Do Market Pressures Induce Economic Efficiency: The Case of Slovenian Manufacturing, 1994-2001

39 Pages Posted: 18 Nov 2003

See all articles by Peter F. Orazem

Peter F. Orazem

Iowa State University and IZA; IZA Institute of Labor Economics

Milan Vodopivec

World Bank - Human Development Network; IZA Institute of Labor Economics

Date Written: October 2003

Abstract

The Slovenian transition represents a slow but steady liberalization of constraints on competition. Using a unique longitudinal data set on all manufacturing firms in Slovenia over the period 1994-2001, this study analyzes how firm efficiency changed in response to changing competitive pressures, holding constant firm attributes. Results show that the period was one of atypically rapid growth of total factor productivity (TFP) relative to levels in OECD countries, and that the rise in firm efficiency occurs across almost all industries and firm types: large or small; state or private; domestic or foreign-owned. Changes in firm ownership type have no impact on firm efficiency. Rather, competitive pressures that sort out inefficient firms of all types and retain the most efficient, coupled with the entry of new private firms that are at least as efficient as surviving firms, prove to be the major source of TFP gains. Market competition from new entrants, foreign-owned firms, and international trade also raise firm efficiency in the industry. Results strongly confirm that market competition fosters efficiency.

Keywords: efficiency, competition, growth, total factor productivity, Slovenia

JEL Classification: L1, P27

Suggested Citation

Orazem, Peter Francis and Vodopivec, Milan, Do Market Pressures Induce Economic Efficiency: The Case of Slovenian Manufacturing, 1994-2001 (October 2003). IZA Discussion Paper No. 901; World Bank Policy Research Working Paper No. 3189, Available at SSRN: https://ssrn.com/abstract=460580

Peter Francis Orazem

Iowa State University and IZA ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-8656/515-294-7740 (Phone)
515-294-0221 (Fax)

IZA Institute of Labor Economics

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

Milan Vodopivec (Contact Author)

World Bank - Human Development Network ( email )

1818 H Street, NW
Washington, DC 20433
United States

IZA Institute of Labor Economics

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

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