the effects of foreign direct investment on domestic firms

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The Effects of Direct Foreign Investment on DomesticFirms: Evidence from Firm Level Panel Data in

Emerging Economies

By: Jozef Konings

Working Paper Number 344

October 2000


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William Davidson Institute Working Paper 344

The Effects of Direct Foreign Investment on Domestic Firms: Evidence from

Firm Level Panel Data in Emerging Economies

By Jozef Konings

LICOS, Centre for Transition Economics

Economics DepartmentCatholic University of Leuven

De Beriotstraat 34

3000 Leuven

Belgium

Other affiliations: CEPR, London; Dartmouth College, USA

Email: [email protected]

August 2000

Acknowledgements: This paper is part of a project on DFI in Central and Eastern

Europe, funded by the Thyssen foundation. I appreciate comments from FilipAbraham, Lode Berlage, Hans Degryse, Nina Pavnic, Koen Schoors, Hylke

Vandenbussche and Reinhilde Veugelers. This paper benefited from seminars at the

KULeuven, the University of Gent, the University of Antwerp (Ufsia) and the IMF. I

thank Giulia Faggio and Frederic Warzynski for assistance.


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Non-Technical Summary

The collapse of communism in Central and Eastern Europe and the emergence

of a market economy has led to a large inflow of direct foreign investment (DFI) in

the region during the last decade and in particular since the mid 90s. Given the

enormous increase in foreign investment, these countries provide an ideal natural

experiment for measuring the impact of incoming foreign investment on performance.

In particular, this paper uses firm level panel data to investigate empirically the effects

of DFI on the productivity performance of domestic firms in three emerging

economies of Central and Eastern Europe: Bulgaria, Romania and Poland.

To this end a unique data set is used with detailed information on foreign

ownership at the firm level. Two main questions are addressed in the present paper:

(1) do foreign firms perform better than their domestic counterparts? (2) do foreign

firms generate spillovers to domestic firms?

There are various reasons why many policy makers believe DFI is beneficial

to their country. A first reason is the need for strategic restructuring in firms in the

emerging countries. Most firms in the emerging economies of the former Soviet block

were characterised by obsolete machinery and outdated production methods. To

compete in a market environment, firms had to improve their efficiency by engaging

in strategic restructuring, i.e. updating the equipment and production process. Foreign

firms have the technological know-how and finance necessary to update the

equipment and bring about such strategic restructuring. Foreign participation in

domestic firms has the additional benefit that it can impose an efficient corporate

governance in privatized firms, often privatized to insider workers/managers, who

might block restructuring. A second important reason why foreign investors are

invited to emerging countries rests on the believe that they generate positive


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externalities to the domestic firms through a transfer of know-how and technology.

Such spillovers can occur through various channels: the introduction of new products

and production processes by foreign firms may benefit domestic firms through the

accelerated diffusion of new technology. This could occur through labour turnover or

through imitation or other channels. One other channel works through the

equilibrating mechanism in the market when liberalization, here the opening up of

Central and Eastern Europe to the rest of the world, is implemented.

The positive externalities generated by foreign investors, however, may vanish

if the increased competition from foreign firms leads to a reduction in the production

of the domestic firm, which may lead to an increase in the average costs of

production. In this case a negative competition effect may dominate a positive

technological spillover effect. In this paper, the net effect is studied.

Only in Poland, I find that foreign firms perform better than firms without

foreign participation. In Bulgaria and Romania, no robust evidence is found of a

positive foreign ownership effect. This may be due to the fact that it takes time for

firms to restructure and that the effects of restructuring on productivity performance

only appear after a few years. Since Bulgaria and Romania are less advanced in the

transition process compared to Poland this may be a plausible explanation.

Moreover, for all three countries studied here, I find no evidence of positive

spillovers to domestic firms on average. In contrast, on average there are negative

spillovers to domestic firms in Bulgaria and Romania, while there are no spillovers to

domestic firms in Poland. This suggests a negative competition effect that dominates

a positive technology effect.


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Abstract

This paper uses firm level panel data to investigate empirically the effects of

direct foreign investment (DFI) on the productivity performance of domestic firms in

three emerging economies of Central and Eastern Europe, Bulgaria, Romania and

Poland. To this end a unique firm level panel data set is used with detailed

information on foreign ownership at the firm level. Two main questions are addressed

in the present paper: (1) do foreign firms perform better than their domestic

counterparts? (2) do foreign firms generate spillovers to domestic firms?

The estimation technique in this paper takes potential endogeneity of

ownership, spillovers and other factors into account by estimating a fixed effects

model using instrumental variables in the general methods of moment technique for

panel data.

Only in Poland, I find that foreign firms perform better than firms without

foreign participation. Moreover, for all three countries studied here, I find no evidence

of positive spillovers to domestic firms on average. In contrast, on average there are

negative spillovers to domestic firms in Bulgaria and Romania, while there are no

spillovers to domestic firms in Poland. This suggests a negative competition effect

that dominates a positive technology effect

JEL classification: D24, F14, O52, P31

Keywords: Foreign Investment, Spillovers, Emerging countries, Panel data


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I. Introduction

This paper uses firm level panel data to investigate empirically the effects of

direct foreign investment (DFI) on the productivity performance of domestic firms in

three emerging economies of Central and Eastern Europe, Bulgaria, Romania and

Poland. The collapse of communism in Central and Eastern Europe and the

emergence of a market economy has led to a large inflow of DFI in the region during

the last decade and in particular since the mid 90s. Figure 1 shows the evolution of

DFI since 1991 for the three countries that I study in this paper, where the level of

DFI is normalized to 1 in 1991. By 1998 there was almost 10 fold increase in DFI in

Bulgaria compared to 1991, for Romania and Poland there was even a 50 and 60 fold

increase in DFI by 1998.

Figure 1 (source: authors calculations based on EBRD (2000))

evolution of direct foreign investment in B, R and Pyear

DFI Bulgaria DFI PolandDFI Romania

1990 1992 1994 1996 1998

0

10

20

30

40

50

60


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Policy makers in the emerging economies were faced with a collapsing state

sector and a slowly growing private sector. With financial markets and commercial

banking virtually absent, they encouraged foreign investors to take part in the

privatization process or to invest in their countries. Given the enormous increase in

foreign investment in these countries as illustrated in figure 1, these countries provide

an ideal natural experiment for measuring the impact of incoming foreign investment

on performance.

There are various reasons why many policy makers believe DFI is beneficial

to their country. A first reason is the need for strategic restructuring in firms in the

emerging countries1. Most firms in the emerging economies of the former Soviet

block were characterised by obsolete machinery and outdated production methods. To

compete in a market environment, firms had to improve their efficiency by engaging

in strategic restructuring, i.e. updating the equipment and production process (e.g.

Irina Grossfeld and Grard Roland, 1996). Foreign firms have the technological

know-how and finance necessary to update the equipment and bring about such

strategic restructuring. Foreign participation in domestic firms has the additional

benefit that it can impose an efficient corporate governance in privatized firms, often

privatized to insider workers/managers, who might block restructuring (Olivier

Blanchard, 1997, pp.77-88).

Klaus Wallner (1998) shows theoretically that especially in the emerging

countries, characterized by soft budget constraints, foreign investment is welcomed to

achieve such strategic restructuring as the presence of foreign investors gives

governments incentives to reduce subsidies to firms because otherwise a part of the

1 Strategic restructuring refers to improving the long run viability and efficiency of a firm.


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subsidy may disappear in foreign pockets. Hence, the hardening of budget

constraints increases effort by managers to restructure more.

