Restructuring and Competitiveness: Empirical Evidence on Firm Behaviour in New EU Member States and Candidate Countries

This paper aims to explore the competitiveness of firms in transition economies. Using a large panel of firms from several Central and East European Countries the paper identifies factors influencing the competitiveness of firms in conditions of transition. Competitiveness, measured by firms’ market share, is defined as a function of several elements of firms’ restructuring behaviour such as improvements in cost-efficiency and labour productivity, investment in new machinery and equipment as well as characteristics of firms and their environment such as location, experience, technological intensity of their industries and the intensity of competition. To control for the dynamic nature of competitiveness and the potential endogeneity of its determinants, and to distinguish between short and long run effects of firm behaviour, a dynamic panel methodology is employed. Our results indicate that the competitiveness of firms in transition economies is enhanced by improvements in their cost efficiency and labour productivity, investment and their previous business experience while stronger competition has a negative impact on it.