Structural change and misallocation. Firm-level evidence from Poland

Early transition literature linked large number of firm failures with the inability to overcome the pre-transition misallocation of resources, i.e. the inadequate capital-labor ratio. We look at the link between misallocation and firm survival using a rich firm-level dataset of over 1600 manufacturing plants established in a centrally planned economy after 1945. Our duration models include the standard Olley-Pakes misallocation measures as well as firm-level counterfactual level of capital that takes into account the present day market allocation and productivity. We show that i) misallocation was rather a firm-level than sector-level phenomenon and more importantly ii) it did not have a sizeable effect on the actual firm survival. Moreover, privatization tends to be negatively related to firm survival. This may imply both inappropriate self-selection into privatization programs and possibly inadequate implementation of the privatization.

This paper utilizes our novel dataset on survival of all state manufacturing plants from 1988, details here.

Unpublished version

Published version

@article{hagemejer2021structural, title={Structural change and misallocation: {F}irm-level evidence from {P}oland}, author={Hagemejer, Jan and Tyrowicz, Joanna}, journal={Economics of Transition and Institutional Change}, volume={29}, number={1}, pages={95--122}, year={2021}, publisher={Wiley Online Library} }