A second important reason why foreign investors are invited to emerging

countries rests on the believe that they generate positive externalities to the domestic

firms through a transfer of know-how and technology. Such spillovers can occur

through various channels. David J. Teece (1977) argues that the introduction of new

products and production processes by foreign firms may benefit domestic firms

through the accelerated diffusion of new technology. This could occur through labour

turnover or through imitation or other channels. One other channel works through the

equilibrating mechanism in the market when liberalization, here the opening up of

Central and Eastern Europe to the rest of the world, is implemented.

A number of recent theoretical papers show that the degree to which domestic

firms may benefit from such spillovers depends on the absorptive capacity of

domestic firms. Franseca Sanna-Randacio (1999) and D. Leahy and Peter Neary

(1999) show that DFI always leads to an increase in the productivity of the investing

firm, however, DFI increases the host countrys productivity only if the degree of the

technological spillover is high enough. The latter is more likely achieved in sectors

characterized by intensive R&D or by firms which have a sufficient amount of

knowledge to start with.

This has been suggested in earlier empirical work. Ari Kokko (1994) and

Borensztein, De Gregorio and Lee (1998) give evidence which suggests that positive

DFI spillovers to local firms are only generated if the technology gap between the

foreign firm and the domestic one is not too large and if there exists a minimum

threshold of human capital in the host country.


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The technological spillovers thus lead to positive effects on domestic firms,

however, there may exist a competition effect which works in the opposite direction.

Foreign entry disturbs the existing market equilibrium and could force domestic firms

to produce less output which pushes them up their average cost curves, at least if

average cost curves are downward sloping, which would be the case if production

involves a substantial fixed cost. This argument has been developed by Brian J.

Aitken and Ann E. Harrison (1999). Which effect dominates depends on the stength

of the technological spillover effect (and the absorptive capacity of firms) versus the

competition effect.

In this paper I analyse a number of questions: First, I test whether foreign

owned subsidiaries in transition economies perform better than their domestically

owned counterparts. Second, I test whether there exist spillovers to domestic firms. I

will look at the net spillover effect, i.e. the sum of the technological spillover and

the competition effect. In addition, I will make a distinction between sectoral and

regional spillovers. I also test whether foreign firms benefit from the presence of other

foreign firms in their sector or region.

I use a unique panel data set of over 5000 firms in Bulgaria, Romania and

Poland for the years 1993-972. Together these countries cover more than 70 million

people and hence these economies are an important part of the Central and Eastern

European Economies. Bulgaria and Romania are lagging behind Poland in the

transition towards a market economy. While all three countries have experienced a

substantial collapse in output at the start of transition, only Poland has reached GDP

levels comparable to the pre-transition years and has positive growth rates. Both

Bulgaria and Romania experienced a short period of positive growth in the mid 90s,

2 except for Romania data run from 1994 onwards.


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however, output has collapsed again in Bulgaria since 1995 and in Romania since

1997.

Because I use panel data I am able to track the same firm over time and hence

I am able to control for unobserved firm level fixed effects, like for example the

quality of the firm. Hence, as in Aitken and Harrison (1999) I am able to control for

the potential endogeneity of foreign ownership and spillovers . Moreover, I will use

the general methods of moments technique to estimate panel data as introduced by

Arellano and Bond (1991) which allows me to construct instruments for potentially

endogenous explanatory variables. This may be important if productivity shocks

affect the levels of the input variables in a production function or if they affect

spillovers. In that case fixed effects alone cannot properly control for the endogeneity.

Furthermore, this technique allows me to estimate dynamic equations in a consistent

way.

The next section describes the data and econometric approach, section III

gives the results and section IV is a concluding one.

II. Data and Econometric Approach

Data

The data set that is used provides information on 2321 firms in Bulgaria

between 1993-97, 3844 firms in Romania between 1994-87 and 262 firms in Poland

over the period 1993-1997. Due to a lot of missing observations on some of the input

factors needed in the estimation, the total available number of firms for the estimation

in Poland is much lower than in Bulgaria and Romania. The data are unbalanced

panel data, however, attrition is likely to be random due to imperfect reporting, rather


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than exit of firms. The data consists of the company accounts of all incorporated

firms in both the manufacturing and the non-manufacturing sectors satisfying at least

one of the following criteria: number of employees greater than 100, total assets and

operating revenues exceeding 16 million and 8 million USD, respectively. They are

retrieved from annual company accounts published by the Creditreform Bulgaria

OOD and by the Romanian Chamber of Commerce and Industry3.

Foreign firms are defined as firms where a positive fraction of the shares is

owned by a foreign investor in 1997. In the sample, around 10% of the firms have a

foreign investor in 1997. For those firms with a foreign partner, the average fraction

of shares held by foreign investors is 61%, 59% and 73% for Bulgaria, Romania and

Poland respectively. Thus if a domestic firm has a foreign investor, on average, the

foreign investor has a majority stake.

Econometric Approach and Measurement Issues

I follow Brian Aitken and Ann Harrison (1999) and estimate a log-linear

production function at the firm level to test whether (1) foreign firms perform better

than domestic ones, (2) there exist spillovers from DFI to local production. In

particular, the following specification is the starting point of my analysis:

itjtiiititititiit SpillXTDFIDFImkny ++++++++= 7654321 (1)

3 Data are available on the Amadeus CD-ROM (Dec. 1998), a Pan European financial database,

provided by Bureau van Dijk Electronic Publishing SA.


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where subscript i stands for firm i, subscript t for year t, y is log output, n is the log

employment, k is the log of capital and m is the log of material inputs. Output is

measured as sales at the firm level deflated by an aggregate price index. Sector level

price indices were not available on a consistent basis for the countries studied here, so

an aggregate producer price index was used for Romania and Poland, an aggregate

consumer price index for Bulgaria as there was no reliable producer price index

available for Bulgaria. These price indices were taken from the EBRD annual

transition report (EBRD, 2000). The capital stock is proxied by the book value of

tangible fixed assets in the firm, deflated by an aggregate price index. Finally,

material inputs are proxied by material costs have also been deflated by an aggregate

price index.

To capture possible common aggregate shocks in production, like

technological progress or some other unobserved time varying factors I include time

effects, . The fraction of shares held by a foreign investor is denoted byDFI. It can

be noted that this variable has no time subscript, t, which is due to the fact that we

only observe ownership in the year 1997. I also interact foreign ownership with the

time trend to capture the fact that the effect of foreign ownership might affect both the

level and the growth in productivity. This might be the case if it takes some time for

foreign know-how to spillover to the local firm. Finally, Spill measures the sector

level spillovers that arise from foreign investors. I proxy it by the share of output

accounted for by foreign firms in total output at the 2-digit NACE sector level 4. I will

also report results in which both sectoral and regional spillovers are taken into

account. The latter are measured as the fraction of output produced by foreign firms in

total output of a particular region. Finally, , is a white noise error term.

