Enterprise responses to price and output shocks in transitioning economies: The case of the Czechoslovak machine-building sector

The behavior of a sample of 161 state-owned, Czechoslovak machine-building enterprises for the period 1985–89 is examined by means of simulation techniques based on the estimated dynamic factor demand equations. The simulations of input utilization for 1990–92 indicate that the state-owned firms have been less responsive to market signals and to output changes during the transition period of 1990–92 than they were in 1985–89. This may reflect either a change in decision-making regime at the firm level or the magnitude of changes in prices and output levels that occurred in 1990–92. We also find that the output shocks were much more important for the changes in input utilization during the transition than were input price shocks. The research results reported here are part of a World Bank project on enterprise behavior in transition. The results and conclusions are solely the responsibility of the authors and in no way represent the views of the World Bank or of their respective employers.