Investment, Wages and Corporate Governance during the Transition: Evidence from Slovenian Firms

Abstract

As the transition to a market economy unfolded, investment and wage determination became important issues in virtually all the post-communist economies. The Soviet bloc countries as well as Yugoslavia displayed high rates of investment until the 1980s, when economic slowdown and popular pressure for higher consumption forced the authorities to reduce the rate of investment and allow wages to rise (EBRD, 1995, 1996). As both the Soviet bloc and former Yugoslavia disintegrated, analysts and policy-makers started worrying about the fact that the rate of investment declined further, principally as a result of declining enterprise saving (EBRD, 1995).² At the same time, investment has been identified as a principal indicator of strategic or deep restructuring in the microeconomic models of transition (for example, Blanchard, 1997; Grosfeld and Roland, 1997) and a number of theoretical papers have examined conditions, such as managerial ownership stake, under which managers would restructure firms prior to privatization (for example, Aghion et al., 1994a; Blanchard, 1997).

Prašnikar’s research on this paper was in part supported by the Ministry of Science and Technology grant no. 3411-97-25-7863 and by Phare ACE grant no. P96-6095-R. Svejnar’s research was in part supported by NSF grant no. SBR95-12001 and Phare ACE grant no. P96-6095-R. The authors would like to thank Matjaz Koman and Lubomir Lizal for their useful comments. They would also like to acknowledge the excellent assistance in data gathering and processing by Matjaz Koman and Marko Grobelnik. Finally, the authors are indebted to the Slovenian Agency for Privatization, the Slovenian Statistical Office and numerous Slovenian enterprises for providing them with the data used in this paper. The usual caveat applies.