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Politicians and firms in seven central and eastern European countries

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  • Claessens, Stijn
  • Djankov, Simeon

Abstract

The authors test several propositions derived by Shleifer and Vishny (1994, 1996) about how privatization and stabilization (hard budget constraints) affect enterprise behavior. They document the changes in financing, employment, and operating efficiency that have occurred in more than 6300 manufacturing enterprises in seven Central and Eastern European countries (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovak Republic, and Slovenia). They then compare the relative performance of privatized and state-owned enterprises. Controlling for institutional differences and the endogeneity of privatization choices, they find that privatization is associated with significant improvements in total factor productivity and reductions in employment. Reductions in soft financing are associated with further productivity gains. State-owned enterprises employ more workers, have lower productivity, receive more financing and direct subsidies, and have higher variable costs than privatized firms, particularly firms privatized for more than three years. Privatized firms also consistently outperform state enterprises in productivity growth. Over time, the role of politicians in allocating bank financing and subsidies appears to have declined, however, and banks have played a greater role in (efficiently) allocating resources. And the institutional environment appears to have improved in most countries, suggesting that the influence of corruption has declined over time. The results--which provide significant support for the Shleifer-Vishny model--demonstrate the beneficial effects of privatization in the presence of stabilization and decreasing corruption.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1954.

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Date of creation: 31 Aug 1998
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Handle: RePEc:wbk:wbrwps:1954

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Keywords: Banks&Banking Reform; Economic Theory&Research; Environmental Economics&Policies; Municipal Financial Management; Financial Crisis Management&Restructuring; Banks&Banking Reform; Environmental Economics&Policies; Municipal Financial Management; Economic Theory&Research; Financial Crisis Management&Restructuring;

References

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  1. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
  2. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital Utilization and Returns to Scale," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 67-124 National Bureau of Economic Research, Inc.
  3. Simeon Djankov & Gerhard Pohl, 1997. "Restructuring of Large Firms in Slovakia," William Davidson Institute Working Papers Series 73, William Davidson Institute at the University of Michigan.
  4. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  5. Claessens, Stijn & Djankov, Simeon & Pohl, Gerhard, 1997. "Ownership and corporate governance : evidence from the Czech Republic," Policy Research Working Paper Series 1737, The World Bank.
  6. Barberis, Nicholas & Boycko, Maxim & Shleifer, Andrei & Tsukanova, Natalia, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Scholarly Articles 3451306, Harvard University Department of Economics.
  7. Bailey, Elizabeth E, 1986. "Price and Productivity Change Following Deregulation: The U.S. Experience," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(381), pages 1-17, March.
  8. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, Econometric Society, vol. 42(6), pages 999-1012, November.
  9. Rafael La Porta & Florencio López-de-Silanes, 1997. "The Benefits of Privatization : Evidence from Mexico," World Bank Other Operational Studies 11583, The World Bank.
  10. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  11. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(435), pages 309-19, March.
  12. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 995-1025, November.
  13. Djankov, Simeon & Pohl, Gerhard, 1997. "The restructuring of large firms in Slovakia," Policy Research Working Paper Series 1758, The World Bank.
  14. Vernon-Wortzel, Heidi & Wortzel, Lawrence H., 1989. "Privatization: Not the only answer," World Development, Elsevier, vol. 17(5), pages 633-641, May.
  15. Pinto, Brian & van Wijnbergen, Sweder, 1995. "Ownership and Corporate Control in Poland: Why State Firms Defied the Odds," CEPR Discussion Papers 1273, C.E.P.R. Discussion Papers.
  16. 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, vol. 49(2), pages 403-52, June.
  17. Vining, Aidan R & Boardman, Anthony E, 1992. " Ownership versus Competition: Efficiency in Public Enterprise," Public Choice, Springer, vol. 73(2), pages 205-39, March.
  18. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-65, December.
  19. Kikeri, Sunita & Nellis, John & Shirley, Mary, 1994. "Privatization: Lessons from Market Economies," World Bank Research Observer, World Bank Group, World Bank Group, vol. 9(2), pages 241-72, July.
  20. Bishop, Matthew R. & Kay, John A., 1989. "Privatization in the United Kingdom: Lessons from experience," World Development, Elsevier, vol. 17(5), pages 643-657, May.
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