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Privatization in Latin America: What Does the Evidence Say?

Author

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  • Albert Chong

    ()

  • Florencio López-de-Silanes

    ()

Abstract

Privatization is under attack. Criticisms run from corrupt deals to abuse of market power and social welfare losses. We evaluate the empirical record on privatization, relying on recent comprehensive studies from Latin America. The paper presents four main results. First, the increased profitability of privatized firms is not explained by sample selection biases. Second, in the quest to identify the sources of increased profitability after privatization, we find little evidence that validates concerns of generalized market power abuses, exploitation of workers, and lack of fiscal benefits. Third, the manner in which privatization is carried out matters. Transparency and homogeneity in procedures, speed, and limited restructuring prior to privatization lead to better outcomes and less room for corruption and discretion. Finally, privatization´s success is enhanced by two complementary policies: deregulation or reregulation of industries previously shielded from competitive forces; and an effective corporate governance framework that facilitates privatized firms´ access to capital at lower cost. Overall, the empirical record shows that privatization leads to increased profitability and productivity, firm restructuring, fiscal benefits, output growth, and even quality improvements. Most cases of privatization failure can be linked to poor contract design, opaque processes with heavy state involvement, lack of reregulation, and a poor corporate governance framework.

Suggested Citation

  • Albert Chong & Florencio López-de-Silanes, 2004. "Privatization in Latin America: What Does the Evidence Say?," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 37-111, January.
  • Handle: RePEc:col:000425:008674
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    Cited by:

    1. repec:eee:juipol:v:48:y:2017:i:c:p:166-175 is not listed on IDEAS
    2. Alberto Chong & Virgilio Galdo & Máximo Torero, 2005. "Does Privatization Deliver? Access to Telephone Services and Household Income in Poor Rural Areas Using a Quasi-Natural Experiment in Peru," Research Department Publications 4417, Inter-American Development Bank, Research Department.
    3. Estache, Antonio & Goicoechea, Ana & Trujillo, Lourdes, 2009. "Utilities reforms and corruption in developing countries," Utilities Policy, Elsevier, vol. 17(2), pages 191-202, June.
    4. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2008. "Renegotiation of concession contracts in Latin America: Evidence from the water and transport sectors," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 421-442, March.
    5. Felipe Barrera-Osorio & Mauricio Olivera & Carlos Ospino, 2009. "Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia," Economica, London School of Economics and Political Science, vol. 76(304), pages 649-674, October.
    6. Jan Mattijs, 2007. "Belgique, terre de contrats: le contexte managérial, juridique et l'économie politique du mouvement de contractualisation en Belgique fédérale," ULB Institutional Repository 2013/14888, ULB -- Universite Libre de Bruxelles.
    7. Alberto Chong & Virgilio Galdo & Máximo Torero, 2005. "¿Cumple la privatización lo que promete? El acceso a los servicios telefónicos y el ingreso familiar en zonas rurales pobres empleando un experimento cuasinatural en Perú," Research Department Publications 4418, Inter-American Development Bank, Research Department.
    8. Laura Alfaro & Anusha Chari, 2009. "India Transformed? Insights from the Firm Level 1988-2005," NBER Working Papers 15448, National Bureau of Economic Research, Inc.
    9. Parker, David & Kirkpatrick, Colin & Figueira-Theodorakopoulou, Catarina, 2008. "Infrastructure regulation and poverty reduction in developing countries: A review of the evidence and a research agenda," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(2), pages 177-188, May.
    10. David Martimort & Stephane Straub, 2006. "Privatization and Changes in Corruption Patterns: The Roots of Public Discontent," ESE Discussion Papers 147, Edinburgh School of Economics, University of Edinburgh.
    11. Srinuan, Chalita, 2014. "Uncertainty of public pay phone in Thailand: Implications for the universal service obligation," Telecommunications Policy, Elsevier, vol. 38(8), pages 730-740.
    12. Bonnet, Céline & Dubois, Pierre & Martimort, David & Straub, Stéphane, 2009. "Empirical Evidence on Satisfaction with Privatization in Latin America: Welfare Effects and Beliefs," TSE Working Papers 09-020, Toulouse School of Economics (TSE).
    13. repec:bmo:bmoart:v:4:y:2017:i:1:p:17-32 is not listed on IDEAS
    14. repec:kap:iaecre:v:13:y:2007:i:4:p:461-474 is not listed on IDEAS
    15. Martimort, David & Straub, Stéphane, 2009. "Infrastructure privatization and changes in corruption patterns: The roots of public discontent," Journal of Development Economics, Elsevier, vol. 90(1), pages 69-84, September.
    16. Pablo Egaña & Alejandro Micco, 2011. "Labor Market in Latin America and the Caribbean: The Missing Reform," Working Papers wp345, University of Chile, Department of Economics.
    17. Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers 2011_28, Department of Economics, University of Venice "Ca' Foscari".
    18. Mauricio Olivera & Felipe Barrera, 2007. "La sociedad gana o pierde como resultado de la privatizacion? El caso de Colombia," Research Department Publications 3231, Inter-American Development Bank, Research Department.
    19. Boardman, Anthony E. & Vining, Aidan R. & Weimer, David L., 2016. "The long-run effects of privatization on productivity: Evidence from Canada," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1001-1017.
    20. Buia, Raluca E. & Molinari, M. Cristina, 2012. "Corruption and positive selection in privatization," Research in Economics, Elsevier, vol. 66(4), pages 297-304.
    21. Irene Fafaliou & John Donaldson, 2007. "The Contribution of Privatization to Welfare," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 13(4), pages 461-474, November.

    More about this item

    Keywords

    Privatization; Firms; Restructuring; Welfare; Labor; Governance; SOE;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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