Foreign presence and efficiency in transition economies

Abstract

This paper presents empirical evidence on the role of foreign presence in the performance of domestic manufacturing firms in five Central and Eastern European countries. Data Envelopment Analysis (DEA) was used to estimate a frontier for each sector with similar technology common for five transition countries in the sampleBulgaria, Estonia, Hungary, Poland and Romania. Following Simar and Wilson (J Econom 136(1): 2007), this study applies a truncated regression and bootstrap technique in a second stage post-DEA analysis. Some evidence is found to support the hypothesis that foreign presence has an overall positive spillover effects on the performance of domestic firms.At the outset of the transition from the planned to the market economy the hope was that foreign direct investment (FDI) would improve economic outcomes in Central and Eastern Europe both directly and indirectly. Given the relatively low levels of domestic investment and weak marketing capabilities of most transition economies, FDI was expected to boost economic growth and employment by accelerating investment, transferring new technologies and bringing up-to-date organizational and marketing skills to the host economies. It has been difficult, however, for researchers to evaluate whether such expectations have been borne out by experience. Studies on the impact of FDI have employed various econometric techniques and yielded mixed results.Following Hirschberg and Lloyd's (2002) criticisms of the parametric methods traditionally used to measure the indirect impact of FDI empirically, a non-parametric technique, Data Envelopment Analysis (DEA), is used in this paper to compute a single efficiency score for each observation. Additionally, we apply a methodological alternative in the post-DEA analysis developed by Simar and Wilson (2007). Truncated regression is used in combination with a bootstrap procedure to estimate confidence intervals in a test for various intra-industry spillover effects in this study.Foreign firms are found to be more scale efficient than domestic firms, but there is no strong evidence that foreign firms are more technically efficient than their domestic counterparts. Thus, the average technical efficiency of foreign firms is found to be higher than the average efficiency of their domestic counterparts only in four out of ten sectors. This fact provides some support to the existing argument that foreign firms are not automatically more efficient than domestic firms but that they are guided by the economic environment in which they operate. Therefore, in the second stage of the analysis some environmental characteristics have been identified.In this study, foreign firms are found to be more efficient than domestic counterparts in Hungary and Poland and less efficient in Bulgaria, Romania and Estonia. These findings arguably reflect some differences in local economic conditions. Furthermore, the results of post-DEA analysis 123J Prod Anal (2008) 29:91-102 DOI 10.1007 suggest an overall positive effect from foreign pre...

An application of the double-bootstrap data envelopment analysis to investigate sources of efficiency in the Greek poultry sector

“…Following previous studies, three inputs and one output were chosen for inclusion (Kravtsova, 2008;Goncharuk, 2009;Badunenko, 2010). The survey includes five out of six of the largest companies in the Greek industry which control 69% of the domestic poultry meat production.…”

“…The productive services provided by individuals to the company in the form of knowledge and skills represent human resources capabilities of a company which may play a crucial role for improvement of productivity and company performance (Penrose, 1959;Grant, 2002;Kravtsova, 2008). As effective organisational activities of any company are achieved through human resources capabilities, measured usually by the difference in wages, it can be concluded that the stock of knowledge and skills of employees increases the productivity labour and performance of companies.…”

“…Company age is usually considered one of the main components of a company's experience and learning curve (Assaf et al, 2011), which increases the capacity for efficiency. However, older companies may also have inferior performance, because of inertia and less adaptive capacity to changing circumstances Kravtsova, 2008;Lin et al, 2009;Odeck, 2009). However, older companies may also have inferior performance, because of inertia and less adaptive capacity to changing circumstances Kravtsova, 2008;Lin et al, 2009;Odeck, 2009).…”

Fractional regression models for second stage DEA efficiency analyses

“…Second, they assume that the true efficiency scores follow a truncated normal distribution. See inter alia Zelenyuk and Zheka (2006), Latruffe, Davidova and Balcombe (2008) and Kravtsova (2008) From our discussion, it is clear that one important issue in both the instrumentalist and conventionalist approaches is the choice of model used in the regression stage. If the specification is incorrect, any of the procedures discussed above will produce inconsistent estimates of the parameters of interest.…”

Technological Change from Foreign Firms: Firm-Level Case Studies in the Kenyan Context

“…Limited convincing work exists to ascertain this empirically basing their argument and logic on appropriate techniques. Existing studies on FDI and spillovers have largely been based on the traditional neo-classical approach focusing on cross sectional data and limited to labour productivity [Caves, 1974;Blomstrom and Pearsson, 1983;Harrison, (1992: 1996), Ruane, et al, 2004;Haskel et al, 2007;Kravtsova, 2008;Altomonte et al, 2009;Görg, et al, 2009;Gachino, 2010b]. This is problematic in that the neo-classical approach has failed to maintain pace with the growing importance of learning, capability building and innovation in technology development for economic growth.…”