Fuzzy Transition and Firm Efficiency: Evidence from Bulgaria, 1991-4

This paper investigates the relationship between firm restructuring and international competition in Bulgaria during 1991–4. Two hypotheses are tested. First, firms in industries that are subject to significant international competition demonstrate greater increases in efficiency over time than firms in industries that remain sheltered from such competition. Second, firms within an industry that rely significantly upon export sales reduce costs faster than those that rely primarily on the local market. Neither hypothesis is rejected. The firm-level data suggest that international competition led to substantial cost efficiency improvements. Entry and exit of firms is found to have a significant additional impact on the evolution of marginal costs in most industries.