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Move to markets? An empirical analysis of privatization in developing countries

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  • Sudeshna Ghosh Banerjee

    (Europe and Central Asia Region, The World Bank, Washington DC, USA)

  • Michael C. Munger

    (Department of Political Science and Department of Economics, Duke University, Durham, North Carolina, USA)

Abstract

Aspects of the privatization experience are analysed for a group of 35 low or middle-income developing countries, over the period 1982 through 1999. The theory turns on net political benefits, which in our model are the primary determinant of privatization policies. The decision to privatize is captured here in three related, but distinct, dependent variables: (i) timing; (ii) pace; and (iii) intensity. Our notion of the independent variable, 'net political benefits', is not measured directly, but is instead proxied by an array of macroeconomic, political, and institutional variables. Our key finding is that, though political benefits turn out to explain the timing, pace, and intensity of privatization, the effects are very different in each case. The timing hypothesis is tested using a Cox proportional hazard model, the pace hypothesis is tested using a random effects negative binomial model and the intensity hypothesis is tested using the random effects model. We find that the factors that improve timing delay intensity-early adopters are later implementers. Furthermore, we find that a privatization policy is much more likely to be a crisis-driven, last ditch effort to turn the economy around, rather than a carefully chosen policy with explicit, long-term goals. A related, and very important, finding in our analysis has to do with the 'lock-in' of institutions. The particular form of political institutions, foreign aid regimes, and level of development of property rights systems in the nation have significant conditioning influences on the extent of lock-in. These relationships may be important for informing policy decisions, and for understanding apparent 'failures' of privatization policies. Copyright © 2004 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 16 (2004)
Issue (Month): 2 ()
Pages: 213-240

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Handle: RePEc:wly:jintdv:v:16:y:2004:i:2:p:213-240

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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Cited by:
  1. Samuel Adams, 2011. "Privatization and National Development: A Case Study of Ghana," Public Organization Review, Springer, vol. 11(3), pages 237-253, September.
  2. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane & Saffar, Walid, 2011. "The political economy of residual state ownership in privatized firms: Evidence from emerging markets," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 244-258, April.
  3. Witold J. Henisz & Bennet A. Zelner & Mauro F. Guillen, 2004. "International Coercion, Emulation and Policy Diffusion: Market-Oriented Infrastructure Reforms, 1977-1999," William Davidson Institute Working Papers Series 2004-713, William Davidson Institute at the University of Michigan.
  4. Vatcharin Sirimaneetham, 2006. "What drives liberal policies in developing countries?," Bristol Economics Discussion Papers 06/587, Department of Economics, University of Bristol, UK.
  5. Julian Lampietti, 2004. "Power's Promise : Electricity Reforms in Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 14936, October.

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