Efficiency of Manufacturing in Russia: Effect of Domestic Competition and FDI

In this paper we investigate the effect of the entry of foreign firms on the efficiency of Russian industrial enterprises using the panel firm level dataset for 1995-2004. The analysis of the competition structure of Russian industrial sectors reveals that domestic concentration ratios remain high at regional level. We find that foreign entry has positive effect on the productivity of most efficient domestic firms. The effect of foreign entry on productivity of inefficient firms is negative. Our findings show that positive effect from foreign competition appears to be restrained by barriers preventing exit of inefficient firms.