Working Paper: CEPR ID: DP4791
Authors: J. David Brown; John S. Earle
Abstract: We analyse the impact of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. Controlling for firm and industry-year fixed effects and employing a wide variety of measurement approaches, we estimate that majority privatization raises MFP about 28% in Romania, 22% in Hungary, and 3% in Ukraine, with some variation across specifications, while in Russia it lowers it about 4%. Privatization to foreign rather than domestic investors has a larger impact (about 44%) and is much more consistent across countries. The positive effects emerge within a year in Hungary, Romania, and Ukraine and continue to grow thereafter, but are still ambiguous even after 5 years in Russia. Pre-privatization MFP exceeds that of firms remaining state-owned in all countries, implying that cross-sectional estimates overstate privatization effects. The patterns of the estimated effects cast doubt on a number of explanations for ‘when privatization works’.
Keywords: Privatization; Productivity; Transition Economies; Panel Data
JEL Codes: L33; P31; O57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Privatization (L33) | Multifactor Productivity (MFP) (E23) |
| Privatization to foreign investors (F21) | Multifactor Productivity (MFP) (E23) |
| Pre-privatization productivity levels (L33) | Multifactor Productivity (MFP) (E23) |
| Privatization effects vary by country (L33) | Multifactor Productivity (MFP) (E23) |