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Privatization in Latin America: What Does the Evidence Say?

  • Albert Chong


  • Florencio López-de-Silanes


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.

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Volume (Year): (2004)
Issue (Month): (January)

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Handle: RePEc:col:000425:008674
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