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Convergence in institutions and market outcomes: Cross-country and time-series evidence from the BEEPS surveys in transition economies

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  • Pradeep Mitra
  • Alexander Muravyev
  • Mark E. Schaffer

    () (Heriot-Watt University)

Abstract

This paper uses firm-level data from the Business Environment and Enterprise Performance Surveys (BEEPS) to study the process of convergence of transition countries with developed market economies. The primary focus of the study is on competition and market structure, finance and the structure of lending to firms, and how firms respond to the economic environment by restructuring; we are able to do this because the BEEPS cover thousands of firms from virtually all transition countries over a long time period (1996-99 through 2002-05), as well firms from developed market economies, thus providing a set of natural benchmarks. We find substantial evidence of convergence of transition countries with developed market economies in a number of dimensions. The pattern of growth at the country, sectoral and firm level shows rapid growth of the new private sector and of the micro- and small-firm sectors, with the size distribution of firms moving towards the pattern observed in the BEEPS surveys of developed market economies. Our interpretation of the evidence on competition is that there is an initial move by firms into niches to exploit local market power, and later in transition entry and domestic competitive pressure increases. In finance, the increasing reliance on retained earnings in transition countries reflects a maturation of the sector as new firms come to rely less on informal and family sources of finance. The scale of restructuring and innovation activity is as high or higher in transition economies as in developed market economies. Interestingly, we find evidence of an inverse-U shape pattern, with the peak of restructuring activity taking place in 2002, the middle of the period analyzed. Throughout, the regional patterns suggest greater convergence in the transition countries that joined the European Union in 2004 than in the other, lower-income transition economies.

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  • Pradeep Mitra & Alexander Muravyev & Mark E. Schaffer, 2008. "Convergence in institutions and market outcomes: Cross-country and time-series evidence from the BEEPS surveys in transition economies," CERT Discussion Papers 0809, Centre for Economic Reform and Transformation, Heriot Watt University.
  • Handle: RePEc:hwe:certdp:0809
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    Cited by:

    1. Muravyev, Alexander & Bilyk, Olga & Grechaniuk, Bogdana, 2009. "Firm Performance and Managerial Turnover: The Case of Ukraine," MPRA Paper 13685, University Library of Munich, Germany.
    2. Muravyev, Alexander, 2010. "Evolution of Employment Protection Legislation in the USSR, CIS and Baltic States, 1985-2009," IZA Discussion Papers 5365, Institute for the Study of Labor (IZA).
    3. Pradeep Mitra & Alexander Muravyev & Mark Schaffer, 2014. "Labor reallocation and firm growth: benchmarking transition countries against mature market economies," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-22, December.

    More about this item

    Keywords

    transition; convergence; market structure; competition; enterprise finance; enterprise restructuring;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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