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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

    (Heriot-Watt University and CEU Labor Project)

  • John S. Earle

    (W.E. Upjohn Institute for Employment Research and Central European University)

  • Almos Telegdy

    (Central European University and Institute of Economics of the Hungarian Academy of Sciences)

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 percent in Romania, 22 percent in Hungary, and 3 percent in Ukraine, with some variation across specifications, while in Russia it lowers it about 4 percent. Privatization to foreign rather than domestic investors has a larger impact (about 44 percent) 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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Bibliographic Info

Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number 04-107.

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Date of creation: Nov 2004
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Handle: RePEc:upj:weupjo:04-107

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Keywords: privatization; productivity; foreign ownership; Hungary; Romania; Russia; Ukraine; transition;

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References

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Citations

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Cited by:
  1. Grygorenko, Galyna & Lutz, Stefan, 2004. "Firm performance and privatization in Ukraine," ZEI Working Papers B 27-2004, ZEI - Center for European Integration Studies, University of Bonn.
  2. Orazem, Peter F. & Vodopivec, Milan & Wu, Ruth, 2004. "Worker Displacement during the Transition: Experience from Slovenia," IZA Discussion Papers 1297, Institute for the Study of Labor (IZA).
  3. Rudiger Ahrend, 2004. "Russian Industrial Restructuring: Trends in Productivity, Competitiveness and Comparative Advantage," OECD Economics Department Working Papers 408, OECD Publishing.
  4. J. David Brown & John S. Earle & Almos Telegdy, 2005. "The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine," Upjohn Working Papers and Journal Articles 05-121, W.E. Upjohn Institute for Employment Research.

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