Abstract

When transition began, planning was abandoned, prices were liberalized and the new entry of firms was permitted. Although there was wide variation in the methods and speed of privatization of large firms, the privatization of small enterprises and shops was accomplished quickly in virtually every transition economy. The process of legalizing the start-up of new firms and the rapid privatization of small enterprises (mainly to managers) created the opportunity for new firms and new activities in existing firms to emerge across transition. This can be considered as a more or less uniform treatment effect of transition. In this contribution we investigate the interaction between the external environment such firms faced with the widespread opportunities for new business activities. The business environment for firms includes physical infrastructure, the availability of an educated labour force, the provision of administrative and judicial services, the control of corruption and crime, and the stability of the macroeconomic environment.