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Off the Rails: Is State Ownership Bad for Productivity?

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  • Dan Bogart

    ()
    (Department of Economics, University of California-Irvine)

  • Latika Chaudhary

    ()
    (Department of Economics, Scripps College)

Abstract

The performance of Indian railways in the nineteenth century provides a great context to study the effects of state ownership on productivity and other aspects of operations. We rely on a key feature of the institutional background whereby the Government of India purchased a majority ownership stake in private railways at pre- determined dates set by contracts negotiated decades before the companies came under state ownership. Controlling for individual railway fixed effects, year fixed effects, and railway-specific time trends, we find no evidence of a decline in TFP following state takeovers of private companies. Instead of reducing productivity, as the recent experiences with privatization would suggest, we find that the Government of India maintained productivity when it became the owner of railways. Government ownership influenced certain areas of operations such as the capital-labor ratio, but not others such as fares. This suggests the state was able to achieve similar productivity without following the blueprint of private companies.

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Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 131401.

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Length: 34 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:irv:wpaper:131401

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Keywords: Nationalization; State owned enterprises; India; Railways; Institutions.;

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References

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  1. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 403-52, June.
  2. Dan Bogart & Latika Chaudhary, 2012. "Regulation, Ownership, and Costs: A Historical Perspective from Indian Railways," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 4(1), pages 28-57, February.
  3. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 49(2), pages 326-65, June.
  4. Bogart, Dan & Chaudhary, Latika, 2013. "Engines of Growth: The Productivity Advance of Indian Railways, 1874–1912," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 73(02), pages 339-370, June.
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  14. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(3), pages 739-792, September.
  15. Ramamurti, Ravi, 1997. "Testing the limits of privatization: Argentine railroads," World Development, Elsevier, Elsevier, vol. 25(12), pages 1973-1993, December.
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  17. Bogart, Dan, 2010. "A global perspective on railway inefficiency and the rise of state ownership, 1880-1912," Explorations in Economic History, Elsevier, Elsevier, vol. 47(2), pages 158-178, April.
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