Financing Constraints and Firm Growth in Emerging Europe

Abstract

The paper aims to shed light on the effects of different types of financing constraints on firm sales and employment growth in Emerging Europe before and after the onset of the financial crisis. It analyzes the group of emerging NMS-10 economies (plus Turkey) and the group of economically and financially lagging Western Balkan countries. The paper demonstrates that financing constraints significantly obstruct firm growth, particularly in the Western Balkan countries, which calls for policy intervention to ensure swifter job-rich growth and catching-up with the rest of Europe. It also emphasizes that particular firm characteristics are essential for growth in Emerging Europe and demonstrates that exporting only and innovating are recipes for faster firm growth, while importing only and a high foreign ownership share seriously retard firm growth. Finally, it stresses the importance of the particular institutional environment for firms to thrive.