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sector dummy variables, a size variable (log employment), dummy variables for state and privatized firms, and the interaction of the state and privatized dummies with the size variable. The means of these variables are the “endowments”, and the coefficients are the per-unit contributions of these different country characteristics. Thus, for example, the contribution of the sectoral distribution of firms can be decomposed into differences between country groups in how many firms are in each sector (“endowments”) and differences between country groups in how fast each sector is growing (“coefficients”). As is standard in this literature, there is also an interaction effect between endowments and coefficients. We summarize below the results of the employment growth decomposition analysis in Figures III.1-III.8. A more detailed discussion of the decomposition framework, the regression results and detailed decomposition tables is presented in the Appendix.

The decompositions come in two forms: (a) decomposition of aggregate or total employment growth, which is obtained by using regressions weighted by average employment; (b) decomposition of average or firm employment growth, which is obtained by using unweighted regressions. The former shows aggregate employment effects and is comparable to the analysis of job creation and destruction presented above (Table III.3). The latter is comparable to much of literature on the growth of firms, and to our analysis above (Tables III.1 and III.2). The definitions of growth are the same as those used for the job creation/job destruction growth rate definitions.

The main results of the comparison of the Cohesion and the EU8 countries are shown in Figure III.1. These results refer to aggregate employment growth. The first two bars in the figure show the net growth rates in the two groups of countries and their contributing factors. In particular, for aggregate employment the net growth rate in the Cohesion group is equal to 6.40% and is largely determined by sectoral differences in growth rates and employment (which cumulatively amount to a growth rate of 6.69%) with only a


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