In this study, by establishing a third-country trade model of an international duopoly where two state firms from different post-communist countries compete against each other, we analyze the effects of a change in the degree of privatization on firms’ labor inputs and on the optimal privatization policy in post-communist countries. We show that a rise in the degree of privatization in a country raises labor input, output and exports of that country’s firm, while reducing those of the rival firm. Furthermore, we find that either full or partial privatization of state firms could be optimal in post-communist countries.