4 NACE is the standard European sector classification, which is comparable to the SIC classification.


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Table 1 provides summary statistics on the variables that were used in the

regression analysis. It can be noted that on average real sales are collapsing in

Bulgaria which is consistent with the macro economic decline in GDP since 1995. In

contrast, average real sales in Romania are growing rapidly, which is consistent with

the fast growth rates in GDP noted since the mid 90s (until 1997, after which output

collapsed again). In Poland average real sales are growing at a more modest rate, but

the initial catch up took place earlier since transition started earlier in Poland. In

absolute terms, the average growth in employment is always lower than the average

growth in sales, which confirms the observed aggregate stylized fact that the

adjustment in employment is much slower than the adjustment in output. From the

summary statistics it can also be noted that the average spillover effect is around 10%,

however this may vary substantially between sectors.

In equation (1), there is an unobservable fixed effect, i , which captures firm

specific heterogeneity. Such an unobservable fixed effect is potentially correlated

with the other explanatory variables. If it is not controlled for in the estimation, then

inconsistent estimates due to an omitted variable bias result. One way of controlling

for these fixed effects is by first differencing equation (1). At the same time, it is a

way to control for potential endogeneity of foreign ownership, i.e. foreign investors

might only acquire shares in the better firms. If I categorise firms in good versus

bad firms then the unobserved fixed effect captures this and hence it is possible to

avoid an endogeneity bias. First differencing equation (1) yields

itjtititititit spillDFImkny ++++++= 764321 (2)


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The above modelling strategy allows me to test whether foreign firms perform

better and whether spillovers are present. However, equation (2) does not allow me to

test whether foreign firms benefit in a different way from spillovers than domestic

firms. It may be possible that foreign firms benefit from other foreign firms in their

sector, while domestic firms do not as in Aitken and Harrison (1999). For this reason I

will include an interaction term in equation (2), where I interact foreign ownership

with spillovers.

There is, however, a further econometric concern. An estimation by OLS of

equation (2) may still lead to inconsistent estimates. This would be the case if

productivity shocks have an effect on the input factors employed in the firm.

Alternatively, productivity shocks may have an effect on spillovers, which would lead

to an endogeneity of the spillovers. Furthermore, equation (2) is a static equation,

allowing for some dynamic adjustment in output (in case of the presence of

adjustment costs) would imply that equation (2) needs to be estimated with a lagged

dependent variable which leads to further endogeneity problems.

To avoid inconsistent estimates I therefore estimate equation (2) using the

General Methods of Moments technique (GMM) with Instrumental Variables as

developed by Arellano and Bond (1991) for estimating dynamic panel data. The

advantage of this method over other commonly used panel data estimation techniques

lies in its efficient use of the number of instruments generated for the endogenous

explanatory variables. For instance, in equation (2), valid instruments for the

differenced employment in the year 97 is the level of employment in the year 95 since

this is not correlated with the differenced error term in 1997. Table 2 shows in a


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systematic way how the number of instruments increases as the panel progresses. In

1995 a valid instrument for a first differenced endogenous explanatory variable is its

level in 1993, in 1996 valid instruments for the same variable includes its level in

1993 and its level in 1994 and so on. So as the panel progresses an increasing number

of instruments becomes available which increases the efficiency of the estimation. In

order to test the validity of instruments a Sargan test of instrument validity is

computed and is asymptotically 2 distributed. In addition, since the equation is

estimated in first differenced form, the equation will show first-order serial

correlation. However, what matters is the absence of second order serial correlation if

the error term in the levels equation (1) is white noise. Therefore a test of second

order serial correlation is reported and is asymptotically N(0,1) distributed.

III. Results

Tables 3, 4 and 5 show the results for Bulgaria, Romania and Poland

respectively. I show both OLS estimates and GMM IV estimates for equation (2).

Since the equation is estimated in first-differences I also control for unobserved fixed

effects.

Starting with Bulgaria, the OLS estimates in column (1) of table 3 show no

statistically significant effect of foreign ownership on performance. This may come

across as a surprising result, however, in the context of transition economies it has

been shown that privatised firms do not perform better than state owned enterprises,

because it may take time before restructuring feeds through on firm performance (e.g.

Konings, 1997; Faggio and Konings, 1999). There is however a statistically

significant negative spillover effect of foreign firms on domestic ones, which suggests


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that a competition effect is dominating a technological spillover effect. The

interaction term, foreign X spillover, suggests that foreign firms benefit from the

presence of other foreign firms in the sector. However, this equation does not take

into account the potential endogeneity of spillovers and of the other input factors.

In the second column I therefore instrument all the input factors as well as the

spillover effect using the moment restrictions suggested by the GMM technique

(Arellano and Bond, 1991). A number of interesting results emerge. First, there still

exist negative spillovers from DFI to domestic firms. The coefficient that is estimated

with spillovers is equal to 0.67. Thus, a sector that has an increase in spillovers from

0 to 10% would experience a decline in total factor productivity of 6.7% on average.

This suggests that the competition effect is dominating, which means that domestic

firms, due to the increased competition from foreign firms in their sector, are pushed

up their average cost curves due to a reduction in output they can produce. This would

hold in case domestic firms have a declining average cost curve, i.e. in the presence of

increasing returns to scale. Based on the estimates of the coefficients of the input

factors, this hypothesis seems to be plausible. The sum of the coefficients of the input

factors is larger than 1 which suggests increasing returns to scale in production or a

declining average cost curve. Note, also that the coefficient on capital is low and

statistically not significant at conventional levels. In the context of transition

economies this is not surprising as most firms are characterised by outdated

equipment and a lack of investment in new equipment, which decreases the marginal

productivity of capital.

A second result, which is the same as in the OLS estimation, is that foreign

firms do not outperform domestic ones. Finally, the interaction effect between foreign

ownership and spillovers is no longer statistically significant, albeit still positive.


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These IV results suggest that endogeneity may have been important in driving some

of the results in the OLS regression. The Sargan test and the second order serial

correlation test in collumn (2) all indicate that the model is correctly specified. The

fact that there is no second order serial correlation suggests that there is no further

dynamics to be specified in the model.

The third column tests whether regional spillovers may matter. As argued by

Aitken and Harrison (1999) there may be reasons to expect that any benefits to

domestic firms from foreign ivestment would be received first by their neighbors

before they diffuse to other domestic firms. One mechanism through which this may

occur is through job mobility. Workers who worked with a multinational that leave

the firm to work in a domestic one are more likely to move to another firm within the

same region. Job reallocation in transition countries (and elsewhere) occurs primarily

within regions rather than across regions (e.g. Faggio and Konings, 1999). I measure

regional spillovers as the fraction of output produced by foreign firms in a given

region in the total output produced by a given region. The results in column (3),

however, show no statistically significant effect of regional spillovers to domestic

firms in Bulgaria. Since Bulgaria is a small open economy regional effects are

presumably less important in terms of competition, rather the entire Bulgarian market

is more likely to be the appropriate market to consider.

The results for Romania are reported in table 4 and are very similar to the

results for Bulgaria, except that there is some hidden dynamics which needs to be

taken into account. In column (1) the OLS results suggest that foreign firms

outperform domestic ones, that domestic firms experience positive spillovers and that

foreign firms do not benefit from other foreign firms in their sector that much as

domestic ones. However, the second order serial correlation test suggests that the


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model is not correctly specified in terms of the dynamics. In addition, there may also

be an endogeneity problem related to some of the explanatory variables.

In column (2) of table 4 I therefore report the results using instruments for the

input factors and for the spillovers. The results of column (2) show no statistically

significant effects of spillovers and foreign ownership. However, again the

diagnostics suggest that the model is misspecified, i.e. the Sargan test of instrument

validity and the second order serial correlation test reject the model specification.

