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This paper examines the role of international openness on the change of firm productivity in Southeastern Europe (SEE). This is a crucial question for middle income countries. Using firm-level data for six transition economies over the period 1994-2002, we identify whether foreign ownership and propen- sity to trade with more advanced countries can bring about higher learning eects. We find that (i) foreign ownership has helped at restructuring and enhancing productivity of local firms in four out of six countries, (ii) export- ing to advanced markets has a larger impact on productivity growth in four countries, especially when firm's absorptive capacity is taken into account, (iii) in contrast, exporting to the less competitive markets of ex-Yugoslavia seems to aect negatively the productivity growth in three countries, and (iv) learn- ing eects from importing follow a similar path than exporting. Our results suggest that trade liberalisation is not uniformly beneficial. Regional com- position of trade flows and absorptive capacity of local firms matter. Trade liberalisation within the SEE region thus may not provide a substitute for a general trade liberalisation and access to the more competitive markets of OECD countries.

Does International Openness Affect Productivity of Local Firms? Evidence from Southeastern Europe