this item

    Keywords

    competition.restructuring; privatization; soft budget constraints; business environment;
    All these keywords.

    JEL classification:

    • P0 - Economic Systems - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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