Column (3) therefore estimates a dynamic model, including the lagged dependent

variable as one of the regressors. Since the model is estimated in first differences, the

lagged dependent variable is also endogenous and therefore needs to be instrumented

too, using all available moment restrictions from t-2 backwards. In column (3) the

Sargan test accepts the model specification, the second order serial correlation test

could no longer be computed since one time observation is lost due to the lagged

dependent variable and the fact that the data for Romania only go from 1994 onwards,

rather than 1993. However, since the lagged dependent variable is statistically

significant, it is likely that this controls for the initial problem of second order serial

correlation. The results indicate that spillovers from foreign firms to domestic ones

are negative. The results in column (3) suggest that once properly controlled for the

dynamics in the model, again the same negative spillover effects show up. The

interaction effect between foreign firms and spillovers is no longer statistically

significant, just like foreign ownership in itself is no longer statistically significant.

This is consistent with the empirical literature that has shown that privatisation did not

lead to better firm performance and that it may take some time before firms start to

engage in restructuring.


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Finally, in column (4) I test for the presence of regional spillovers. As in

Bulgaria, I find no statistically significant effect of regional spillovers on domestic

firms.

Table 5 shows the results for Poland. Since I lost a lot of observations in the

estimation due to missing data on material costs, the Polish sample is much smaller

than the one used for Bulgaria and Romania, so the results for Poland need to be read

with caution. The first column gives the OLS results. I find a statistically significant

effect of foreign ownership on firm productivity performance. This contrasts with

Bulgaria and Romania where I found no effect of foreign ownership. In the case of

Poland, however, it may make sense that foreign firms outperform domestic ones

since Poland is in a more advanced stage of development towards a market economy.

If it takes time for firms to restructure then one may expect that in less developed

countries, such as Bulgaria and Romania, foreign firms do not outperform domestic

ones, while in the more advanced ones, such as Poland, the restructuring effects have

come through which is reflected in the positive effect of foreign ownership. In column

(1) I find no statistically significant effect of spillovers.

In column (2) I report the GMM IV estimates. The same results hold as in the

OLS case, i.e. foreign firms outperform domestic ones or to put it differently, a firm

that would change its ownership structure from 0% foreign participation to 100%

foreign participation, total factor productivity would increase by approximately 20%.

This result confirms the hypothesis that foreign firms or joint ventures have some

superior knowledge and/or technology which allows them to be more efficient than

their domestic counterparts. It is also consistent with the idea that foreign firms induce

restructuring at the firm level which leads to higher productivity (Wallner, 1998).


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Again I find no statistically significant effect of spillovers. This may be due to

the fact that the technological positive externality and the negative competition

effect cancel eachother out, or, it may be due to the fact that there are no increasing

returns to scale which would imply that there is no declining average cost curve. The

latter makes sense, based on the estimates of the coefficients of the input factors.

Rather decreasing returns to scale seem to hold on average, with the only statistically

significant input factor being material costs. This is plausible as most firms in

transition countries are still characterised by over-manning levels and an outdated

capital stock. Moreover, since transition has started earlier in Poland than in Romania

and Bulgaria, the initial increase in competitive pressure at the start of transition was

experienced at an earlier stage, such that the competition effect in the case of Poland

is likely to be much lower than in the case of Bulgaria and Romania.

Finally, in column (3) I also test for the presence of regional spillovers.

However, the only significant effect I find is the material costs of production. Also

foreign ownership is no longer statistically significant at conventional levels. This is

most likely due to multicollinearity of the data, given that only 262 observations are

used in the estimation. For this reason I estimated the equation again, but leaving out

the interaction terms between foreign ownership and spillovers. In column (4) the

results are reported and show that as before foreign firms do better than domestic

ones. In addition, I find evidence of negative regional spillovers, albeit only

significant at the 10% level, but still no evidence of spillovers at the sectoral level.


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IV. Conclusion

This paper studied the effects of direct foreign investment on the performance

of firms in three emerging market economies, Bulgaria, Romania and Poland. Two

main questions were addressed. First, do foreign firms perform better than their

domestic competitors and second, does foreign investment generate spillovers to

local firms?

I find evidence that foreign firms do not perform better than domestic ones,

except in Poland, the more advanced transition economy. This suggests that it may

take time for ownership effects to have an effect on performance, due to lags in

restructuring. In addition, I find no evidence of positive spillovers, but rather negative

or no spillovers of foreign investment to domestic firms. This is rationalised through a

competition effect that dominates a technological spillover effect in Bulgaria and

Romania, which would hold under the assumption of increasing returns to scale

(declining average cost curves). The competition effect may dominate the technology

effect if the technology gap is too large, which would be the case in less advanced

countries such as Bulgaria and Romania.

The results in this paper suggest that in the early stages of transition, the stages

Bulgaria and Romania are in, the increased competition from DFI dominates

technological spillovers to domestic firms. It suggests that inefficient firms will loose

market share due to foreign competition, which in the long run should increase the

overall efficiency of an economy. In the latter stages, when domestic firms have

engaged in substantial restructuring and market competition has been established, the

dominating competition effect seems to vanish. Whether in the longer run


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technological spillover effects start dominating, leading to positive spillovers is a

topic for future research when more years of data will become available.


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Investment and Productivity Change in the Czech Republic, CEPR discussion paper

1883.

EBRD (2000).EBRD Transition Report, EBRD, London.

Faggio, G. and Konings, J. (1999). Gross Job Flows and Firm Growth in Transition

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Grossfeld, Irina and Roland, Grard. (1996). Defensive and Strategic Restructuring

in Central European Enterprises, Centre for Economic Policy Research DP 1135.

Kokko, Ari (1994). Technology, Market Characteristics and Spillovers, Journal of

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Table 1: Summary Statistics (means of the sample)

Bulgaria Romania Poland

sectoral spillover 0.09 0.13 0.15

regional spillover 0.10 0.11 0.12sales growth -0.27 0.47 0.07

employment growth -0.039 -0.042 -0.01

capital growth -0.287 0.10 0.03

material growth -0.25 0.50 0.03

Table 2 : Available instruments in GMM technique

Endogenous explanatory variable Available instruments

1997 97ix 939495 ,, iii xxx

1996 96ix 9394, ii xx

1995 95ix 93ix

Note: x refers to any of the explanatory variables that is treated as endogenous.


26/48


Table 3: Results for Bulgaria

Dependent variable: y

independent

variables:

OLS IV IV

n 0.127*

(0.038)

0.538*

(0.175)

0.560*

(0.187)k 0.047*

(0.011)

0.012

(0.038)

0.018

(0.039)

m 0.626*

(0.023)

0.720*

(0.072)

0.738*

(0.075)

DFI -0.03

(0.026)

-0.112

(0.113)

-0.176

(0.136)

sector spill -0.206*

(0.091)

-0.670*

(0.360)

-0.678*

(0.371)

DFI x sector spill 3.528*

(1.473)

6.199

(12.184)

5.225

(12.40)

Region spill - - -0.175

(0.206)

DFI x region spill - - 5.061

(5.825)

Sargan Test - 31.18 (df=31) 30.1 (df=29)

SOC test 0.248 -0.103 -0.025

number of

observations

4,662 4,662 4,662

Notes: (i) all equations include time dummies, (ii) heteroscedastic consistent standard

errors in brackets, (iii) * denotes significant at the 5% level, ** at the 10% level, (iv)

instruments include some or all available moment restrictions of the endogenousexplanatory variables as well as region dummies.


