||||avg.<br>||
|---|---|---|---|---|
|SOE revenue share|-0.333<sup>***</sup>|-0.146<sup>**</sup>|-0.353<sup>*</sup>|-0.252|
||(0.126)|(0.056)|(0.211)|(0.209)|
|Constant|0.196<sup>*</sup>|0.104<sup>*</sup>|0.364<sup>***</sup>|0.219<sup>**</sup>|
||(0.103)|(0.054)|(0.122)|(0.084)|
|Lagged avg. age|Yes|Yes|Yes|Yes|
|Lagged avg. employment|Yes|Yes|Yes|Yes|
|Sector size in economy|Yes|Yes|Yes|Yes|
|Industry effects|Yes|Yes|Yes|Yes|
|Year effects|Yes|Yes|Yes|Yes|
|Observations|704|704|704|704|
|Within R-squared|0.021|0.019|0.031|0.032|

Source: World Bank staff analysis using Romania MoF firm-level data, 2011-2019. Market-level measure of allocative efficiency is the static Olley and Pakes (1996) measure computed as the within market covariance between firm size (i.e., market share) and (labor) productivity. SOEs are defined as firms where national or subnational governments have ownership stake of at least 10%. All regressions are at the 2-digit NACE industry level and include industry and year fixed effects. Standard errors clustered at the industry level are parentheses. ***, **, and * indicate significance at 1 percent, 5 percent, and 10 percent.

## _SOE, Business Dynamism and Market Outcomes_

**On the other hand, SOE presence in Romanian markets has limited effects on business dynamism** . Using the revenue share of SOEs in markets as a proxy of SOE footprint , the results suggest that business dynamism has not suffered a significant slowdown. However, on average, the higher market share of SOEs is associated with a low entry rate of firms, including private firms that may want to enter and compete (Table 9, Column 1, Row (a)). This is more true in partially contestable and natural monopolies sectors, where one would expect lower entry rates, but  not in competitive markets (Table 9, Column 1, Row (b)).

# 6. Conclusion

**This paper compared the performance of, and subsidy allocation to, Romanian SOEs of various ownership degrees and control levels to POEs** . In addition, the paper assessed whether Romanian SOEs could provide a buffer in terms of  jobs, revenues, and wages to mitigate the early negative effects of the COVID-19 pandemic. Finally, the paper examined the effects of SOE presence on market outcomes, including business dynamism, competition, and contribution to allocative efficiency. In all cases, the paper uses the Romanian MoF firm-level data from 2011 to 2020 and the World Bank BOS database.

**Several key messages emerge. First, SOEs in Romania were larger—employed more people and had larger assets per worker—and paid better wages, on average, than their POE peers from 2011 to 2019.** On average, they had lower revenue per worker  than POEs over the same period. These results are robust for the various SOE ownership degrees (i.e., minority and majority owned SOEs) and align with other studies. In addition, the average SOE experienced higher job growth, investment, and labor productivity growth but slower wage growth than the average POE over the same period. Nevertheless, these growth effects are not uniform across the various ownership degrees.

**Second,  performance differences exist between SOEs at various control levels relative to POEs** . Directly and indirectly owned SOEs performed differently compared to POEs. On the one hand, directly owned SOEs experienced higher employment and total assets growth, but were less productive than POEs. On the other hand, indirectly owned SOEs saw lower employment and total assets growth than POEs but experienced similar (labor) productivity growth to that of POEs. There are also performance differences between central and local SOEs compared to POEs.  The local SOEs mostly drive the overall performance

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