Working Paper
The Determinants of Economic Performance in Transitional Economies

the Roles of Ownership, Incentives and Restructuring

This paper reviews empirical evidence for key matters concerning new patterns of corporate governance and the determinants of economic performance in transitional economies. Many findings reported draw on new and unusual data for large samples of firms in the Baltic Republics, Russia and Bulgaria, and sometimes the data are in the form of panels. In Russia and Bulgaria we find that privatization and early transition typically have not produced fundamental changes in inherited patterns of corporate governance but, rather, have served to strengthen managerial control. Econometric evidence for Russia, the Baltic Republics and Bulgaria points to the beneficial effects of structures that provide for some degree of employee participation and/or employee ownership. For both managerial pay systems and compensation schemes for other workers, econometric evidence of the beneficial effects of schemes which provide for earnings being related to firm performance is reported. In examining restructuring and the search for packages of policy measures that facilitate enhanced enterprise performance, consistent with theory we find evidence of the existence of positive feedback - for example between different ownership structures and forms of compensation. However, in attempting to uncover broad bundles of restructuring initiatives to date empirical work has made only limited progress. Our findings point to the importance of microeconomic factors in determining economic performance and suggests that specific institutional features are an important influence of economic outcomes in different transitional countries and that widely differing ownership structures may be most appropriate when institutional contexts vary.