Privatisation Methods and Economic Growth in Transition Economies

In low-income countries privatization, if implemented appropriately, may play an important role in generating growth. Using data recently available from Central and Eastern Europe, we therefore investigate the impact of alternative methods of privatization on economic growth. Our analysis suggests that the use of conventional privatization methods to match owners with firms can be inefficient in economies with underdeveloped capital markets, particularly if wealth is poorly correlated with managerial and entrepreneurial ability. In these circumstances mass privatization, with firms being given away or sold at a nominal price, may be the appropriate policy choice

Competition and Corporate Governance in Transition

This paper examines the elements of institutional development critical to the enhancement of company performance in transition economies. This includes initial conditions, forms of privatization, institutional frameworks and the competitiveness of markets. Comparing empirical evidence, this paper concludes that there is a clear distinction in effectiveness of policies followed and their impact between Central Europe and CIS countries. This divergence is attributed to fundamentally different political attitudes toward reform, the need of CIS governments to gain political support for reform and as a consequence of the desire of Central European countries to join European Union.privatization, corporate governance, competition, soft budget, transition economies

How transition paths differ: enterprise performance in Russia and China

We use enterprise data to analyse and contrast the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs, but not correlated with ownership or institutional factors. However, in Russia, enterprise growth is not associated with increases in factor quantity (except for labor) or quality. The main determinants of company performance are instead demand and institutional factors at a regional level. We explore possible interpretations of these results, including the impact of institutional and managerial quality

Corruption and bureaucratic structure in a developing economy

We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the noninternalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous

Regulatory barriers and entry in developing economies

We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough

Entrepreneurship in transition economies: the role of institutions and generational change

The transition economies have lower rates of entrepreneurship than are observed in most developed and developing market economies. The difference is even more marked in the countries of the former Soviet Union than those of Central and Eastern Europe. We link these differences partly with the legacy of communist planning, which needs to be replaced with formal market-supporting institutions. But many of these developments have now taken place, yet entrepreneurial activity still remains low in many places. To analyse this longer term issue, we highlight the necessarily slow pace of development of new informal institutions and the corresponding social attitudes, notably rebuilding the generalised trust. We argue that changes are even slower in the former Soviet Union than Central and Eastern Europe because communist rule was much longer, leading to a lack of institutional memory. We posit that changes in informal institutions may be therefore delayed until after full generational change

The Determinants of Foreign Direct Investment in Transition Economies

Using a panel dataset containing information on FDI flows from market to transition economies, we establish the determinants of FDI inflows to Central and Eastern Europe: country risk, unit labour costs, host market size and gravity factors. In turn, we find country risk to be influenced by private sector development, industrial development, the government balance, reserves and corruption. By introducing structural shift dummy variables for key announcements of progress in EU accession we show that announcements have impacted directly upon FDI receipts but have not influenced country credit ratings. The Agenda 2000 announcement by the European Commission induced a bifurcation between the 'first wave' transition countries and the remainder of our sample. The underlying dynamics of the process illustrate that increases in FDI improve country credit ratings with a lag, hence increasing future FDI receipts. Consequently we suggest that the accession progress has the potential to induce virtuous cycles for the frontrunners but may have serious consequences for the accession laggards.http://deepblue.lib.umich.edu/bitstream/2027.42/39726/3/wp342.pd

Why Transition Paths Differ: Russian and Chinese Enterprise Performance Compared

We use enterprise data to analyse and compare the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs including management, as well as TFP, but not greatly associated with ownership or institutional factors. In contrast, sales growth in Russia is not associated with improvements in factor quantity (except for labor) or quality; TFP is not influenced by competition and privatization to outsiders does not enhance company performance relative to insider ownership. The main determinants of TFP are instead demand and institutional factors at a regional level.http://deepblue.lib.umich.edu/bitstream/2027.42/39910/3/wp525.pd

Institutions, Networks and Entrepreneurship Development in Russia: An Exploration

In this paper we explore the ways in which institutions and networks influence entrepreneurial development in Russia. By utilizing new Global Entrepreneurship Monitor (GEM) data collected in 2001, we investigate the effects of the weak institutional environment in Russia in terms of three dimensions: on the rate of productive entrepreneurial activity measured in terms of start-ups and existing business owners; on the characteristics of business owners; and on business financing. In addition, the analysis explores the effectiveness of Russia’s informal networks for circumventing the weak institutional environment for business development. Our results indicate that Russia’s business owners share many of the same characteristics as business owners in advanced western countries, though education is not associated with entrepreneurial activity. However, the main differences are in the sources of financing and the fact that relatively few individuals engage in productive entrepreneurial activity. Our results support the notion of the limited effectiveness of Russia’s networks for supporting entrepreneurial activity in its weak institutional environment.Entrepreneurship, Institutions, Networks, Russia

Privatisation versus Competition: Changing Enterprise Behavior in Russia

We investigate whether competitive forces and privatization have yet begun to play an efficiency-enhancing role in Russia. We also explore the economic effects of harder bidget constraints on enterprise behaviour. The empirical work is based on a large enterprise panel of Russian firms 1990-1994, representing around 10% of Russian manufacturing output. We conclude that privatization is having an impact on enterprise efficiency and restructuring but domestic market structure and harder budget constraints for the most part are not. Intriguingly, Russian firms are found to be sensitive to the degree of import penetration.