Thus their study using BEEPS 1999 showed that there was an impact of competition in CIS countries, where market structure had not yet adjusted, and not in CEE countries, where they hypothesize is had. We are looking at 2005, and the null result of the impact of market structure may be the result of market structure in CIS countries adjusting – another sign of convergence. We note here that our results are robust to formulation in terms of lagged or current market structure.
The impact of the elasticity of demand on restructuring is a priori ambiguous. On the one hand, facing highly elastic demand is associated with a very competitive market environment, and if competition promotes restructuring, then we should observe a correlation between restructuring activity and elastic demand. On the other hand, inelastic demand may be driven by temporary monopoly that is the result of successful innovation, or the profits that result from monopoly can be used to finance restructuring. What we observe in both TEs and the developed market economies is that the latter channels predominate: highly elastic demand (the omitted category) is associated with less deep restructuring. (There is also a hint of a U-shape relationship in some of the results, with less restructuring found in monopolistic environments, but these results rely on the small number of firms reporting such a market structure and are not very robust.)
Finally, deep restructuring is clearly associated with perceived pressures to innovate. This is true across all regions, and in both the developed market economies and the TEs. Interestingly, the source of pressure apparently varies systematically across groups of countries. In particular, in both Germany and the cohesion countries, competitive pressure from domestic competitors is a spur to deep restructuring, whereas it has generally no such impact in the TEs, where the pressure comes exclusively from either foreign competition or customers. This is consistent with TEs as followers: in the developed market economies, the domestic competition is perceived as more of a competitive threat than it is in the less developed TEs.
We conclude this section with an examination of whether deep restructuring is associated with external financing. Simple correlations suggest a connection: measures of external