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International Monetary Fund. European Dept.
This Selected Issues paper examines corporate productivity growth in Bulgaria using firm-level data. Firms with a higher share of innovative assets and lower financial distress are estimated to have higher productivity growth. Foreign, larger, and younger firms and firms in the tradable sectors also generally had faster productivity growth. The convergence of productivity to frontier firms may have slowed after the global financial crisis for existing firms. The evidence points to technological convergence for both total factor productivity and labor productivity to industry leaders. The result is robust with the coefficient statistically significant at the 1 percent level in all specifications. Policies that support R&D and innovation, improve business environment, and reduce debt service burden could potentially help raise productivity growth. Bulgaria’s R&D spending lags behind other EU countries and there is ample room for improvement. A better business environment supported by stronger institutions could help improve company’s profitability and financial health, raise investment, and attract more foreign direct investment, all conducive to raising productivity growth.
International Monetary Fund. European Dept.

inspectorates within public administration, and (iii) few concrete results emerged from the investigation and prosecution of corruption cases. Consequently, the Commission recommended the establishment of a mechanism to cooperate and verify progress in these areas after the accession. Table 1. Bulgaria: Governance Indicators in Bulgaria, the NMS and the EU The table shows Bulgaria’s position vis-a-vis other NMS countries and EU-28 averages on various governance indicators. All indicators are normalized between 0 (worst among EU-28) to 1 (best among EU-28), unless

Mr. Jean-Jacques Hallaert and Keyra Primus

. 9 Therefore, strengthening the procurement process could help to reduce vulnerabilities to corruption and improve the efficiency of public investment. Bulgaria: Governance Indicators Source: World Bank’s Worldwide Governance Indicators. Note: Estimate of governance ranges from approximately -2.5 (weak) to 2.5 (strong governance performance). There is scope to improve the efficiency and quality of public investment further ( Figure 15 ) . Taking the measures of infrastructure output—infrastructure access and quality—and mapping them against the

Mr. Jean-Jacques Hallaert and Keyra Primus
The scope for increasing public spending to meet Bulgaria’s development needs is limited by low revenue. Increasing the efficiency of spending is, therefore, crucial. This paper discusses how this can be achieved in four areas (public investment, social protection, health, and education). The methodology is based on a triple benchmarking. First, the level of public expenditure in each category is compared to other European countries. Second, the impact of spending is assessed against other European countries. Third, the input mix is analyzed to understand what components are responsible for the level of spending and for the quality of outcomes. Based on these results, the paper provides policy options for expenditure reform.