This paper explores the divergent effects of institutional reforms on firm's productivity and profits. To assess this empirically, we investigate the impact of various components of economic liberalisation on the performance of firms from Central and Eastern European countries from 1998 to 2006. The impact of reforms on profitability vis-à-vis productivity differs, which we interpret as an indication that profitability is an ambiguous measure of performance: one needs to distinguish between unproductive rents and productivity-based quasi-rents. We find that competition-enhancing liberalisation measures have more impact on state owned firms as compared with domestic and foreign owned firms.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Journal of comparative economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Driffield, NL, Mickiewicz, T & Temouri, Y, 'Institutional reforms, productivity and profitability: from rents to competition?' Journal of comparative economics, vol. 41, no.2 (2012) DOI http://dx.doi.org/10.1016/j.jce.2012.08.001
Funding: Financial support from the ESRC under RES-062-23-0986