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International Monetary Fund. European Dept.

This 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. The convergence of productivity to frontier firms may have slowed after the global financial crisis (GFC) for existing firms . A. Introduction 1. Productivity growth in Bulgaria has slowed since the onset of the 2008–09 GFC . While the post-GFC slowdown of productivity growth is a global phenomenon ( Adler et al., 2017 ) and Bulgaria’s post

Hang T. Banh, Mr. Philippe Wingender, and Cheikh A. Gueye

measure of GVC participation and measure of upstreamness following Koopman et al. (2010) and estimate firm-level productivity using the method proposed by Ackerberg et al. (2015) . To deal with endogeneity concerns, we instrument GVC participation in Estonia with average GVC participation by industry measured at world level. We find that GVC participation has a positive impact on productivity. In terms of firm heterogeneity, we find that frontier firms, large firms (both by size and by sales), and exporting firms benefit more from GVC participation than non-frontier

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.
Reda Cherif and Fuad Hasanov

shown that the relationship between competition, measured by the rates of entry and exit, and innovation, measured by the number of patents, follows an inverted-U relationship. In other words, at low levels of competition, increasing competition would lead to more innovation and the opposite would happen at very high levels of competition. These results could be reconciled with economic theory once the heterogeneity of firms in terms of productivity is introduced. As shown by Aghion and others (2005) , the distinction between frontier firms and laggards firms leads

International Monetary Fund. Asia and Pacific Dept

and capital investment after the GFC. At the industry level, there is some evidence that credit and investment have shifted toward high productivity sectors, indicating greater scrutiny on firm performance for credit extension after the GFC. Furthermore, R&D expenses are positively correlated with profitability in firms that are at the productivity frontier, but not in other firms. This implies a need for increasing the R&D capability of non-frontier firms. Also, low leveraged-firms spend more on R&D. B. Analysis 4. The paper analyzes firm productivity using

Hang T. Banh, Mr. Philippe Wingender, and Cheikh A. Gueye
The COVID-19 pandemic has led to an unprecedented collapse in global economic activity and trade. The crisis has also highlighted the role played by global value chains (GVC), with countries facing shortages of components vital to everything from health systems to everyday household goods. Despite the vulnerabilities associated with increased interconnectedness, GVCs have also contributed to increasing productivity and long-term growth. We explore empirically the impact of GVC participation on productivity in Estonia using firm-level data from 2000 to 2016. We find that higher GVC participation at the industry level significantly boosts productivity at both the industry and the firm level. Frontier firms, large firms, and exporting firms also benefit more from GVC participation than non-frontier firms, small firms, and non-exporting firms. We also find that GVC participation of downstream industries has a negative correlation with productivity. Frontier firms and large firms benefit more from GVC participation of upstream industries, while non-frontier firms and small firms benefit more from GVC participation of downstream industries. Our results suggest that policies designed to promote participation in GVCs are important to raise aggregate productivity and potential growth in Estonia.