The Determinants of Productive Efficiency in Transitional Economies: Evidence from Estonia By Derek C. Jones, Niels Mygind and Ewa Szychowska* August 2000 Abstract ** For the first time, new panel data for a random sample of Estonian firms is used to estimate the productivity effects of bundles of human resource management practices (HRMPs). The analysis also extends previous work for transition economies by evaluating the importance for enterprise performance of clusters of practices for top managers and the impact of widely varying ownership configurations. In the main we find that firm performance is enhanced by : (i) packages of practices that increase non-managerial workers’ influence and provide group and individual monetary incentives; (ii) practices that increase managers’ influence relative to other ownership groups, provide performance-based pay, and result in changes in management; (iii) privatization. Also: (iv) firms owned by managers perform better than employee-owned firms and insider-owned enterprises are always found to reach higher productive efficiency than firms owned by domestic outsiders. Results are robust with respect to choice of technology, and the use of instrumental variable estimates to control for potential endogeneity. When introducing changes in HRMPs and the managerial labor market, these findings support the theoretical case for introducing packages of initiatives. Our findings on the positive effects of policy bundles are consistent with results previously reported for the West. Findings suggest that in searching for the determinants of business efficiency in transition economies many previous studies may have omitted crucial variables. * Jones and Szychowska are at the Dept. of Economics Hamilton College Clinton NY13323. E MAIL: DJONES@HAMILTON.EDU. Fax: 315 859 4477. Phone: 315 853 4381. Mygind is at the Centre for East European Studies, Copenhagen Business School, Copenhagen. Fax: 45 38 15 30 37. Phone: 45 38 15 30 32. E Mail nm.cees@cbs.dk ** In facilitating this work, the authors acknowledge support from EEC ACE Phare, NSF SES 9511465, the Danish Research Council for Social Sciences and the National Council on Eurasian and East European Research. In addition the paper has benefitted from comments from Jeffrey Pliskin and Jan Siman.