27/48


Table 4: Results for Romania


independent

variables:

OLS IV IV IV

yt-1 - - 0.138*

(0.034)

0.144*

(0.035)n 0.134*

(0.017)

0.245*

(0.073)

0.106*

(0.06)

0.094**

(0.063)

k 0.081*

(0.011)

0.04**

(0.026)

0.043*

(0.02)

0.043*

(0.02)

m 0.604*

(0.017)

0.660*

(0.036)

0.411*

(0.04)

0.421*

(0.044)

DFI 0.01*

(0.002)

0.04

(0.003)

0.001

(0.02)

0.128

(0.17)

sector spill 0.201*

(0.083)

0.436

(0.459)

-1.101*

(0.528)

-0.934**

(0.579)

DFI x sector spill -32.52*

(12.1)

-8.937

(12.07)

-21.06

(66.92)

-14.8

(72.5)

Region spill - - - 0.063

(0.128)

DFI x region spill - - - -2.93

(4.18)

Sargan Test - 15.14 (df=6) 60.3 (df=45) 59.27 (df=43)

SOC test -3.708 -3.872 - -

number of

observations

10,955 10,955 7,111 7,111

Notes: as in table 3


28/48


Table 5: Results for Poland


independent

variables:

OLS IV IV IV

n 0.01

(0.14)

0.022

(0.121)

0.062

(0.108)

0.03

(0.11)k 0.017

(0.03)

0.017

(0.087)

0.059

(0.083)

0.06

(0.067)

m 0.429*

(0.081)

0.487*

(0.129)

0.613*

(0.094)

0.527*

(0.079)

DFI 0.178*

(0.08)

0.215*

(0.097)

0.13

(0.11)

0.145*

(0.062)

sector spill -0.253

(0.324)

0.174

(0.790)

-0.191

(0.689)

-0.172

(0.721)

DFI x sector spill 1.14

(2.162)

3.175

(4.835)

-1.84

(8.34)

-

Region spill - - -0.377

(0.327)

-0.48**

(0.301)

DFI x region spill - - 1.77

(10.84)

-

Sargan Test - 12.77 (df=16) 19.03 (df=20) 16.92 (df=21)

SOC test 0.171 0.536 0.07 0.391

number of

observations

340 340 340 340

Notes: as in table 3


29/48

THE WILLIAM DAVIDSON INSTITUTEAT THE UNIVERSITY OF MICHIGAN BUSINESS SCHO OL

Working Papers are available at:

www.wdi.bus.umich.edu

DAVIDSON INSTITUTE WORKING PAPERSERIES

CURRENT AS OF 11/06/00

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No. 344 The Effects of Direct Foreign

Investment on Domestic Firms

Jozef Konings October 2000

No. 343 On the Identification of Relative

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Patrick A. Puhani October 2000

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Alan A. Bevan and Saul Estrin October 2000

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Raja Kali June 2000

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Susan Linz July 2000

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Nandini Gupta, John C. Ham and Jan

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Ian Domowitz, Jack Glen and Ananth

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Niraj Dawar and Amitava Chattopadhyay June 2000

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Daniel Daianu and Radu Vranceanu June 2000

No. 318 Some Econometric Evidence on the

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Martin Eichler and Michael Lechner June 2000

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R.E Ericson and B.W Ickes May 2000

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Haizhou Huang and Chenggang Xu March 2000

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Jean Paul Azam, Bruno Biais, and

Magueye Dia

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No. 314 Is Life More Risky in the Open?

Household Risk-Coping and the Opening of

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John Giles April 2000

No. 313 Networks, Migration and Investment:

Insiders and Outsiders in Tirupurs Production

Cluster

Abhijit Banerjee and Kaivan Munshi March 2000

No. 312 Computational Analysis of the Impact

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Rajesh Chadha, Drusilla K. Brown, Alan

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No. 311 Subsidized Jobs for Unemployed

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Jan. C. van Ours May 2000

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Tor Eriksson, Jaromir Gottvald and Pavel

Mrazek

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Reallocation: An Empirical Analysis of

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Klara Z. Sabirianova October 2000

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Daniel Berkowitz, Katharina Pistor, and

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Yasuyuki Sawada November 1999

No. 306 Gender Wage Gap and Segregation in

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Stepan Jurajda May 2000

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Andrew Newell and Barry Reilly May 2000


31/48




No. 304 Post-Unification Wage Growth in

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Jennifer Hunt November 1998

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Elizabeth Brainerd May 2000

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Dietrich Earnhart March 2000

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No. 300 Employer Size Effects in Russia Todd Idson April 2000

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Geoffrey G. Parker and Marshall W. Van

Alstyne

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No. 298 Markets, Human Capital, and

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Dwayne Benjamin, Loren Brandt, Paul

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Simon Johnson, Peter Boone, Alasdair

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J. David Brown and John S. Earle March 2000

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Peter J. Luke and Mark E. Schaffer March 2000

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John P. Bonin and Bozena Leven March 2000

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Bernardo Bortolotti, Marcella Fantini and

Carlo Scarpa

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Wolfgang Aussenegg December 1999

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Privatization in Russia and the Czech

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Bruce Kogut and Andrew Spicer March 1999

No. 290: Banking Crises and Bank Rescues:

The Effect of Reputation

Jenny Corbett and Janet Mitchell January 2000

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Jan C. van Ours February 2000

No. 288: Consumption Patterns of the New

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Russell Belk February 2000

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Competing Explanations Confront Ukranian

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Dalia Marin, Daniel Kaufmann and

Bogdan Gorochowskij

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No. 286: The Quest for Pension Reform:

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Marek Gra and Michael Rutkowski January 2000

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Dalia Marin and Monika Schnitzer October 1999

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Yingyi Qian, Grard Roland and

Chenggang Xu

May 1999

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Guido Friebel and Sergei Guriev October 1999

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32/48




Corporate Governance

No. 281: Income Distribution and Price

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Michael Alexeev and James Leitzel March 1999

No. 280: Starting Positions, Reform Speed,

and Economic Outcomes in Transitioning

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William Hallagan and Zhang Jun January 2000

No. 279 : The Value of Prominent Directors Yoshiro Miwa & J. Mark Ramseyer October 1999

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from Socialism to Capitalism: The

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Lawrence Peter King September 1999

No. 276: Stability and Disorder: An

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Clifford Gaddy and Barry W. Ickes November 1999

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Chong-En Bai, David D. Li, Yingyi Qian

and Yijiang Wang

July 1999

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Vit Sorm and Katherine Terrell November 1999

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Economics Returns to Human Capital Under

the Communist Wage Grid and During the

Transition to a Market Economy Vol. 27, pp.

33-60 1999.

Daniel Munich, Jan Svejnar and Katherine

Terrell

October 1999

No. 271: Barter in Russia: Liquidity Shortage

Versus Lack of Restructuring

Sophie Brana and Mathilde Maurel June 1999

No. 270: Tests for Efficient Financial

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Albert Park and Kaja Sehrt March 1999

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Bernard Black, Reinier Kraakman and

Anna Tarassova

May 2000

No. 269: Russian Privatization and Corporate

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Bernard Black, Reinier Kraakman and

Anna Tarassova

September 1999

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Susan Linz September 1999

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Economic Growth?

