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Determinants of privatization in China: The role of the presence of foreign firms

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  • Liu, Yi
  • Li, Xue
  • Lahiri, Sajal

Abstract

This study investigates how the presence of foreign firms in a sector influences the privatization policy of domestic firms in that sector in China. We consider several variables to proxy for such a presence, from the perspective of the relative production scale, R&D and marketing, and labor productivity. By using the enterprise surveys carried out by the World Bank in 2005 of nearly 12,400 Chinese firms located in over 100 cities, we find that a rise in the presence of foreign firms increases the extent of the private ownership of domestic firms in a nonlinear fashion. Additionally, we apply IV-Tobit estimation with valid instruments and Tobit estimation with lagged key variables to deal with the possible endogeneity in the relationship between the presence of foreign firms and the privatization decision. Empirical evidence supports the main findings.

Suggested Citation

  • Liu, Yi & Li, Xue & Lahiri, Sajal, 2016. "Determinants of privatization in China: The role of the presence of foreign firms," China Economic Review, Elsevier, vol. 41(C), pages 196-221.
  • Handle: RePEc:eee:chieco:v:41:y:2016:i:c:p:196-221
    DOI: 10.1016/j.chieco.2016.10.002
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    Keywords

    Privatization; Foreign presence; China; Endogeneity;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D69 - Microeconomics - - Welfare Economics - - - Other
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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