Understanding Firms in Transition Economies: China and Central-Eastern Europe Compared

Abstract

This paper studies how firm performances differ and why they are different across all transition economies. We find large variations in external business environment; yet, these variations have only limited impacts on firm performance. The ultimate determining factor which explains most of the firm-level performance difference, particularly difference in their productivities, is ownership. Concretely, we find that Chinese de novo private firms are the most efficient among all transition economies and among all firms in China. Whereas allocative distortion is more severe in China than in Central-Eastern Europe. Our findings that Chinese de novo firms (associated with better property rights) are the crucial driving force for the country’s spectacular aggregate performance provide strong counter-evidence against the so-called ”China miracle”, which claims that China’s growth trajectory does not follow international regularities based on standard institutional measures.