Efficiency and Market Share in Hungarian Corporate Sector

László Halpern () and Gabor Korosi

No 333, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: One of the major tasks facing a transition economy is to create the competitive environment of a properly functioning market economy. It is widely believed that competition has a positive effect on efficiency, but the theoretical and empirical support is quite scarce. The objective of this paper is to investigate the link between competition and efficiency for the Hungarian corporate sector during various phases of the transition process. We employ frontier production functions for exploring differences among groups of firms, and for identifying the typical adjustment process of each group separately throughout the transition period until 1997. Groups are defined according to industries, size, and ownership. The estimated production functions indicate a gradual improvement in efficiency and a shift from decreasing to increasing returns to scale due to a growing share of small firms entering higher returns regimes. Market share can be explained by the degree of internal and external competition and by the efficiency of the firm. Transitional recession in 1990-1 was followed by a fast consolidation period, with rapidly increasing firm level efficiency and improving returns to scale. This consolidation period ended in 1994-5, after that mean firm level efficiency only changed slowly. Massive investments largely increased the market share of the better performing firms and sectors, resulting in rapid economic growth. However, this economic growth may become vulnerable if productive efficiency fails to improve faster.

Keywords: firm in transition economy; production functions; efficiency (search for similar items in EconPapers)
JEL-codes: C23 D21 D24 (search for similar items in EconPapers)
Pages: pages
Date: 2000-07-01
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Efficiency and market share in the Hungarian corporate sector (2001)
Working Paper: Efficiency and Market Share in the Hungarian Corporate Sector (2000)
Working Paper: Efficiency and Market Share in Hungarian Corporate Sector (2000)
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