|**Box 1: Background on Surveys**<br>**Productivity and Investment Climate Survey (World Bank):**PICS utilizes a standard core<br>questionnaire intended to calculate firm productivity. The PICS sample conducted in Serbia is different<br>from the standard one as it does not cover exclusively manufacturing. The survey was administered to<br>managers of firms and consisted of a core set of questions as well as several modules that can be used to<br>explore specific aspects of the country’s investment climate and links to firm-level productivity. The<br>core survey had 11 sections:|
|---|
|�<br>_General information about the firm_: ownership, activities, and location;<br>�<br>_Sales and supplies_: imports and exports, supply and demand conditions, and competition;<br>�<br>Investment climate constraints: evaluation of general obstacles;|
|�<br>_Infrastructure and services_: power, water, transport, computers, and business services;|
|�<br>_Finance_: sources of finance, terms of finance, financial services, auditing, and land ownership;<br>�<br>_Labor relations_: worker skills, status and training, skill availability, over-employment,<br>unionization, and strikes;|
|�<br>_Business-government relations_: quality of public services, consistency of policy and<br>administration, customs processing, regulatory compliance costs (management time, delays, bribes),<br>informality, and capture;|
|�<br>_Conflict resolution/legal environment_: confidence in legal system and resolution of credit<br>disputes;<br>|
|�<br>_Crime_: security costs, cost of crimes, and use and performance of police services;<br>�<br>_Capacity, innovation, and learning_: utilization, new products, planning horizon, sources of<br>technology, worker and management education, and experience; and<br>�<br>_Productivity information_: employment level, and balance sheet information (including income,<br>main costs and assets).<br>The sample size was relatively large with 408 firms and includes a representative sample of the<br>composition of the Serbian economy. The PICS survey was undertaken in the aftermath of the<br>assassination of the Prime Minister at a time when the country was experiencing a great deal of<br>uncertainty, so the survey results must be viewed in this light.|
|**Business Environment and Enterprise Performance Survey (EBRD and World Bank):**The<br>BEEPS utilizes a standard survey instrument applied to nearly all countries in Eastern Europe and<br>Central Asia, thus ensuring comparability. BEEPS II is a follow-up of an earlier BEEPS effort. In<br>Serbia the BEEPS II survey had a sample size of approximately 230 firms in 2002 (BEEPS I did not<br>cover Serbia). Generally, the sampling strategy in BEEPS II differs from that of the PICS, as the sample<br>design of the BEEPS is highly skewed toward smaller firms.|

# **Total Factor Productivity in the International Context**

Increases in the level of total factor productivity (TFP) of firms are an essential feature of economic growth: rich countries are countries with firms that are highly productive. This section demonstrates how TFP at the firm level is related to GDP per capita at the country level, and compares the level of TFP in Serbian firms with the levels in comparator countries. These comparisons use the large PICS-BEEPS dataset of about 27,000 firms from 50 countries.<sup>3</sup> TFP is a multi-factor productivity measure that represents the efficiency of the firm in transforming factor inputs into outputs. A firm that has a high level of TFP is one that can produce a high level of output for given quantities of capital and labor. TFP can be affected by wide range of factors: technology, managerial quality and incentives, corporate governance, government policies, and, of course, various dimensions of the investment climate. TFP is usually analyzed in a production function or growth 4