At the beginning of the transition process virtually every country in the EBRD region achieved large one-off productivity gains by laying off excess workers, cutting other costs and improving the use of capacity. There remains scope for leveraging such drivers of productivity in those countries that are still at a relatively early stage of the process. In those countries, improving management practices may also have a large positive impact on productivity. In more advanced transition countries, firm-level innovation plays a more important role in boosting firms’ productivity.

This chapter looks at the impact that different forms of innovation and the quality of management practices have on firms’ labour productivity1 (calculated as turnover per worker), using the EBRD and World Bank’s fifth Business Environment and Enterprise Performance Survey (BEEPS V) and the Middle East and North Africa Enterprise Surveys (MENA ES) conducted by the EBRD, the World Bank and the European Investment Bank. It first presents basic information about the labour productivity of firms across the transition region, before investigating the relationship between innovation and productivity and comparing the effect that innovation has on productivity in high and low-tech sectors. The chapter then examines productivity gains stemming from improvements in management practices, comparing them with returns to process innovation in various regions. It concludes by examining the relative export performances of innovative and less innovative industries.