Transition: where does it stand and where should it go?
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There has been increasing recognition that successful transition involves not only market mechanisms and private economic activity, but also effective interaction between the state and private sectors and high-quality state institutions. Analysis of the business environment, level of competition by sector and managerial practices shows the heterogeneity of the transition region, while an assessment of remaining transition“gaps” exposes the size of the challenges still facing some countries.
Firms in central Europe and the Baltic states (CEB) tend to rate their business environment better than most other emerging market regions, while firms in Central Asia, eastern Europe and the Caucasus (EEC), Russia and Central Asia view it less favourably. With respect to managerial practices, the Central Asian countries and Russia lag behind not only Western benchmark countries but also China, while the CEB countries rate about the same as Greece, Ireland and Portugal. Firm-level data for three countries in south-eastern Europe (SEE) suggest that their levels of competition lagged behind CEB and other developing country benchmarks.
Sector-level analysis shows that the remaining transition gaps are mostly small in EU member countries, with medium gaps remaining in energy efficiency, transport infrastructure and in the financial sector. Gaps are typically medium in Armenia, Georgia, Kazakhstan, Russia and most SEE countries, and predominantly large elsewhere. These results imply that those countries which are least advanced in terms of reform will be left further behind once economic recovery takes root.
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