Creative Destruction or Destructive Perpetuation: The Role of Large State-Owned Enterprises and Smes in Romania During Transition

Posted: 22 Nov 2004

See all articles by Rudiger Ahrend

Rudiger Ahrend

Centre for Entrepreneurship, SMEs, Regions and Cities

Joaquim Oliveira Martins

OECD; University Paris-Dauphine - PSL

Abstract

In this article we investigate the role both the old large enterprises sector and the new SME sector have played during transition in Romania. In the first part, based on micro data for the large SOE sector, we document how heavily loss-making enterprises have been able to survive for a decade, through initially direct and later increasingly indirect subsidies from the state. We show concretely how the 'survival of the unfittest' has led to the emergence of pervasive chains of arrears in the economy, with large negative consequences not only for the budget and state-owned energy suppliers but also for general economic efficiency. We thus show that the lagging privatisation of large SOEs has had negative systemic effects on the Romanian economy, well beyond the question of increased enterprise efficiency. In the second part we show that - in spite of the drain of resources from the large SOEs and a difficult business climate - a sector of SMEs has emerged that has been the main contributor to employment and export growth in recent years. However, the development of the SME sector has been severely constrained by the aforementioned negative forces, as documented by its underdevelopment in comparison with those of other Eastern European transition countries.

Keywords: Romania, Transition, Enterprise Restructuring, State-owned Enterprises, SMEs, Subsidies, Arrears, Privatisation

JEL Classification: D21, L1, O52, P2, P31

Suggested Citation

Ahrend, Rudiger and Oliveira Martins, Joaquim, Creative Destruction or Destructive Perpetuation: The Role of Large State-Owned Enterprises and Smes in Romania During Transition. Available at SSRN: https://ssrn.com/abstract=621861

Rudiger Ahrend (Contact Author)

Centre for Entrepreneurship, SMEs, Regions and Cities ( email )

2 rue Andre Pascal
Paris, 75016
France
75016 (Fax)

Joaquim Oliveira Martins

OECD ( email )

2 Rue André Pascal
75775 Paris Cedex 16
France
+33 1 45 24 88 53 (Phone)

HOME PAGE: http://www.oecd.org/cfe

University Paris-Dauphine - PSL ( email )

PARIS
France

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