published in: Southern Economic Journal, 2009, 76(2), 553-576
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.
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