Institutions, economic liberalization and firm growth: evidence from European transition economies

This article investigates the determinants of firm growth using a dataset matching firm-level data with country indicators of access to external finance, governance, and economic liberalization in ten European transition countries over the period 1996-2011. We find that the quality of state rebuilding after the collapse of communism matters. First, country governance adds something above the impact of a change in variables that proxy for access the external finance. Second, the results also show that economic liberalization has no direct effect on firm growth. Instead, its impact operates through country governance. The countries that benefit the most in terms of firm growth are those with higher than average country governance indicators.