Valerija Botrić

Department for Labor Markets and Social Policy,

The Institute of Economics, Zagreb

Croatia

Email: vbotric@eizg.hr

Explaining firm-level total factor productivity in post-transition: manufacturing vs. services sector

Ljiljana Božić

Department for Innovation, Business Economics and Business Sectors, The Institute of Economics, Zagreb

Croatia

Email: ljbozic@eizg.hr

Tanja Broz

Department for Macroeconomics and International Economics,

The Institute of Economics, Zagreb

Croatia

Email: tbroz@eizg.hr

Abstract. Post transition economies carry the legacy of previous system, supposed to have collapsed in partly due to inability to sustain innovation and technical progress. In terms of innovation activity, they still lag behind advanced market economies. This brings the issue of total factor productivity (TFP) for these countries/industries/firms in focus of research interest. Relying on the TFP firm-level estimates from the World Bank’ Enterprise Survey dataset, we analyse the main contributing factors in following post-transition economies: Georgia, Turkey, Ukraine, Russia, Romania, Bosnia and Herzegovina, FYR Macedonia, Mongolia, Slovenia and Croatia. The potential determinants include variables frequently named in the literature: R&D efforts, human capital, ICT investment, competition (product market regulation) and international trade. The data for the TFP determinants is drawn from Business Environment and Enterprise Performance Survey (BEEPS V), which includes both objective variables and perceptions of firms’ management. Since many objective variables are simultaneously determined with our dependent variable, we argue that by relying on perceptions we omit the endogeneity issue. In addition to aggregate firm-level TFP determinants, we also distinguish between the manufacturing and service sector. The aim of the research is to emphasize the structural differences between these two segments of post-transition economies.

Received: June, 2017

1st Revision: August, 2017

Accepted: September, 2017

DOI: 10.14254/2071-8330.2017/10-3/6

JEL Classification: D24, O33, L25

Keywords: technology progress, total factor productivity, post-transition countries