The impact of labour reallocation and competitive pressure on TFP growth: Firm-level evidence from crisis and transition ridden Bulgaria

This article uses the experiment of a macro-financial crisis and radical liberalization in Bulgaria to explore the impact of labour reallocation and competitive pressure on Total Factor Productivity (TFP) growth in the manufacturing sector. Our results indicate that labour reallocated from less efficient to more efficient firms in virtually all industries but the influence of other within industry characteristics on TFP growth was significantly higher than the impact of between industry characteristics. Furthermore, while increased competitive pressure had a positive impact on TFP growth among relative laggards in the respective industries, this impact was more than overwhelmed by the inability of industrial leaders to leapfrog their competitors. This result is inconsistent with evidence from developed industrialized economies, but similar to that of less developed countries marked by credit crunch and institutional failure. It has potentially important policy implications.