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financing, either obtained (e.g., the sources of financing for fixed investment) or perceived (e.g., cost of or access to finance as an obstacle to business) are positively correlated with deep restructuring, however measured. We then use the same methodology as above – regression analysis with controls for firm characteristics – but now we include a measure of external financing. We use two different measures: whether or not the firm has a bank loan, and whether or not the firm has any external financing. The results are presented in Table VI.4 for specifications that pool the pre- 2001 EU members and the TEs, using our index of the two main restructuring measures (new product and upgrade); the results are similar when we use different measures of deep restructuring. The absence of external financing, either partial (no bank borrowing) or complete (not external financing at all) is associated with less restructuring. The impact of access to external financing is, interesting, quantitatively as qualitatively very similar in both the developed market economies of the pre-2001 EU members and in the TEs.



The move from plan to market in Central and Eastern Europe and the former USSR was to a large extent driven by the expectation that the return to the market would put these countries onto a growth path that would lead eventually to convergence with the developed market economies operating at the world technological frontier. Fifteen years after the start of the transition process, it is the right time to ask if such convergence has indeed been taking place. Most studies of convergence focus either on the macro aspect (convergence in terms of per capita GDP) or the micro aspect (convergence in firm productivity). In contrast, this paper looks at the function of, and convergence in, markets and firm behavior of the transition countries with those in the mature market economies. Our focus 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 use data from several waves of the BEEPS exercise; due to a number of unique features, these data are particularly appropriate for studying the process of convergence


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