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Berglof and Bolton (2002), Bonin and Wachtel (2003), EBRD (2005) are among these few contributions. In this section of the paper our aim is to provide a broad picture by taking advantage of the cross-country and time-series nature of the BEEPS dataset. How has the transition process changed this important aspect of the business environment? How do the transition countries compare with the developed market economies? These are the questions that are addressed in this section.

The BEEPS surveys are very rich in questions on access to and cost of finance, relationships with lenders, financial problems of firms, etc. The BEEPS data show, for example, that when firms are asked about access to and cost of finance, firms in the pre- 2001 EU members have fewer problems than those in TEs, but the problems reported by firms in TEs have been declining since 1999, particularly in the SEE and CIS countries. In TEs, large firms, firms in major cities, and foreign-owned firms all face lower obstacles to obtaining finance than other firms. The pattern in the developed market economies is similar, with an interesting exception: firms in large cities in Germany and the cohesion countries do not report financing obstacles that are any different to those in smaller cities or rural areas. We take this as evidence of incomplete within-country integration in the transition economies. In these countries, the large cities grow and catch-up faster than the rest of the country, and the poorer areas lag behind, whereas the developed market economies are financially integrated internally. Similar patterns have been found in previous studies, e.g., EBRD (2005).

The picture painted by the more quantitative data is similar: privatized and new private firms in TEs have lower costs of credit than state-owned firms; small firms pay more; exporters and firms in big cities pay less. We also find that the terms of loans are, not surprisingly, longer in Germany (I) and the cohesion countries (II), followed by the EU8 members (III); and that the costs of loans have been declining in TEs between 1999 and 2005, and are approaching the levels seen in Germany and the cohesion countries. In short, we again see a pattern of convergence.


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