Government's budget constraint, competition, and privatization: evidence from China's rural industry

Abstract

This paper examines the determinants of privatization in Chinese rural industry by using data that we collected from Southern China in 1998. By employing several econometric specifications, we find that the probability of a firm being privatized increases with the degree of product market competition and the hardness of the government's budget constraint, but that it does not vary with government policies. Our findings highlight the decentralized nature of China's reforms.