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The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine

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Author Info
J. David Brown
John Earle
Almos Telegdy

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Abstract

This paper estimates the effect of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. We exploit the key longitudinal feature of our data to measure and control for pre-privatization selection bias and to estimate long-run impacts. We find that the magnitudes of our estimates are robust to alternative functional forms, but sensitive to how we control for selection. Our preferred random growth models imply that majority privatization raises MFP about 15% in Romania, 8% in Hungary, and 2% in Ukraine, while in Russia it lowers it 3%. Privatization to foreign rather than domestic investors has a larger impact, 18-35%, in all countries. Positive domestic effects appear within a year in Hungary, Romania, and Ukraine and continue growing thereafter, but take 5 years after privatization to emerge in Russia.

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Paper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0508.

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Date of creation: 2005
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Handle: RePEc:hwe:certdp:0508

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Related research
Keywords: privatization; productivity; foreign ownership; random growth model; transition; Hungary; Romania; Russia; Ukraine;

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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
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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References listed on IDEAS
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. Earle, John S. & Telegdy, Almos, 2002. "Privatization Methods and Productivity Effects in Romanian Industrial Enterprises," Journal of Comparative Economics, Elsevier, vol. 30(4), pages 657-682, December. [Downloadable!] (restricted)
    Other versions:
  2. J. Kornai, . "Ten Years After "The Road to a Free Economy": The Author's Self-evaluation," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki".
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  3. Roman Frydman & Cheryl Gray & Marek Hessel & Andrzej Rapaczynski, 1999. "When Does Privatization Work? The Impact Of Private Ownership On Corporate Performance In The Transition Economies," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1153-1191, November. [Downloadable!] (restricted)
  4. Jacobson, Louis & LaLonde, Robert & G. Sullivan, Daniel, 2005. "Estimating the returns to community college schooling for displaced workers," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 271-304. [Downloadable!] (restricted)
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  5. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  6. Roland, Gerard & Sekkat, Khalid, 2000. "Managerial career concerns, privatization and restructuring in transition economies," European Economic Review, Elsevier, vol. 44(10), pages 1857-1872, December. [Downloadable!] (restricted)
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  7. Earle, John S & Estrin, Saul, 1997. "After Voucher Privatization: The Structure of Corporate Ownership in Russian Manufacturing Industry," CEPR Discussion Papers 1736, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Djankov, Simeon & Murrell, Peter, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," CEPR Discussion Papers 3319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1994. "Voucher privatization," Journal of Financial Economics, Elsevier, vol. 35(2), pages 249-266, April. [Downloadable!] (restricted)
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  10. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
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  11. J. David Brown & John Earle & Almos Telegdy, 2004. "Does Privatization Raise Productivity? Evidence from Comprehensive Panel Data on Manufacturing Firms in Hungary, Romania, Russia, and Ukraine," CERT Discussion Papers 0410, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
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  12. William L. Megginson & Jeffry M. Netter, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June. [Downloadable!] (restricted)
  13. John S. Earle & Csaba Kucsera & Almos Telegdy, 2003. "Ownership Concentration and Corporate Performance on the Budapest Stock Exchange: Do Too Many Cooks Spoil the Goulash?," Staff Working Papers 03-93, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
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  14. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier. [Downloadable!] (restricted)
  15. Olivier Jean Blanchard & Maxim Boycko & Marek Dabrowski & Rudiger Dornbusch & Richard Layard & Andrei Shleifer, 1993. "Post-Communist Reform: Pain and Progress," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023628, January.
  16. Maxim Boycko & Andrei Shleifer & Robert W. Vishny, 1993. "Privatizing Russia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1993-2), pages 139-192. [Downloadable!]
  17. Ashenfelter, Orley & Card, David, 1985. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 648-60, November. [Downloadable!] (restricted)
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  18. Aghion, Philippe & Blanchard, Olivier & Burgess, Robin, 1994. "The behaviour of state firms in eastern Europe, pre-privatisation," European Economic Review, Elsevier, vol. 38(6), pages 1327-1349, June. [Downloadable!] (restricted)
  19. Jeffrey M. Wooldridge, 2005. "Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 385-390, 05. [Downloadable!] (restricted)
Full references

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. John S. Earle & Almos Telegdy, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986–2003," Staff Working Papers 07-134, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  2. Brown, J. David & Earle, John S. & Telegdy, Álmos, 2008. "Employment and Wage Effects of Privatization: Evidence from Hungary, Romania, Russia, and Ukraine," IZA Discussion Papers 3688, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. J. David Brown & John S. Earle & Scott Gehlbach, 2008. "Helping Hand or Grabbing Hand? State Bureaucracy and Privatization Effectiveness," Staff Working Papers 08-142, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
    Other versions:
  4. Yakovlev, Andrei, 2009. "State-business relations and improvement of corporate governance in Russia," BOFIT Discussion Papers 26/2008, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  5. John S. Earle & Ãlmos Telegdy, 2007. "Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials using LEED from Hungary, 1986-2003," NBER Working Papers 12997, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Csengödi, Sándor / Urban, Dieter M., 2008. "Foreign Takeovers and Wage Dispersion in Hungary," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. J. David Brown & John Earle & Almos Telegdy, 2005. "Does Privatization Hurt Workers? Lessons from Comprehensive Manufacturing Firm Panel Data in Hungary, Romania, Russia, and Ukraine," CERT Discussion Papers 0509, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
    Other versions:
  8. Gábor Békés & Jörn Kleinert & Farid Toubal, 2006. "Spillovers from Multinationals to Heterogeneous Domestic Firms: Evidence from Hungary," CeFiG Working Papers 1, Center for Firms in the Global Economy, revised 01 Dec 2006. [Downloadable!]
    Other versions:
  9. Vera Brusentsev & Wayne Vroman, 2008. "Unemployment And Unemployment Protection In Transition Economies," Working Papers 08-15, University of Delaware, Department of Economics. [Downloadable!]
  10. Gábor Kátay & Zoltán Wolf, 2008. "Driving Factors of Growth in Hungary - a Decomposition Exercise," MNB Working Papers 2008/6, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  11. Gorodnichenko, Yuriy & Grygorenko, Yegor, 2008. "Are Oligarchs Productive? Theory and Evidence," IZA Discussion Papers 3282, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  12. Boeri, Tito & Macis, Mario, 2008. "Do Unemployment Benefits Promote or Hinder Structural Change?," IZA Discussion Papers 3371, Institute for the Study of Labor (IZA). [Downloadable!]
  13. De Fraja, Gianni & Roberts, Barbara M, 2007. "Privatisation in Poland: What Was the Government Trying to Achieve?," CEPR Discussion Papers 6114, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Correa, Paulo G. & Fernandes, Ana M. & Uregian, Chris J., 2008. "Technology adoption and the investment climate : firm-level evidence for Eastern Europe and Central Asia," Policy Research Working Paper Series 4707, The World Bank. [Downloadable!]
  15. J. David Brown & John S. Earle & Vladimir Vakhitov, 2006. "Wages, Layoffs, and Privatization: Evidence from Ukraine," Staff Working Papers 06-126, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
    Other versions:
  16. J. David Brown & John S. Earle, 2007. "The Productivity Effects of Privatization in Ukraine: Estimates from Comprehensive Manufacturing Firm Panel Data, 1989–2005," Staff Working Papers 07-137, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  17. Sándor Csengödi & Rolf Jungnickel & Dieter M. Urban, 2008. "Foreign Takeovers and Wages in Hungary," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(1), pages 55-82, April. [Downloadable!] (restricted)
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