Trade Reorientation and Productivity Growth in Bulgarian Enterprises

There are a growing number of studies establishing partial correlations between firm restructuring in Central and Eastern European countries and firm-specific variables relating to initial conditions, hardening of budget constraints, and corporate governance. This paper extends the literature on the microeconomics of transition by investigating the relative importance of integration into world markets as a determinant of productivity growth at the level of the firm. We examine detailed firm-level quarterly data on over 1,300 industrial firms in Bulgaria over the 1992-95 period. We find that shifts in the pattern of imports of intermediates - and reorientation of export production - towards global markets are positively correlated with subsequent total factor productivity growth. The analysis supports the theoretical findings in the endogenous growth literature that trade matters in increasing enterprise productivity