is 27.5 percent, compared with the reference category.<sup>31</sup> All results are robust to the inclusion of productivity as an additional control variable (see results in table A1.6 in annex 1).<sup>32</sup>

**Table 5. Average markup differences by ownership structure, relative to domestic, privately** **<u>owned firms</u>**

||**(1)**<br>**Manufacturing**<br>**(%)**|**(2)**<br>**Services**<br>**(%)**|**(3)**<br>**Mining**<br>**(%)**|**(4)**<br>**All sectors**<br>**(%)**|
|---|---|---|---|---|
|Majority state-owned|52.7|13.9|77.2|20.0|
|State-private ownership|35.2|27.5|n.s.|28.9|
|Domestic private+foreign|16.1|27.9|n.s.|22.9|
|Fully foreign-owned|10.5|26.3|n.s.|20.1|
|Public of national and local<br>interest|20.9|14.9|n.s.|21.4|

_Source:_ World Bank staff calculations based on SBS data set. _Note:_ Numbers reflect estimated coefficients (multiplied by 100) for ownership dummy categories—relative to Romanian private firms, the omitted category—in a fixed-effect regression model controlling for firm covariates plus year and NACE 4-digit sector fixed effects, as displayed in equation (11). More details about the original ownership classification in SBS, and aggregation used for the analysis, can be found in table A1.3 and table A1.4 in annex 1. See table A1.5 in annex 1 for the complete set of results. n.s. = not statistically significant.

**Larger firms and older companies wield higher markups when compared with their counterparts, implying that firm size and age are relevant characteristics that influence markup differences.** As shown in figure 8, old companies (older than 15 years) display higher average markups than young ones (1–5 years old), even when they share similar attributes (in terms of ownership structure, size, and export and R&D profiles) and operate in the same NACE 4-digit sector, county, and year. The estimated average markup premium for old companies (relative to young ones) is 5.4 percent for the whole economy. It varies depending on how data are clustered across large sectors: 7.9 percent in manufacturing, 4.8 percent in services, and 22.8 percent in mining. Higher markup premiums for older companies can be interpreted in two ways: it can reflect that more experienced firms are able to transpose learning returns—which could positively affect their productivity or reduce their marginal costs—into higher markups, or that older firms are able to lobby better and create barriers to entry, making it more difficult for younger firms to exert competitive pressure. Firm size also matters to explain markup performance: large companies (with more than 250 full-time employees) tend to display higher markups compared with small companies, even when they operate in the same product market and share similar characteristics. On average, for the whole economy, the

> 31 Results for the category “other” are not shown in table 5. As detailed in table A1.3 in annex 1, this “other” category refers to SBS ownership answer-codes 40 and 50: respectively, “cooperative” and “public of national and local interest.” The reason the corresponding results were not highlighted in the main text are twofold. First, the above-mentioned category accounts for only 0.06 percent of total companies in the sample. Second, an indepth analysis would be needed to understand whether this “other” category reflects potential noise in the way firms self-classify their ownership structures or the way firms report cost expenditures (mainly), or whether this was influenced by SBS sampling design.

> 32 Because the production approach applied in the current analysis delivers both markup and productivity estimates, it is possible to further decompose the markup differences across firm characteristics, and to verify whether, after controlling for differences in marginal costs (that is, productivity), certain groups of firms still have higher markups. This is precisely one of the mitigating methods employed to reduce the conflation risk, as highlighted before. Results in table A1.6 in annex 1 should be interpreted as follows: once productivity level is included in the equation, differences in marginal cost are accounted for so the coefficient on “majority stateowned,” for instance, captures the variation in average prices between majority state-owned and the size reference category (domestic privately owned firms).

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