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Does Privatization Raise Productivity? Evidence from Comprehensive Panel Data on Manufacturing Firms in Hungary, Romania, Russia, and Ukraine

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Author Info
J. David Brown
John Earle
Almos Telegdy

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Abstract

We analyze the impact of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. Controlling for firm and industry-year fixed effects and employing a wide variety of measurement approaches, we estimate that majority privatization raises MFP about 28% in Romania, 22% in Hungary, and 3% in Ukraine, with some variation across specifications, while in Russia it lowers it about 4%. Privatization to foreign rather than domestic investors has a larger impact (about 44%) and is much more consistent across countries. The positive effects emerge within a year in Hungary, Romania, and Ukraine and continue to grow thereafter, but are still ambiguous even after 5 years in Russia. Pre-privatization MFP exceeds that of firms remaining state-owned in all countries, implying that cross-sectional estimates overstate privatization effects. The patterns of the estimated effects cast doubt on a number of explanations for "when privatization works."

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Paper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0410.

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Date of creation: 2004
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Handle: RePEc:hwe:certdp:0410

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Related research
Keywords: Eastern Europe; privatization; productivity; transition;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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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. Galyna Grygorenko & Stefan Lutz, 2007. "Firm Performance and Privatization in Ukraine," The School of Economics Discussion Paper Series 0704, Economics, The University of Manchester. [Downloadable!]
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  2. Orazem, Peter & Vodopivec, Milan & Wu, Ruth, 2004. "Worker Displacement during the Transition: Experience from Slovenia," IZA Discussion Papers 1297, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Rudiger Ahrend, 2006. "Russian Industrial Restructuring: Trends in Productivity, Competitiveness and Comparative Advantage," Post-Communist Economies, Taylor and Francis Journals, vol. 18(3), pages 277-295, September. [Downloadable!] (restricted)
    Other versions:
  4. J. David Brown & John Earle & Almos Telegdy, 2005. "The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine," CERT Discussion Papers 0508, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
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