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

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Author Info
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)

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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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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank. [Downloadable!]
  4. Knack, Stephen, 2000. "Aid dependence and the quality of governance : a cross-country empirical analysis," Policy Research Working Paper Series 2396, The World Bank. [Downloadable!]
  5. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May. [Downloadable!] (restricted)
  6. Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, vol. 102(411), pages 291-300, March. [Downloadable!] (restricted)
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  7. Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February. [Downloadable!] (restricted)
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  8. Cukierman, Alex & Liviatan, Nissan, 1992. "The Dynamics of Optimal Gradual Stabilizations," World Bank Economic Review, Oxford University Press, vol. 6(3), pages 439-58, September.
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  9. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June. [Downloadable!] (restricted)
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  10. Przeworski, Adam & Limongi, Fernando, 1993. "Political Regimes and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 51-69, Summer. [Downloadable!] (restricted)
  11. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
  12. Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Nellis, J., 1999. "Time to Rethink Privatization in Transition Economies?," Papers 38, World Bank - International Finance Corporation.
  14. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
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  15. Isham, Jonathan & Kaufmann, Daniel & Pritchett, Lant, 1995. "Governance and returns on investment : an empirical investigation," Policy Research Working Paper Series 1550, The World Bank. [Downloadable!]
  16. Dethier, Jean-Jacques & Ghanem, Hafez & Zoli, Edda, 1999. "Does democracy facilitate the economic transition : an empirical study of Central and Eastern Europe and the Former Soviet Union," Policy Research Working Paper Series 2194, The World Bank. [Downloadable!]
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  18. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olsson, Jerry, 2004. "Decentralization of Governance and Financing of Public Roads in the Philippines in the 1990s," Philippine Journal of Development, Philippine Institute for Development Studies, vol. 0(2), pages 247-275. [Downloadable!]
  2. Vatcharin Sirimaneetham, 2006. "What drives liberal policies in developing countries?," Bristol Economics Discussion Papers 06/587, Department of Economics, University of Bristol, UK. [Downloadable!]
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