Trade matters. Trade in Bulgaria's transition economy
is an important source of growth in total factor productivity
in manufacturing enterprises.
Djankov and Hoekman extend the literature on the microeconomics of transition by investigating the relative importance of integration with world markets as a source of productivity growth in Bulgarian firms. They focus on the potential importance for economic growth of greater access (after trade liberalization) to global markets for designs, equipment, and intermediates.
For individual firms, the intensity of competition in the final product market should be a powerful force, inducing efforts to restructure and to improve productive efficiency. But it is difficult empirically to incorporate that factor into a firm-level econometric analysis, because import competition is common to all firms in an industry.
One trade-related factor that can be analyzed at the level of the firm is the role of access to foreign intermediates and capital goods, as well as greater access to world markets for the firm's output after the abolition of central planning. The policy shift involved is fairly analogous to a move from autarky (the CMEA system) to virtual free trade. As a result the forces identified in the literature on endogenous growth should operate. That is, firms now have the opportunity to buy intermediates and equipment that allow them to improve their productivity and to learn by exporting to more mature markets. The changes that occurred in trade patterns after opening the economy provide one indicator of managers' attempts to import better technology.
Djankov and Hoekman's analysis suggests that trade matters — that trade is an important source of growth in total factor productivity at the firm level.
The partial correlations suggest that firms that reorient their trade patterns — arguably the most appropriate measure of trade integration for transition economies — tend to have higher growth rates for total factor productivity.
This paper — a product of the International Trade
Division, International Economics Department — is part of a larger
effort in the department to analyze the role of trade in the transition
process in Central and Eastern Europe. Copies of the paper are
available free from the World Bank, 1818 H Street NW, Washington,
DC 20433. Please contact Jennifer Ngaine, room N5-056, telephone
202-473-7947, fax 202-522-1159, Internet address jngaine@worldbank.org.
(23 pages)
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