This paper explores the competitiveness of firms in transition economies. Using a large panel of firms from several Central and Eastern 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 behavior (e.g., improvements in cost-efficiency and labor productivity and 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 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 behavior, 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 labor productivity, investment, and their previous business experience, but stronger competition has a negative effect on it.
