various regions and various points of time, often using very different methodologies. It will also show that the BEEPS dataset, with its cross-sectional and time-series dimension, is particularly appropriate for studying the issues of convergence at the micro-level across the transition countries and over time.
The process of economic transition has long been thought as consisting of two key elements, reallocation and restructuring (Blanchard 1997). The former involves intersector adjustments of production, from low value added sectors to those generating high value added. The term “intersector adjustment” is used here in a broad sense meaning reallocation from the state sector to the private sector as well as by branches of economic activity. “Restructuring” refers to the behavior of surviving firms: in particular, changes in the level and technical composition of labor and capital, in search of efficiency improvements.
The economics literature on the transition process can be characterized by two broad views which differ by the relative importance attached to these two processes. One view emphasizes the inability of the old sector to quickly adapt to the new market environment and suggested that productivity improvements are mainly attained via the development of a new private sector. Thus, reallocation from the old sector to the new one is a focal point of the transition process according to this perspective. According to the other view, the restructuring of the existing firms, implying a collection of measures undertaken by these firms in order to survive and succeed in the market conditions, is an important contribution to improved productivity and economic growth. The second view thus emphasizes a particular aspect of convergence, namely convergence of the old firms with the new private businesses in terms of behavior and productivity. This is, however, a difference of emphasis; there is a broad consensus that both sources of productivity growth are important.
A voluminous literature has studied reallocation, growth and productivity at the firm level in the transition countries. While a thorough review of these studies is outside the scope of this paper and can be found elsewhere (see, e.g., Djankov and Murrell 2002;