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Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data

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  • Brown, J David
  • Earle, John S

Abstract

A critical, but largely unexamined assumption in the debate over reform policy design, concerns the complementarity or substitutability of market competition and private ownership in increasing firm efficiency. We analyse a simple Cournot model that distinguishes two aspects of privatization interacting with market opening: privatization of a firm and privatization of its competitors. Under plausible conditions, the model implies that privatizing a firm is a substitute for exposing it to competitive markets, but privatizing its competitors is complementary. Our empirical analysis uses augmented 3-factor translog production functions estimated on 1992-99 panel data for 13,288 Russian manufacturing enterprises. We find that nonstate ownership of a firm reduces the marginal efficiency impact from product market dispersion, but the share of its competitors that are nonstate increases this marginal impact. Disaggregating nonstate ownership, we find that the shares of competitors in all three nonstate types are complementary with dispersed market structure, where the strongest complementarity involves foreign ownership. The evidence suggests that an important indirect impact of private ownership may be the intensification of market competition, and thus that competition only among state-owned enterprises may be ineffectual in stimulating them to increase efficiency.

Suggested Citation

  • Brown, J David & Earle, John S, 2001. "Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data," CEPR Discussion Papers 2758, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2758
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Asaftei, Gabriel & Parmeter, Christopher F., 2010. "Market power, EU integration and privatization: The case of Romania," Journal of Comparative Economics, Elsevier, pages 340-356.
    2. Saul Estrin & Alan A. Bevan & Boris Kuznetsov & Mark E. Schaffer & Manuela Angelucci & Julian Fennema & Giovanni Mangiarotti, 2001. "The Determinants of Privatised Enterprise Performance in Russia," William Davidson Institute Working Papers Series 452, William Davidson Institute at the University of Michigan.
    3. Stefan Bojnec & Ana Xavier, 2004. "Entry and exit in transition economies: the Slovenian manufacturing sector," Post-Communist Economies, Taylor & Francis Journals, vol. 16(2), pages 191-214.
    4. Brown, J. David & Earle, John S., 2002. "Gross Job Flows in Russian Industry Before and After Reforms: Has Destruction Become More Creative?," Journal of Comparative Economics, Elsevier, pages 96-133.
    5. Klara Sabirianova Peter & Jan Svejnar & Katherine Terrell, 2012. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," The Review of Economics and Statistics, MIT Press, pages 981-999.
    6. Maria Vagliasindi, 2001. "Politique de la concurrence dans les économies en transition," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 233-272.
    7. Sumon Bhaumik & Saul Estrin, 2003. "Why Transition Paths Differ: Russian and Chinese Enterprise Performance Compared," William Davidson Institute Working Papers Series 525, William Davidson Institute at the University of Michigan.
    8. Saul Estrin & Jozef Konings & Zbigniew Zolkiewski & Manuela Angelucci, 2001. "The Effect of Ownership and Competitive Pressure on Firm Performance in Transition Countries. Micro Evidence from Bulgaria, Romania and Poland," LICOS Discussion Papers 10401, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    9. Ralitza Dimova, 2003. "The Impact on Structural Reforms on Employment Growth and Labour Productivity: Evidence from Bulgaria and Romania," William Davidson Institute Working Papers Series 2003-600, William Davidson Institute at the University of Michigan.
    10. J. David Brown & John S. Earle, "undated". "The Reallocation of Workers and Jobs in Russian Industry: New Evidence on Measures and Determinants," Upjohn Working Papers and Journal Articles jse20031, W.E. Upjohn Institute for Employment Research.
    11. Maryanchyk Ivan, "undated". "Market Structure and Profitability in a Transition Economy: Ukrainian Case," EERC Working Paper Series 03-06e, EERC Research Network, Russia and CIS.
    12. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, pages 699-728.
    13. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter.
    14. Ichiro Iwasaki, 2007. "Enterprise Reform And Corporate Governance In Russia: A Quantitative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(5), pages 849-902, December.
    15. Bezlepkina, Irina V., 2002. "What is Behind the Fall in Russian Agricultural Production?," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24785, European Association of Agricultural Economists.
    16. Poltavets Ivan, 2005. "Productivity Differential and Competition: Can an Old Dog be Taught New Tricks?," EERC Working Paper Series 05-09e, EERC Research Network, Russia and CIS.
    17. Barbara Blaszczyk & Iraj Hashi & Alexander Radygin & Richard Woodward, 2003. "Corporate Governance and Ownership Structure in the Transition: The Current State of Knowledge and Where to Go from Here," CASE Network Studies and Analyses 0264, CASE-Center for Social and Economic Research.
    18. Saul Estrin, 2001. "Competition and Corporate Governance in Transition," William Davidson Institute Working Papers Series 431, William Davidson Institute at the University of Michigan.
    19. Bennett, John & Maw, James, 2003. "Privatization, partial state ownership, and competition," Journal of Comparative Economics, Elsevier, pages 58-74.
    20. Brown, J. David & Earle, John S., 2006. "The microeconomics of creating productive jobs : a synthesis of firm-level studies in transition economies," Policy Research Working Paper Series 3886, The World Bank.
    21. J. David Brown & John Earle, 2004. "Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition," CERT Discussion Papers 0404, Centre for Economic Reform and Transformation, Heriot Watt University.
    22. Maria Vagliasindi, 2001. "Competition Policy Across Transition Economies," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 215-250.
    23. J. David Brown & John S. Earle, 2004. "Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition," Upjohn Working Papers and Journal Articles 04-98, W.E. Upjohn Institute for Employment Research.
    24. J. David Brown & John S. Earle, 2003. "The reallocation of workers and jobs in Russian industry," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(2), pages 221-252, June.

    More about this item

    Keywords

    Competition; Market Structure; Privatization; Russia; Structure Conduct Performance; Transition;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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