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Does EU-accession affect domestic market structures and firm level productivity?

Abstract

We explore the effects of EU-accession on firms in Central and Eastern Europe. We draw on trade theory and institutional reform literature to argue changes in both the perceived market structures and productivity distributions. Using firm level data from six waves of the World Bank’s Enterprise Survey between 2002 and 2013, we document a decreasing likelihood of higher market concentration as countries accede. We show changes in the firm level productivity distributions. EU-membership tends to a decrease the variance of productivity across firms, and shifts the distribution towards higher productivity levels. Less concentrated markets are associated with higher productivity.

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Notes

  1. 1.

    See http://ec.europa.eu/enlargement/countries/package/index_en.htm. Accessed on 22 June 2016.

  2. 2.

    The datasets, sampling procedures and the methodology used in the data collection are publicly available. See http://www.enterprisesurveys.org/. Accessed on 22 June 2016.

  3. 3.

    All datasets that were available on 13 October 2014 were used to consider the survey wave in 2013. Descriptive statistics are available in the supplementary material.

  4. 4.

    Melitz’ work has triggered a lot of research on internationally trading firms and trade gains (e.g., Helpman et al. 2004; Haskel et al. 2007). Yet, only few firms are internationally active. It remains unclear how the competitive environment of domestic firms is affected by openness, especially because there may be second order effects of (e.g., if domestic firms are affected by international value chains as suppliers or by competing against other firms that are part suppliers).

  5. 5.

    The questionnaires in 2002 and 2005 asked about the number of competitors in the local market for the main product line or service (q12ba). The given answer categories were “none”, “1–3” and “4 or more”. The question in the survey waves 2007 and 2009 was ‘How many competitors did this establishment’s main product/product line face?’ (e2). Possible answers were “none”, “one”, “2–5” and “more than 5”. The survey waves 2012 and 2013 contain a question about the number of competitors for the main product/service in the main market (e2b). The answer category ‘more than I can count’ was assigned to the polypoly.

  6. 6.

    A distinction needs to be made between market structures and competition. Market structures mainly refer to the number of firms and perhaps their size distribution, while this may differ from competitive firm behaviour at the industry level (Martin 2012).

  7. 7.

    See http://ec.europa.eu/enlargement/index_en.htm. Accessed on 22 June 2016.

  8. 8.

    Collapsing the micro-data at the country-year level allows for a fixed effect at the macro-economic level. These unreported results confirm the conjecture that EU-membership is associated with less concentrated markets.

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Acknowledgements

For valuable comments and suggestions I would like to thank Karl Aiginger, George Clarke, Geoffrey Hewings, Peter Huber, Nils Karlsson, Bruce Lyons, Michael Pfaffermayr, Michael Peneder, Philipp Schmidt-Dengler and Patrik Tingvall. Earlier versions of this paper were presented at the EARIE 2015, the workshop on “Sustainable Regional Growth and Cohesion” at WIFO in 2014 and the research seminar at Ratio in 2016. I thank Anna Strauss, Peter Reschenhofer and Elisabeth Neppl for their research assistance. Research support from the Anniversary Fund of the Oesterreichische Nationalbank (Project No. 15280) is gratefully acknowledged.

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Correspondence to Klaus S. Friesenbichler.

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Disclaimer: An earlier version was published as ‘Friesenbichler, Klaus S. 2014. “EU Accession, Domestic Market Competition and Total Factor Productivity. Firm Level Evidence.” WIFO Working Papers, no. 492 (December).’

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Appendix

Appendix

Control variables
Foreign ownership This is a dummy variable that takes on the value one if at least one of the (co-)owners is a private foreign individual, company or organisation
State ownership, majority A dummy variable that takes on the value one, if at least one of the (co-)owners is the government or the state, and if the public stake exceeds 50%
State ownership, minority A dummy variable that takes on the value one, if at least one of the (co-)owners is the government or the state, but holds a stake less than 50%
Size of locality An dummy variable takes on the value of one if the establishment is located in the country’s capital or a locality of more than 250,000 inhabitants, and zero otherwise
University The fraction of the persons employed full time that holds a university degree
Labour The labour stock is defined as the absolute number of persons employed full time
Capital–labour-ratio The capital–labour-ratio is computed as the capital stock divided by labour stock. The capital stock is defined as the replacement value of machinery, vehicles, equipment, land and buildings. This variable is a measure for the capital intensity
Export share This is the percentage of total sales that were exported, either directly or indirectly (sold domestically to a third party that exports products)
Firm age The firm age is the difference between the survey year and the year in which the establishment began operations
Industry affiliation Firms are assigned to 15 manufacturing and 9 service industries at the ISIC Rev. 3.1 two-digit level
Import competition Using BACI data, a trade database at the product level, we define import penetration ratio at the country level as a measure of economy-wide openness. The industry share of imports is used as an indicator for the relative import competition
EBRD, C.P. The EBRD transition indicator for competition policy
Time and country effects Dummy variables control for the survey waves and country-wide effects
Country-level control variables Additional country level variables used are the population density, the area of the country and GDP per capita (base year 2005) as well as GDP growth. The data were drawn from the World-Bank Development Indicator Database. See http://data.worldbank.org/data-catalog/world-development-indicators [accessed on 1 Nov. 2016]
Variables used in the productivity analysis
Sales The establishment’s total annual sales
Labour The labour stock is defined as the absolute number of persons employed full time
Capital stock The capital stock is defined as the replacement value of machinery, vehicles, equipment, land and buildings
Intermediate inputs The cost of raw materials and intermediate goods used in production in the last fiscal

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Friesenbichler, K.S. Does EU-accession affect domestic market structures and firm level productivity?. Empirica 47, 343–364 (2020). https://doi.org/10.1007/s10663-018-9423-9

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Keywords

  • Market concentration
  • Productivity
  • EU
  • Regional integration
  • Enterprise surveys
  • ECA

JEL Classification

  • K21
  • L22
  • L25
  • L53
  • O52