The Benefits of Privatization : Evidence from Mexico
AbstractCriticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks.
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Bibliographic InfoPaper provided by The World Bank in its series World Bank Other Operational Studies with number 11583.
Date of creation: Jun 1997
Date of revision:
International Economics and Trade - Access to Markets Urban Development - Municipal Financial Management Banks and Banking Reform Economic Theory and Research Environmental Economics and Policies Finance and Financial Sector Development Macroeconomics and Economic Growth Environment;
Other versions of this item:
- Rafael La Porta & Florencio López-De-Silanes, 1999. "The Benefits Of Privatization: Evidence From Mexico," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1193-1242, November.
- Rafael La Porta & Florencio Lopez-de-Silane, 1997. "The Benefits of Privatization: Evidence from Mexico," NBER Working Papers 6215, National Bureau of Economic Research, Inc.
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