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Using a ten-year panel of firm-level data for the Slovenian manufacturing sector, we find that as a result of investment liberalization, the least-efficient incumbent firms are experiencing job destruction, and the most-efficient are experiencing productivity gains; firms from the middle part of the total factor productivity (TFP) distribution are faced with both effects. Further, local firms from the lower and middle parts of the TFP distribution also experience a competition effect from imports in terms of both reduced employment and TFP growth. Our results imply that policy measures affecting foreign firm entry would have a relatively uniform effect on the employment growth of local firms, while their TFP growth would adjust significantly differently across the TFP distribution.
