Entry and exit in transition economies: the Slovenian manufacturing sector

Abstract

This article investigates entry and exit in Slovenian manufacturing for the period 1994–2000 using OLS and panel data fixed and random‐effects estimations. Private ownership is associated with higher rates of firm exit, suggesting that this ownership structure is related to a higher risk of bankruptcy so that the least efficient firms are replaced by more efficient ones. However, and although most entrants are private, it is negatively related to entry (in lagged terms), potentially indicating that sectors with a higher proportion of private firms are also highly populated, closer to break‐even point and thus less appealing. Export orientation is associated with lower exit, confirming the theory that exporting firms outperformed domestically focused firms, and with lower entry, perhaps suggesting that exporting involves more complex ways of doing business that deter the typically small new entrants. Higher profitability reduces exit rates. Labour‐intensive sectors witness higher entry rates, indicating that labour is relatively cheaper than capital for new entering firms. Finally, there may be important technological barriers to exit (sunk costs) in Slovenia, but not to entry.

Notes

Dr Ana Xavier, LICOS—Centre for Transition Economies, Katholieke Universiteit Leuven, Deberiotstraat 34, 3000 Leuven, Belgium.

Dr Štefan Bojnec, Independent Research Organisation, Ul Metoda Mikuza 12, 1113 Ljubljana, Slovenia,

This research was undertaken with funding from the European Union Phare ACE Programme 1998 and from the Ministry of Education, Science and Sport of Slovenia. The content of the article is the sole responsibility of the authors and it in no way represents the views of the Commission or its services or any other institution. We would like to thank Saul Estrin and Joep Konings for their valuable comments and suggestions. Todor Gradev helped us with some technical support.

Dr Štefan Bojnec, Independent Research Organisation, Ul Metoda Mikuza 12, 1113 Ljubljana, Slovenia,

See among others Jovanovic (1982); Dunne et al. (1988, 1989); Baldwin & Gorecki (1991); Geroski & Schwalbach (1991); Audretsch (1991, 1995); Boeri & Cramer (1992); Mata (1993); Mata & Portugal (1994); Evans & Siegfried (1994); Audretsch & Mahmood (1995); Geroski (1995); Klepper & Miller (1995); and Caves (1998).

See for instance Pinto et al. (1993); Richter & Schaffer (1996); Boycko et al. (1996); Earle & Estrin (1996); Konings (1997b); Bilsen & Konings (1998); Claessens & Djankov (1999); Frydman et al. (1999); Bornstein (2001); and Djankov & Murrell (2002).

Examples include Nickell (1996); Earle & Estrin (1996); Konings (1997a); Aghion et al. (1997); Brown & Earle (2001); Carlin et al. (2001); Grosfeld & Tressel (2001); and Estrin (2002).

Individual entrepreneurs (self‐employed) can however do their own accounts and report their balance sheets on a voluntary basis. An important number may have done so.

The values greater than 100% are due to the fact that in the Statistical Yearbook not all the firms with less than 10 employees are reported.

Using STATA 7.0 and the merger command we establish whether each firm and for each period enters, survives or exits. We then confirm whether a firm, after seen to be exiting, no longer reappears as an entrant, or if a firm that is seen to be entering is not there in previous years—a case of misreporting rather than exit or entry. These cases are recoded.

This test introduces the second, third and fourth powers of the predicted values of the dependent variable and tests the joint significance of their coefficient estimates, i.e. it estimates y=xb+zt+u (where z stands for the three powers of the predicted values of y) and tests t=0.

Additional information

Notes on contributors

Štefan Bojnec

Dr Ana Xavier, LICOS—Centre for Transition Economies, Katholieke Universiteit Leuven, Deberiotstraat 34, 3000 Leuven, Belgium. Dr Štefan Bojnec, Independent Research Organisation, Ul Metoda Mikuza 12, 1113 Ljubljana, Slovenia, This research was undertaken with funding from the European Union Phare ACE Programme 1998 and from the Ministry of Education, Science and Sport of Slovenia. The content of the article is the sole responsibility of the authors and it in no way represents the views of the Commission or its services or any other institution. We would like to thank Saul Estrin and Joep Konings for their valuable comments and suggestions. Todor Gradev helped us with some technical support.