Working Paper: CEPR ID: DP1844
Authors: Thorvaldur Gylfason
Abstract: Privatization is shown to increase national economic output in a two-sector full-employment general-equilibrium model by enhancing efficiency as if a relative price distortion were being removed through price reform, trade liberalization, or stabilization. The static output gain from reallocation and reorganization through privatization is captured in a simple formula in which the gain is a quadratic function of the original distortion stemming from an excessive public sector. Substitution of plausible parameter values into the formula indicates that, in practice, the static output gain from privatization may be large. The potential dynamic output gain from privatization also appears to be substantial.
Keywords: privatization; efficiency; economic growth
JEL Codes: 040; P11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Privatization (L33) | Economic Output (E23) |
| Elimination of Public Sector Distortions (H19) | Economic Output (E23) |
| Privatization (L33) | Efficiency (D61) |
| Efficiency (D61) | Economic Output (E23) |
| Privatization (L33) | Growth Rate of Economic Output (O49) |
| Privatization (L33) | Output per Head (Y10) |
| Initial Conditions (Y20) | Economic Output Gains (O49) |