Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition

J. David Brown and John Earle

No 404, CERT Discussion Papers from Centre for Economic Reform and Transformation, Heriot Watt University

Abstract: How do economic reforms affect resource reallocation processes and their contributions to productivity growth? This paper studies the consequences of enterprise privatization and liberalization of product markets, labour markets, and imports in the former Soviet Republics of Russia and Ukraine. Analyzing interfirm reallocation of output, labour, capital, and an input index with annual industrial census data from 1985 to 2001, we find that Soviet Russia displayed low reallocation rates that bore little relationship to relative labour and multifactor productivity across firms. Since reforms began, resource flows have increased in both countries, and their contributions to aggregate productivity growth have become substantial through increased flows from less productive to more productive continuing firms and through higher exits of less productive entities - i.e., through creative destruction. Among the policy factors that may explain firm-level variation, privatization is estimated to have positive effects on productivity-enhancing reallocation, but there is less evidence of such effects from domestic product market competition, labour market competition, or import penetration.

Keywords: reform; privatization; productivity growth; transition (search for similar items in EconPapers)
JEL-codes: E24 J63 O47 P23 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (17)

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