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Privatization in Latin America: What Does the Evidence Say?

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  • Albert Chong

    ()

  • Florencio López-de-Silanes

    ()

Abstract

Privatization is under attack. Criticisms run from corrupt deals to abuse of market power and social welfare losses. We evaluate the empirical record on privatization, relying on recent comprehensive studies from Latin America. The paper presents four main results. First, the increased profitability of privatized firms is not explained by sample selection biases. Second, in the quest to identify the sources of increased profitability after privatization, we find little evidence that validates concerns of generalized market power abuses, exploitation of workers, and lack of fiscal benefits. Third, the manner in which privatization is carried out matters. Transparency and homogeneity in procedures, speed, and limited restructuring prior to privatization lead to better outcomes and less room for corruption and discretion. Finally, privatization´s success is enhanced by two complementary policies: deregulation or reregulation of industries previously shielded from competitive forces; and an effective corporate governance framework that facilitates privatized firms´ access to capital at lower cost. Overall, the empirical record shows that privatization leads to increased profitability and productivity, firm restructuring, fiscal benefits, output growth, and even quality improvements. Most cases of privatization failure can be linked to poor contract design, opaque processes with heavy state involvement, lack of reregulation, and a poor corporate governance framework.

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Bibliographic Info

Article provided by LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal JOURNAL OF LACEA ECONOMIA.

Volume (Year): (2004)
Issue (Month): ()
Pages:

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Handle: RePEc:col:000425:008674

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Related research

Keywords: Privatization; Firms; Restructuring; Welfare; Labor; Governance; SOE;

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Cited by:
  1. Mauricio Olivera & Felipe Barrera, 2007. "Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia," Research Department Publications, Inter-American Development Bank, Research Department 3230, Inter-American Development Bank, Research Department.
  2. Pablo Egaña & Alejandro Micco, 2011. "Labor Market in Latin America and the Caribbean: The Missing Reform," Working Papers, University of Chile, Department of Economics wp345, University of Chile, Department of Economics.
  3. Virgilio Galdo & Máximo Torero & Alberto E. Chong, 2005. "Does Privatization Deliver?: Access to Telephone Services and Household Income in Poor Rural Areas Using a Quasi-Natural Experiment in Peru," IDB Publications 6833, Inter-American Development Bank.
  4. Raluca E. Buia & M. Cristina Molinari, 2008. "Corruption and Positive Selection in Privatization," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2008_43, Department of Economics, University of Venice "Ca' Foscari".
  5. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 147, Edinburgh School of Economics, University of Edinburgh.
  6. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, Elsevier, vol. 90(1), pages 69-84, September.
  7. Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 201_28, Department of Economics, University of Venice "Ca' Foscari".
  8. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," NBER Working Papers 15448, National Bureau of Economic Research, Inc.
  9. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2008. "Renegotiation of concession contracts in Latin America: Evidence from the water and transport sectors," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(2), pages 421-442, March.
  10. Irene Fafaliou & John Donaldson, 2007. "The Contribution of Privatization to Welfare," International Advances in Economic Research, Springer, Springer, vol. 13(4), pages 461-474, November.
  11. Antonio Estache & A. Goicoechea & Lourdes Trujillo, 2008. "Utilities reforms and corruption in developing countries," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/43908, ULB -- Universite Libre de Bruxelles.
  12. Mauricio Olivera & Felipe Barrera, 2007. "La sociedad gana o pierde como resultado de la privatizacion? El caso de Colombia," Research Department Publications, Inter-American Development Bank, Research Department 3231, Inter-American Development Bank, Research Department.
  13. Bonnet, Céline & Dubois, Pierre & Martimort, David & Straub, Stéphane, 2009. "Empirical Evidence on Satisfaction with Privatization in Latin America: Welfare Effects and Beliefs," TSE Working Papers, Toulouse School of Economics (TSE) 09-020, Toulouse School of Economics (TSE).
  14. Parker, David & Kirkpatrick, Colin & Figueira-Theodorakopoulou, Catarina, 2008. "Infrastructure regulation and poverty reduction in developing countries: A review of the evidence and a research agenda," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(2), pages 177-188, May.
  15. Jan Mattijs, 2007. "Belgique, terre de contrats: le contexte managérial, juridique et l'économie politique du mouvement de contractualisation en Belgique fédérale," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/14888, ULB -- Universite Libre de Bruxelles.
  16. Alberto Chong & Virgilio Galdo & Máximo Torero, 2005. "¿Cumple la privatización lo que promete? El acceso a los servicios telefónicos y el ingreso familiar en zonas rurales pobres empleando un experimento cuasinatural en Perú," Research Department Publications, Inter-American Development Bank, Research Department 4418, Inter-American Development Bank, Research Department.

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