Randall K. Filer, Jan Hanousek and Nauro

Campos

September 1999

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Adaptability in Corporate Governance

Arnoud W.A Boot and Jonathan R. Macey September 1999

No. 265: When the Future is not What it Used

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Nauro F. Campos, Gerard Hughes, Stepan

Jurajda, and Daniel Munich

September 1999

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Yasheng Huang September 1999

No. 263: The Changing Corporate Governance Erik Berglof and Ernst-Ludwig von June 1999


33/48




Paradigm: Implications for Transition and

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Thadden

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No. 261: Soft Budget Constraints, PecuniaryExternality, and the Dual Track System

Jiahua Che June 2000

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The Role of Quality Markets in Transition

Gary H. Jefferson July 1999

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Destroy Market Value

Glen Dowell, Stuart Hart and Bernard

Yeung

June 1999

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Patrick A. Puhani June 1999

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Why are Public Sector Firms Inefficient?

Ann P. Bartel and Ann E. Harrison June 1999

No. 256: Taxation and Evasion in the Presence

of Exortion by Organized Crime

Michael Alexeev, Eckhard Janeba and

Stefan Osborne

November 1999

No. 255: Revisiting Hungarys Bankruptcy

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John P. Bonin and Mark E. Schaffer September 1999

No. 254: FDI in Emerging Markets: A Home-

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Marina v.N Whitman June 1999

No. 253: The Asian Financial Crisis: What

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Jeffrey D. Sachs and Wing Thye Woo January 1999

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Henry Hansmann and Reinier Kraakman September 1999

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Jan-Benedict E. M. Steenkamp and Steven

M. Burgess

September 1999

No. 250: Property Rights Formation and the

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Matthew A. Turner, Loren Brandt, and

Scott Rozelle

July 1998

No. 249: Impacts of the Indonesian Economic

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James Levinsohn, Steven Berry, and Jed

Friedman

June 1999

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Charalambos Vlachoutsicos July 1999

No. 247: Spillovers from Multinationals in

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Richard E. Caves June 1999

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Irena Grosfeld, Claudia Senik-Leygonie,

Thierry Verdier, Stanislav Kolenikov and

Elena Paltseva

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No. 245: Lessons from Bank Privatization in

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John Bonin and Paul Wachtel May 1999

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Christian Popa December 1998

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Enrico C. Perotti and Pieter van Oijen March 1999

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Enrico C. Perotti and Stanislav Gelfer October 1998

No. 241: Can governments maintain hard

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Octavian Carare, Constantijn Claessens,

Enrico C. Perotti

January 1999


34/48




financial isolation in Romania

No. 240: Democratic Institutions and

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John E. Jackson, Jacek Klich, and

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No. 239: A Longitudinal Study of IJVPerformance in Eastern Europe

Keith D. Brouthers and Gary Bamossy June 1999

No. 238: Published in: Journal of Business

Venturing, Firm Creation and Economic

Transitions Vol. 14, Iss. 5,6 Sep/Nov 1999,

pp. 427-450.

John E. Jackson, Jacek Klich, Krystyna

Poznanska

July 1998

No. 237: Analysis of Entrepreneurial Attitudes

in Poland

John E. Jackson and Aleksander S.

Marcinkowski

March 1997

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Private Firms: Empirical Results from the

Czech Republic, Hungary, and Poland

Andrzej Bratkowski, Irena Grosfeld, Jacek

Rostowski

April 1999

No. 235: Does a Soft Macroeconomic

Environment Induce Restructuring on the

Microeconomic Level during the TransitionPeriod? Evidence from Investment Behavior

of Czech Enterprises

Lubomr Lzal June 1999

No. 234: Banking Reform in China: Gradually

Strengthening Pillar or Fragile Reed?

John Bonin June 1999

No. 233: Theories of Soft Budget Constraints

and the Analysis of Banking Crises

Janet Mitchell March 1999

No. 232: Unemployment Risk, Precautionary

Savings, and Moonlighting in Russia

Alessandra Guariglia and Byung-Yeon

Kim

June 1999

No. 231: Investing in Turbulent Times: The

Investment Behavior of Polish Firms in the

Transition

Josef C. Brada, Arthur E. King, and Chia-

Ying Ma

April 1999

No. 230: The End of Moderate Inflation in

Three Transition Economies?

Josef C. Brada and Ali M. Kutan April 1999

No. 229: Back to the Future: The Growth

Prospects of Transition Economies

Reconsidered

Nauro F. Campos April 1999

No. 228: The Enterprise Isolation Program in

Russia

Simeon Djankov April 1999

No. 227: Published in: Journal of Comparative

Economics, Ownership Concentration and

Corporate Performance in the Czech

Republic 27(3), September 1999, pp. 498-

513.

Stijn Claessens and Simeon Djankov April 1999

No. 226: Unemployment Benefit Entitlement

and Training Effects in Poland during

Transition

Patrick A. Puhani March 1999

No. 225: Transition at Whirlpool-Tatramat:

Case Studies

Hans Brechbuhl and Sonia Ferencikova March 1999

No. 224: Measuring Progress in Transition

and Towards EU Accession: A Comparison

of Manufacturing Firms in Poland, Romania,

and Spain

Wendy Carlin, Saul Estrin, and Mark

Schaffer

March 1999

No. 223: Product Market Competition in

Transition Economies: Increasing Varieties

and Consumer Loyalty

Mitsutoshi M. Adachi March 1999


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No. 222: Opaque Markets and Rapid Growth:

the Superiority of Bank-Centered Financial

Systems for Developing Nations

Rodney Wallace July 1999

No. 221: Technology Spillovers throughForeign Direct Investment

Yuko Kinoshita January 1999

No. 220: Managerial, Expertise and Team

Centered Forms of Organizing: A Cross-

Cultural Exploration of Independence in

Engineering Work

Leslie Perlow January 1999

No. 219: Household Structure and Labor

Demand in Agriculture: Testing for

Separability in Rural China

Audra J. Bowlus and Terry Sicular January 1999

No. 218: Competing Strategies of FDI and

Technology Transfer to China: American and

Japanese Firms

W. Mark Fruin and Penelope Prime January 1999

No. 217 Published in: Journal of Comparative

Economics, Returns to Mobility in theTransition to a Market Economy Vol. 27, No.

1, March 1999, pp. 4-

Tito Boeri and Christopher J. Flinn January 1999


Economics, Labor Market Policies and

Unemployment in the Czech Republic. Vol.

27, No. 1, March 1999, pp. 33-60.

Katherine Terrell and Vit Sorm November 1998


Economics, Active Labor Market Policies in

Poland: Human Capital Enhancement,

Stigmatization or Benefit Churning? Vol. 27,

No. 1, March 1999, pp. 61-

Jochen Kluve, Hartmut Lehmann, and

Christoph M. Schmidt

December 1998


Economics, Does the Slovenian Public WorkProgram Increase Participants' Chances to

Find a Job? Vol. 27, No.1, March 1999, pp.

