Institutional Barriers and Job Creation in Central and Eastern Europe

Abstract

Using information from the Amadeus dataset and the Business Environment and Enterprise Performance Survey, we provide an empirical investigation of the industry and firm-specific determinants of the intensive margin (i.e., within existing firms) job creation process in eleven Central and Eastern European economies during the period 2002-2009. Our results indicate that during the years prior to the global financial crisis, traditional industries were crucial for the net intensive margin creation of jobs in the region but, by contrast, services firms were less vulnerable to the economic downturn. At the firm level, small and young already existing firms and subsidiaries of multinational corporate groups tended to register the highest employment growth rates. The empirical results also indicate that more productive surviving firms tended to be less vulnerable to the economic downturns in terms of employment change. The perceived quality of the business climate by enterprises of the region is robustly correlated with intensive margin employment growth both before and during the recent global financial crisis. Interestingly, the best performing surviving firms are estimated to be most negatively affected by a poor business environment. Institutional barriers thus appear as an important factor hampering firm growth in Central and Eastern Europe. These findings hold for the group of high-growth surviving firms (gazelles) that disproportionately accounted for the creation of new jobs in these economies.

Keywords: firm growth, institutional barriers, Central and Eastern Europe

JEL Classification: L16, L21, L25, L51, L53