Estimates and Determinants of Firm Efficiency in Eastern Europe

Romanian enterprise is widely considered to be inefficient relative to that found in other postcommunist nations in Central and Eastern Europe. This paper places the relative (in)efficiency of Romanian firms in context by estimating stochastic frontier production functions using Romanian microdata. We find that, on average, Romanian firms are 10 percent less efficient than firms in Poland, Hungary, and the Czech Republic. Evidence suggests that the measurable industrial drivers of technical efficiency tend to be consistent across countries, suggesting that the relative inefficiency of Romanian enterprise is due to institutional factors.