113-

Milan Vodopivec December 1998


Economics, Effects of Active Labor Market

Programs on the Transition Rate from

Unemployment into Regular Jobs in the

Slovak Republic. Vol. 27, No. 1, March

1999, pp. 90-

Martina Lubyova and Jan C. van Ours December 1998

No. 212: The Marketing System in Bulgarian

Livestock Production The Present State and

Evolutionary Processes During the Period of

Economic Transition

Yordan Staykov, Team Leader October 1998

No. 211: Bankruptcy Experience in Hungary

and the Czech Republic

Janet Mitchell October 1998

No 210: Values, Optimum Stimulation Levels

and Brand Loyalty: New Scales in New

Populations

Steven M. Burgess and Mari Harris September 1998

No. 209: Inherited Wealth, Corporate Control

and Economic Growth

Randall K. Morck, David A. Stangeland,

and Bernard Yeung

September 1998

No. 208: A Cultural Analysis of Homosocial

Reproduction and Contesting Claims to

Michael D. Kennedy July 1998


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Competence in Transitional Firms

No. 207: From Survival to Success: The

Journey of Corporate Transformation at Haier.

Forthcoming in Teaching the Dinosaurs toDance: Organizational Change in Transition

Economies ed. Daniel Denison.

Arthur Yeung and Kenneth DeWoskin July 1998

No. 206: Why Do People Work If They Are

Not Paid? An Example from Eastern Europe.

Forthcoming in Teaching the Dinosaurs to

Dance: Organizational Change in Transition


Irina L. Zinovieva May 1998

No. 205: Firm Ownership and Work

Motivation in Bulgaria and Hungary: An

Empirical Study of the Transition in the Mid-

1990s. Forthcoming in Teaching the

Dinosaurs to Dance: Organizational Change in

Transition Economies ed. Daniel Denison.

Robert A. Roe, Irina L. Zinovieva,

Elizabeth Dienes, and Laurens A. ten Horn

May 1998

No. 204: Human Resource Management in the

Restructuring of Chinese Joint Ventures.




Nandani Lynton April 1998

No. 203: Emergent Compensation Strategies

in Post-Socialist Poland: Understanding the

Cognitive Underpinnings of Management

Practices in a Transition Economy.




Marc Weinstein March 1998

No. 202: Corporate Transformation andOrganizational Learning: The Peoples

Republic of China. Forthcoming in Teaching

the Dinosaurs to Dance: Organizational

Change in Transition Economies ed. Daniel

Denison.

Meinolf Dierkes and Zhang Xinhua March 1998

No. 201: Foreign Direct Investment as a

Factor of Change: The Case of Slovakia.




Sonia Ferencikova February 1998

No. 200: Radical versus Incremental Change:

The Role of Capabilities, Competition, and

Leaders. Forthcoming in Teaching theDinosaurs to Dance: Organizational Change in


Karen L. Newman February 1998

No. 199: The Emergence of Market Practices

in Chinas Economic Transition: Price Setting

Practices in Shanghais Industrial Firms.




Douglas Guthrie February 1998

No. 198: The Application of Change Dr. Jnos Fehr January 1998


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Management Methods at Business

Organizations Operating in Hungary:

Challenges in the Business and Cultural

Environment and First Practical Experiences.Forthcoming in Teaching the Dinosaurs to



No. 197: Organizational Changes in Russian

Industrial Enterprises: Mutation of Decision-

Making Structures and Transformations of

Ownership. Forthcoming in Teaching the



Igor B. Gurkov January 1998

No. 196: Understanding and Managing

Challenges to the Romanian Companies

during Transition. Forthcoming in Teaching

the Dinosaurs to Dance: OrganizationalChange in Transition Economies ed. Daniel

Denison.

Dan Candea and Rodica M. Candea January 1998

No. 195: Insider Lending and Economic

Transition: The Structure, Function, and

Performance Impact of Finance Companies in

Chinese Business Groups. Forthcoming in

Teaching the Dinosaurs to Dance:

Organizational Change in Transition


Lisa A. Keister December 1997

No. 194: Japanese Investment in Transitional

Economies: Characteristics and Performance.


Dance: Organizational Change in TransitionEconomies ed. Daniel Denison.

Paul W. Beamish and Andrew Delios November 1997

No. 193: Building Successful Companies in

Transition Economies. Forthcoming in

Teaching the Dinosaurs to Dance:

Organizational Change in Transition


Dr. Ivan Perlaki January 1998

No. 192: Russian Communitariansim: An

Invisible Fist in the Transformation Process of

Russia. Forthcoming in Teaching the



Charalambos Vlachoutsicos July 1998

No. 191: Teaching the Dinosaurs to Dance Michal Cakrt September 1997

No. 190: Strategic Restructuring: MakingCapitalism in Post-Communist Eastern

Europe. Forthcoming in Teaching the



Lawrence P. King September 1997

No. 189: Published in: Regional Science and

Urban Economics, Russias Internal Border,

29 (5), September 1999.

Daniel Berkowitz and David N. DeJong July 1998

No. 187: Corporate Structure and Performance

in Hungary

Lszl Halpern and Gbor Krsi July 1998


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No. 186: Performance of Czech Companies by

Ownership Structure

Andrew Weiss and Georgiy Nikitin June 1998

No. 185: Firm Performance in Bulgaria and

Estonia: The effects of competitive pressure,financial pressure and disorganisation

Jozef Konings July 1998

No. 184: Investment and Wages during the

Transition: Evidence from Slovene Firms

Janez Prasnikar and Jan Svejnar July 1998

No. 183: Investment Portfolio under Soft

Budget: Implications for Growth, Volatility

and Savings

Chongen Bai and Yijiang Wang July 1998

No. 181: Delegation and Delay in Bank

Privatization

Lornd Ambrus-Lakatos and Ulrich Hege July 1998

No. 180: Financing Mechanisms and R&D

Investment

Haizhou Huang and Chenggang Xu July 1998

No. 179: Organizational Culture and

Effectiveness: The Case of Foreign Firms in

Russia

Carl F. Fey and Daniel R. Denison January 1999

No. 178: Output and Unemployment

Dynamics in Transition

Vivek H. Dehejia and Douglas W. Dwyer January 1998

No. 177: Published in: Economics of

Transition,, Bureaucracies in the Russian

Voucher Privatization Vol. 8, No. 1, 2000,

pp. 37-57.

Guido Friebel June 1998

No. 176: Chronic Moderate Inflation in

Transition: The Tale of Hungary

Jnos Vincze June 1998

No. 175: Privatisation and Market Structure in

a Transition Economy

John Bennett and James Maw June 1998

No. 174: Ownership and Managerial

Competition: Employee, Customer, or Outside

Ownership

Patrick Bolton and Chenggang Xu June 1998

No. 173: Intragovernment Procurement of

Local Public Good: A Theory of

Decentralization in Nondemocratic

Government

Chong-en Bai, Yu Pan and Yijiang Wang June 1998

No. 172: Political Instability and Growth in

Proprietary Economies

Jody Overland and Michael Spagat August 1998

No. 171: Published in Post-Communist

Economies, Framework Issues in the

Privatization Strategies of the Czech Republic,

Hungary, and Poland Vol. 11, no. 1 March

1999.

Morris Bornstein June 1998

No. 170: Published in: European Journal of

Political Economy Privatization, OwnershipStructure and Transparency: How to Measure

a Real Involvement of the State 15(4),

November 1999, pp. 605-18.

Frantisek Turnovec May 1998

No. 169 Published in: American Economic

Review, Unemployment and the Social

Safety Net during Transitions to a Market

Economy: Evidence from Czech and Slovak

Men. Vol. 88, No. 5, Dec. 1998, pp. 1117-

1142.

John C. Ham, Jan Svejnar, and Katherine

Terrell

December 1998


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No. 167: Voucher Privatization with

Investment Funds: An Institutional Analysis

David Ellerman March 1998

No. 166: Published in: Marketing Issues in

Transitional Economies, Value Priorities andConsumer Behavior in a Transitional

Economy: The Case of South Africa ed.

