Working Paper: CEPR ID: DP2840
Authors: Wendy Carlin; Steven Fries; Mark E. 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.
Keywords: business environment; competition; privatization; restructuring; soft budget constraints
JEL Codes: L10; L33; O12; P00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| competition (L13) | sales growth (O49) |
| competition (L13) | labor productivity (J24) |
| moderate competition (L13) | sales growth (O49) |
| low competition (L13) | sales growth (O49) |
| high competition (L13) | sales growth (O49) |
| state ownership (H13) | product development (O39) |
| privatized ownership (L33) | product development (O39) |
| soft budget constraints (H60) | performance (D29) |
| favorable business environment (F23) | restructuring (L16) |
| favorable business environment (F23) | performance (D29) |