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Helping Hand or Grabbing Hand? State Bureaucracy and Privatization Effectiveness

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  • J. David Brown
  • John Earle
  • Scott Gehlbach

Abstract

Why have economic reforms aimed at reducing the role of the state been successful in some cases but not others? Are reform failures the consequence of leviathan states that hinder private economic activity, or of weak states unable to implement policies effectively and provide a supportive institutional environment? We explore these questions in a study of privatization in postcommunist Russia. Taking advantage of large regional variation in the size of public administrations, and employing a multilevel research design that controls for pre-privatization selection in the estimation of regional privatization effects, we examine the relationship between state bureaucracy and the impact of privatization on firm productivity. We find that privatization is more effective in regions with relatively large bureaucracies. Our analysis suggests that this effect is driven by the impact of bureaucracy on the post-privatization business environment, with better institutional support and less corruption when bureaucracies are large.

Suggested Citation

  • J. David Brown & John Earle & Scott Gehlbach, 2008. "Helping Hand or Grabbing Hand? State Bureaucracy and Privatization Effectiveness," CERT Discussion Papers 0806, Centre for Economic Reform and Transformation, Heriot Watt University.
  • Handle: RePEc:hwe:certdp:0806
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    2. Bruno, Randolph & Bytchkova, Maria & Estrin, Saul, 2011. "Institutions And Entry: A Cross-Regional Analysis In Russia," CEPR Discussion Papers 8283, C.E.P.R. Discussion Papers.
    3. Irina Denisova & Markus Eller & Timothy Frye & Ekaterina Zhuravskaya, 2007. "Who Wants to Revise Privatization and Why? Evidence from 28 Post-Communist Countries," Working Papers w0105, New Economic School (NES).
    4. Ménard, Claude & Kurdin, Alexander & Shastitko, Andrey, 2020. "Out by the door, in through the window: Politics and natural gas regulation in Russia," Utilities Policy, Elsevier, vol. 64(C).
    5. Joachim Ahrens & Rainer Schweickert & Juliane Zenker, 2015. "Varieties Of Capitalism And Government Spending In Developed And Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(1), pages 113-136, March.
    6. John S. Earle & Scott Gehlbach, 2010. ""Mass Privatisation and the Post-Communist Mortality Crisis": Is There Really a Relationship?," Upjohn Working Papers 10-162, W.E. Upjohn Institute for Employment Research.
    7. Marques, Israel & Remington, Thomas & Bazavliuk, Vladimir, 2020. "Encouraging skill development: Evidence from public-private partnerships in education in Russia’s regions," European Journal of Political Economy, Elsevier, vol. 63(C).
    8. Randolph Luca Bruno & Maria Bytchkova & Saul Estrin, 2013. "Institutional Determinants of New Firm Entry in Russia: A Cross-Regional Analysis," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1740-1749, December.
    9. Duvanova, Dinissa, 2014. "Economic Regulations, Red Tape, and Bureaucratic Corruption in Post-Communist Economies," World Development, Elsevier, vol. 59(C), pages 298-312.
    10. Elisa Borghi & Fabio Gatti & Donato Masciandaro, 2022. "Neither Communes nor Fiefs: King Owned Towns, Right Negotiations and Long Run Persistence. The Case of South Italy," BAFFI CAREFIN Working Papers 22182, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    11. Brown, J. David & Earle, John S. & Shpak, Solomiya & Vakhitov, Volodymyr, 2015. "Is Privatization Working in Ukraine? New Estimates from Comprehensive Manufacturing Firm Data, 1989-2013," IZA Discussion Papers 9261, Institute of Labor Economics (IZA).
    12. Cao, Chunfang & Dong, Yizhe & Hou, Wenxuan & Liu, Yue & Qian, Xianhang, 2019. "Provincial official turnover and bank loans," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    13. Earle, John S. & Gehlbach, Scott, 2014. "The Productivity Consequences of Political Turnover: Firm-Level Evidence from Ukraine's Orange Revolution," IZA Discussion Papers 8510, Institute of Labor Economics (IZA).
    14. Cull, Robert & Xu, Lixin Colin & Yang, Xi & Zhou, Li-An & Zhu, Tian, 2017. "Market facilitation by local government and firm efficiency: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 460-480.
    15. Bartolozzi, D. & Gara, M. & Marchetti, D.J. & Masciandaro, D., 2022. "Designing the anti-money laundering supervisor: The governance of the financial intelligence units," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1093-1109.
    16. Brown, David J. & Earle, John S. & Telegdy, Almos, 2016. "Where does privatization work? Understanding the heterogeneity in estimated firm performance effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 329-362.
    17. Donato Masciandaro & Riccardo Russo, 2022. "Central Banks and Climate Policy: Unpleasant Trade–Offs? A Principal–Agent Approach," BAFFI CAREFIN Working Papers 22181, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    18. Jiajing Sun & Michael Cole & Zhiyuan Huang & Shouyang Wang, 2019. "Chinese leadership: Provincial perspectives on promotion and performance," Environment and Planning C, , vol. 37(4), pages 750-772, June.
    19. Alexander Libman, 2012. "Democracy, size of bureaucracy, and economic growth: evidence from Russian regions," Empirical Economics, Springer, vol. 43(3), pages 1321-1352, December.
    20. Marina Dodlova, 2013. "Political Accountability and Real Authority of Government Bureaucracy," CESifo Working Paper Series 4443, CESifo.
    21. Uvsh, Delgerjargal & Gehlbach, Scott & Potapov, Peter V. & Munteanu, Catalina & Bragina, Eugenia V. & Radeloff, Volker C., 2020. "Correlates of forest-cover change in European Russia, 1989–2012," Land Use Policy, Elsevier, vol. 96(C).
    22. Wiktor Patena, 2014. "Analysis Of The Privatization Process In Poland In The Years 2008-2011 – Outcomes And Prospects," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(2), pages 57-70, August.
    23. Zafar Nazarov & Anastassia Obydenkova, 2022. "Public Health, Democracy, and Transition: Global Evidence and Post-Communism," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 160(1), pages 261-285, February.
    24. Long,Cheryl Xiaoning & Xu,L. Colin & Yang,Jin, 2020. "Business Environment and Dual-Track Private Sector Development : China's Experience in Two Crucial Decades," Policy Research Working Paper Series 9161, The World Bank.

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    More about this item

    Keywords

    privatization; bureaucracy; economic reform; Russia;
    All these keywords.

    JEL classification:

    • 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
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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