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1. Introduction
Did the Soviet development strategy of according high priority to firms in heavy industry give them an advantage during Russia's transition to a market-oriented economy? To date, because the absence of firm-level data has stymied efforts to assess firm efficiency in the Soviet economy, little is known about the incidence and variation of industry efficiency inherited by Russia ([5] Bairam, 1991; [12] Brock, 1993; [20] Danilin et al. , 1985; [54] Whitesell, 1994). This knowledge gap impedes analyses of the transition's impact. We address the gap using firm-level data collected in 1992 and 1995, defining advantage as firms exhibiting best-practice production outcomes.
Two objectives govern our analysis. First, we document industry variation in firm efficiency at the beginning of Russia's economic transformation. Given economy-wide structural distortions, under-developed market institutions, and severe macroeconomic instability caused by Russia's "shock therapy", our analysis focuses on technical efficiency - generating maximum output from a given set of inputs. Technical efficiency is best suited for this study because it can be analyzed independent of firms' objectives, which is an important feature in an economy experiencing rapid mass privatization. More specifically, we investigate whether firms that received high priority in the Soviet economy were more likely to exhibit industry best-practice production methods in 1992, and whether the efficiency pattern within and across industries varied significantly by 1995. Second, we investigate whether ownership, export experience, or location in Moscow contributed to variation in technical efficiency during this period. We focus on Russia's Central region[1] because it allows us to hold constant other factors that might influence performance (climate, transportation, regional level of development, and so forth).
Why analyze industry differences in technical efficiency at the beginning of Russia's transition? While somewhat historical in nature, we focus on the initial stage because this period is largely ignored in existing studies. Fragmentary data and chaotic economic conditions made systematic analysis problematic ([22] Djankov and Murrell, 2002; [30] Iwasaki, 2007). To date, only two studies have analyzed Russia's initial stage of transition ([13] Brown and Earle, 2001; [50] Sabirianova et al. , 2005); no study focuses on industry differences. By documenting efficiency patterns within and across industries between 1992 and 1995, this study provides a baseline for examining the impact of the...