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  • We are able to benchmark the TEs against other, mostly non-transition countries in 2004-05. In particular, we have BEEPS data from developed and cohesion Europe (Germany, Spain, Greece, Ireland, Portugal), developed Asia (South Korea) and even emerging Asia (Vietnam, coming from a different transition path).1

The benchmarking BEEPS surveys have not been used much by researchers to date, but play a central role in our analysis, because together with the time series dimension of the BEEPS data, they enable us to analyze the convergence process. Where our approach differs from most previous studies using the BEEPS data is that our focus is not on direct measurement of institutions, something which is notoriously difficult in the best of circumstances.2 Rather, we look primarily at the function of, and convergence in, markets and firm behavior that are shaped by particular institutions. We focus in particular on competition and market structure, finance and the structure of lending to firms, and how firms respond to the economic environment by restructuring. Analyzing restructuring activity through the convergence prism is particularly interesting in the transition context, since it provides an example where we expect successful convergence to be associated with a high initial level of restructuring – possibly appearing after an initial low level of restructuring and then “take-off” early in the transition period – as firms make major investments to adjust to the new market economy environment, followed by a decline over time. Our analysis is thus closest in spirit to the “structural convergence” literature pioneered by Kuznets and Chenery. Unlike this literature, however, which operates at the sectoral level, and the growth and convergence literature, which operates at the macro level, we are drilling down to the level of firms.

The paper is organized as follows. Section II describes the BEEPS surveys and samples and introduces the country classification we use. Section III sets the scene by presenting the stylized facts of growth and convergence as they have been analyzed in the literature

1 The “Cohesion” group includes Greece, Ireland, Portugal and Spain, the countries which in the late 1990s were recipients of the EU cohesion funds.

2 Thus Blanchard (2007) makes this point for an application that is relatively straightforward compared to ours: measurement of labor market institutions in the OECD countries.

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