Institutional barriers and job creation in Central and Eastern Europe

Jesús Crespo Cuaresma,Harald Oberhofer,Gallina A Vincelette

doi:10.1186/2193-9012-3-3

Abstract

Abstract Using information from the Amadeus dataset and the Business Environment and Enterprise Performance Survey, we provide an empirical investigation of the industry and firm-specific determinants of the intensive margin (i.e., within existing firms) job creation process in eleven Central and Eastern European economies during the period 2002–2009. Our results indicate that during the years prior to the global financial crisis, traditional industries were crucial for the net intensive margin creation of jobs in the region but, by contrast, services firms were less vulnerable to the economic downturn. At the firm level, small and young already existing firms and subsidiaries of multinational corporate groups tended to register the highest employment growth rates. The empirical results also indicate that more productive surviving firms tended to be less vulnerable to the economic downturns in terms of employment change. The perceived quality of the business climate by enterprises of the region is robustly correlated with intensive margin employment growth both before and during the recent global financial crisis. Interestingly, the best performing surviving firms are estimated to be most negatively affected by a poor business environment. Institutional barriers thus appear as an important factor hampering firm growth in Central and Eastern Europe. These findings hold for the group of high-growth surviving firms (gazelles) that disproportionately accounted for the creation of new jobs in these economies. JEL classification L16; L21; L25; L51; L53

Highlights

In Central and Eastern European (CEE) countries1, the structural change in economic activities over the last two decades involved two different developments
The aim of this study is to understand the process of job creation at the intensive margin in CEE economies over the last decade using firmlevel data
Our results indicate that more productive existing firms tend to be less affected by economic downturns and that intensive margin employment growth at the firm level is correlated with the perceived quality of the business climate by CEE enterprises

Summary

Introduction

In Central and Eastern European (CEE) countries, the structural change in economic activities over the last two decades involved two different developments. As in other middle income economies, economic activity shifted away from agriculture and manufacturing to services, where the average firm size was relatively small but the number of firms large (see, e.g., Pilat et al 2006). These structural changes had an impact on how, where and what type of jobs were created in the region After the vast majority of CEE countries successfully reorganized their centrally planned economies, they experienced varying degrees of success in creating productive jobs. Different levels of market regulations and entry barriers were crucial determinants explaining the differences in the economic structures across CEE countries

Objectives

Findings

Conclusion