Industrial Economics of the Transition: Determinants of Enterprise Efficiency in Czechoslovakia and Hungary.

Firm-level data are employed to estimate frontier production functions for Czechoslovak industry in 1990 and for Hungarian industry in 1991. In both countries, there is evidence of inefficient firms, with the distribution of efficiency characterized by a small number of inefficient outliers. Enterprise efficiency is positively related to firm size and negatively to managerial effort expended in lobbying for easier targets but export orientation has no effect on efficiency. Most importantly, in Hungary's more reformed economy, efficient firms are more profitable, while profit redistribution by the center in Czechoslovakia led to an inverse relationship between efficiency and profitability. Copyright 1997 by Royal Economic Society.