Rajeev Batra.

Steven M. Burgess and Jan-Benedict E.M.

Steenkamp

August 1998

No. 164: Finance and Investment in

Transition: Czech Enterprises, 1993-1994

Ronald Anderson and Chantal Kegels September 1997

No. 163: European Union Trade and

Investment Flows U-Shaping Industrial

Output in Central and Eastern Europe: Theory

and Evidence

Alexander Repkine and Patrick P. Walsh April 1998

No. 162: Skill Acquisition and Private Firm

Creation in Transition Economies

Zuzana Brixiova and Wenli Li October 1999

No. 161: Corruption in Transition Susanto Basu and David D. Li May 1998

No. 160a: Tenures that Shook the World:Worker Turnover in Russia, Poland and

Britain

Hartmut Lehmann and JonathanWadsworth

November 1999

No. 160: Tenures that Shook the World:

Worker Turnover in the Russian Federation

and Poland

Hartmut Lehmann and Jonathan

Wadsworth

June 1998

No. 159: Does Market Structure Matter? New

Evidence from Russia

Annette N. Brown and J. David Brown June 1998

No. 158: Structural Adjustment and Regional

Long Term Unemployment in Poland

Hartmut Lehmann and Patrick P. Walsh June 1997

No. 157: Baby Boom or Bust? Changing

Fertility in Post-Communist Czech Republic

and Slovakia

Robert S. Chase April 1998

No. 156 Published in: Leadership and

Organization Development Journal, Leading

Radical Change in Transition Economies.

Vol. 19, No. 6, 1998, pp. 309-324.

Karen L. Newman June 1998

No. 155 Published in: Oxford Review of

Economic Policy, From Theory into

Practice? Restructuring and Dynamism in

Transition Economies. Vol. 13, No. 2,

Summer 1997, pp. 77-105.

Wendy Carlin and Michael Landesmann June 1997

No. 154: The Model and the Reality:

Assessment of Vietnamese SOE Reform

Implementation at the Firm Level

Edmund Malesky, Vu Thanh Hung, Vu

Thi Dieu Anh, and Nancy K. Napier

July 1998


Economics, Causes of the Soft BudgetConstraint: Evidence on Three Explanations.

Vol. 26, No. 1, March 1998, pp. 104-116.

David D. Li and Minsong Liang March 1998

No. 152 Published in: Comparative Economic

Studies, Enterprise Restructuring in Russias

Transition Economy: Formal and Informal

Mechanisms. Vol. 40, No. 2, Summer 1998,

pp. 5-52.

Susan J. Linz and Gary Krueger April 1998

No. 151: Labor Productivity in Transition: A

Regional Analysis of Russian Industry

Susan J. Linz May 1998


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No. 150: Tax Avoidance and the Allocation of

Credit. Forthcoming in Financial Systems in

Transition: The Design of Financial Systems

in Central Europe eds. Anna Meyendorff andAnjan Thakor.

Anna Meyendorff June 1998

No. 149: Commitment, Versatility and

Balance: Determinants of Work Time

Standards and Norms in a Multi-Country

Study of Software Engineers

Leslie Perlow and Ron Fortgang April 1998

No. 148: Changes in Polands Transfer

Payments in the 1990s: the Fate of Pensioners

Bozena Leven June 1998

No. 147: Environmental Protection and

Economic Development: The Case of the

Huaihe River Basin Cleanup Plan

Robert Letovsky, Reze Ramazani, and

Debra Murphy

June 1998

No. 146: Chief Executive Compensation

During Early Transition: Further Evidence

from Bulgaria

Derek C. Jones, Takao Kato, and Jeffrey

Miller

June 1998

No. 145 Published in: Economics of

Transition, Womens Unemployment During

the Transition: Evidence from Czech and

Slovak Micro Data, Vol. 7, No. 1, May 1999,

pp. 47-78.

John Ham, Jan Svejnar, and Katherine

Terrell

May 1998

No. 144: Investment and Wages in Slovenia Janez Prasnikar May 1998

No. 143 Published in: Review of Financial

Studies, Optimal Bankruptcy Laws Across

Different Economic Systems, 12(2), Summer

1999, pgs. 347-77.

Elazar Berkovitch and Ronen Israel March 1998

No. 142: Industrial Policy and Poverty in

Transition Economies: Two Steps Forward or

One Step Back?

Susan J. Linz March 1998

No. 141: Collective Ownership and

Privatization of Chinas Village Enterprises

Suwen Pan and Albert Park April 1998

No. 140: A Comparative Look at Labor

Mobility in the Czech Republic: Where have

all the Workers Gone?

Vit Sorm and Katherine Terrell April 1999

No. 139: The Failure of the Government-Led

Program of Corporate Reorganization in

Romania

Simeon Djankov and Kosali Ilayperuma September 1997

No. 138: Ownership and Employment in

Russian Industry: 1992-1995

Susan J. Linz March 1998

No. 137 Published in: Journal of Political

Economy, Reform Without Losers: An

Interpretation of Chinas Dual-TrackApproach to Transition, Feb. 2000; Vol. 108,

Iss.1; pg. 120

Lawrence J. Lau, Yingyi Qian, and Gerard

Roland

November 1997

No. 136 Published in: European Economic

Review, The Political Economy of Mass

Privatization and the Risk of Expropriation,

44(2), February 2000, pgs. 393-421

Klaus M. Schmidt March 1998

No. 135: Radical Organizational Change: The

Role of Starting Conditions, Competition, and

Leaders

Karen L. Newman January 1998


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No. 134: To Restructure or Not to Restructure:

Informal Activities and Enterprise Behavior in

Transition

Clifford Gaddy and Barry W. Ickes May 1998

No. 133: Management 101: Behavior of Firmsin Transition Economies

Josef C. Brada March 1998

No. 132 Published in: Quarterly Journal of

Economics, Interfirm Relationships and

Informal Credit in Vietnam, 114(4), Nov.

1999, pgs. 1285-1320

John McMillan and Christopher Woodruff February 1998


Studies, Will Restructuring Hungarian

Companies Innovate? An Investigation Based

on Joseph Berliners Analysis of Innovation in

Soviet Industry. Vol. 40, No. 2, Summer

1998, pp. 53-74.

John B. Bonin and Istvan Abel March 1998

No. 130: Published in The American

Economic Review, Changing Incentives ofthe Chinese Bureaucracy. May, 1998.

David D. Li January 1998

No. 129: Restructuring Investment in

Transition: A Model of the Enterprise

Decision

Richard E. Ericson January 1998


Studies, Job Rights in Russian Firms:

Endangered or Extinct Institutions? Vol. 40,

No. 4, Winter 1998, pp. 1-32.

Susan J. Linz January 1998

No. 127: Accounting for Growth in Post-

Soviet Russia

Daniel Berkowitz and David N. DeJong January 1998

No. 126 Published in: Economics of

Transition, From Federalism, Chinese Style,

to Privatization Chinese Style, 7(1), 1999,pgs. 103-31

Yuanzheng Cao, Yingyi Qian, and Barry

R. Weingast

December 1997

No. 125: Market Discipline in Conglomerate

Banks: Is an Internal Allocation of Cost of

Capital Necessar

the effects of foreign direct investment on domestic firms

Documents