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show more rapid growth in the private and especially new private sectors, movement in the size distribution of firms towards the pattern of large numbers of small firms as seen in developed market economies, more evidence of convergence in the EU8 members than in the poorer TEs, and evidence as well of Kuznet-Chenery type structural change across sectors.

We now turn to the evidence on convergence in two key dimensions of the business environment, competition and finance, and how firms have responded to changes in terms of restructuring activity.


Competitive environment

Our motivation for this section is two-fold: the recognition, now widely shared, that competition is a key determinant of firm performance and the fact that competition and market structure remain among the least explored aspects of business environment in the transition economies. We ask the following questions: How has competition in TEs changed over time? Does competition as perceived by firms now look comparable to developed market economies?

To start, under central planning, competition, whether domestic or foreign, did not exist or was at best substituted with bureaucratic pressure, according to Djankov and Murrell (2002). The market structure was highly distorted, relative to the developed economies, with considerably fewer small and medium-sized firms (Roland 2000). Many state- owned enterprises, according to Newbery and Kattuman (1992), were effectively monopolists and there were concerns that privatization alone would have little effect on enterprise restructuring and performance in such a monopolized environment (Tirole 1991, Konings, Van Cayseele, and Warzynski 2005).

data, and as already noted, the changes in employment in smaller firms play a larger role in the latter because of the growth of the small firm sector in TEs.


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