Interaction among New Firm Formation, Privatization, and Business Environment in Transition Countries

Abstract

The formation of new private firms can facilitate transition from socialism to a market economy. This study uses data from transition economies to investigate the effects of large-scale privatization and the barriers to the establishment of new firms. It finds that large-scale privatization positively affects the formation of new firm, but such effects disappear as the costs of start-up increase. These results imply that both privatization and favorable business environments are necessary for firm creation.