Restructuring in Transition Economies: Ownership, Competition and Regulation

World Bank ABCDE Conference Paper

Posted: 12 Jun 1999

See all articles by Simon John Commander

Simon John Commander

London Business School; IZA Institute of Labor Economics

Mark Dutz

European Bank for Reconstruction and Development (EBRD)

Nicholas Stern

Stern Review on the Economics of Climate Change

Date Written: April 1999

Abstract

Transition requires the reallocation of resources across activities through closure of inefficient firms and the creation of new firms. It also requires restructuring of existing firms where improvements in performance are feasible. Both processes are closely tied together and are aimed at raising productivity. This paper examines experience to date in the transition economies on both counts and indeed shows that failures to restructure have generally been associated with failures to reallocate. For restructuring to occur requires imposition of hard budget constraints and increases in competition. These in turn will ensure that changes in ownership have the desired positive effect on governance. We find that progress in restructuring has varied substantially across countries. We identify a profound divide between the countries of Central Europe and those further east, particularly in the CIS. In the former, incentives for private agents to start businesses, restructure and invest have been largely set in place. This has promoted growth and has had the added advantage of facilitating dynamic adjustment to earlier inadequacies in policy. In the latter, soft budget constraints have been associated with privatisations that have strongly favoured incumbents. The web of non-transparent links connecting government, firms and banks has consequently not been broken. The failure to provide appropriate incentives and an environment for restructuring has passed through into low productivity growth and negligible structural change. Despite these differences across the region, there remain substantial and common regulatory and institutional weaknesses.

JEL Classification: D21, G32, H2, L33, P52

Suggested Citation

Commander, Simon John and Dutz, Mark and Stern, Nicholas, Restructuring in Transition Economies: Ownership, Competition and Regulation (April 1999). World Bank ABCDE Conference Paper. Available at SSRN: https://ssrn.com/abstract=167908

Simon John Commander (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Mark Dutz

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom
+44 171 338 6000 (Phone)
+44 171 338 6100 (Fax)

Nicholas Stern

Stern Review on the Economics of Climate Change

HM Treasury
1 Horse Guards Road
London SW1A 2HQ
United Kingdom

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