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The Big Sell: Privatizing East Germany’s Economy

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  • Lukas Mergele
  • Moritz Hennicke
  • Moritz Lubczyk

Abstract

The end of communism in the 1990s probably is the most fundamental restructuring of institutions witnessed in recent history. At its core was the large-scale redistribution of previously state-owned companies. We construct a unique firm-level dataset to study this redistribution in East Germany where the entire state-owned economy was either privatized or liquidated within less than five years. We examine whether the privatization authority followed its mandate to privatize competitive firms using initial labor productivity to indicate firms’ competitiveness. Our results highlight that firms with higher baseline productivity are more likely to be privatized, yield higher sales prices, are more often acquired by West German investors, and are more likely to remain in business even 20 years after leaving public ownership. The privatization agency plausibly contributed to these outcomes by rating and prioritizing productive firms

Suggested Citation

  • Lukas Mergele & Moritz Hennicke & Moritz Lubczyk, 2020. "The Big Sell: Privatizing East Germany’s Economy," Working Papers ECARES 2020-41, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/312650
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    Cited by:

    1. Hager, Anselm & Hennicke, Moritz & Krause, Werner & Mergele, Lukas, 2021. "Privatizations Spark Socialist Backlash: Evidence from East Germany’s Transformation," OSF Preprints cmsyn, Center for Open Science.
    2. Radosevic, Slavo, 2022. "Techno-economic transformation in Eastern Europe and the former Soviet Union – A neo-Schumpeterian perspective," Research Policy, Elsevier, vol. 51(1).
    3. Moritz Hennicke & Moritz Lubczyk & Lukas Mergele, 2020. "Die Treuhandanstalt: Eine empirische Bestandsaufnahme 30 Jahre nach der Deutschen Wiedervereinigung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(09), pages 49-52, September.

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    More about this item

    Keywords

    Privatization; labor productivity; German reunification;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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