The Effects of Privatization and Ownership in Transition Economies

Saul Estrin,Jan Hanousek,Evžen Kočenda,Jan Svejnar

doi:10.1257/jel.47.3.699

Abstract

In this paper, we evaluate what we have learned to date about the effects of privatization from the experiences during the last fifteen to twenty years in the postcommunist (transition) economies and, where relevant, China. We distinguish separately the impact of privatization on efficiency, profitability, revenues, and other indicators and distinguish between studies on the basis of their econometric methodology in order to focus attention on more credible results. The effect of privatization is mostly positive in Central Europe, but quantitatively smaller than that to foreign owners and greater in the later than earlier transition period. In the Commonwealth of Independent States, privatization to foreign owners yields a positive or insignificant effect while privatization to domestic owners generates a negative or insignificant effect. The available papers on China find diverse results, with the effect of nonstate ownership on total factor productivity being mostly positive but sometimes insignificant or negative.

Highlights

This paper is motivated by the ongoing debate among economists and policy makers about the efficiency and distributional effects of different methods and sequencing of privatizations around the world
We find that privatization to foreign owners raises efficiency relative to state owned firms, in China this result is less clear cut and relatively more estimates suggest that private domestic ownership raises Total Factor Productivity (TFP)
In China, this result is less clear cut and relatively more estimates suggest that private domestic ownership raises TFP, though not the rate of change of TFP

Summary

Introduction

This paper is motivated by the ongoing debate among economists and policy makers about the efficiency and distributional effects of different methods and sequencing of privatizations around the world. The transition economies differ from most other developing countries because of their relatively high level of human capital, initial lack of wealth in private domestic hands, and the heritage of anti-entrepreneurialism (see Estrin, Meyer, Bytchkova, 2006). They share with many other developing countries numerous characteristics associated with “weak” institutions, such as poorly conceived and/or ineffectively enforced property rights and insufficiently developed capital markets (see Acemoglu, Johnson and Robinson (2002) for a discussion of the role of institutions in economic development).

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