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Competition and enterprise performance in transition economies: evidence from a cross-country survey
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. A similar non-monotonic effect is 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 very 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.
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