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Off the Rails: Is State Ownership Bad for Productivity?

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  • Dan Bogart

    () (Department of Economics, University of California-Irvine)

  • Latika Chaudhary

    () (Graduate School of Business and Public Policy, Naval Postgraduate School)

Abstract

The performance of Indian railways in the nineteenth century provides a great context to study the effects of state ownership on productivity and other aspects of firm operations. We rely on a key feature of the institutional background whereby the colonial Government of India purchased a majority ownership stake in private railways at predetermined dates set by contracts negotiated decades before the companies came under state ownership. Controlling for individual railway fixed effects, year fixed effects, and railway-specific time trends, we find no evidence of a decline in TFP following state takeovers of private companies. Instead of reducing productivity, as the recent experiences with privatization would suggest, we find that the Government of India maintained productivity when it became the owner of railways. Government ownership influenced certain areas of operations such as the capital-labor ratio, but not others such as fares. Our results point to the conditions where state ownership is no worse than private ownership in terms of productivity.

Suggested Citation

  • Dan Bogart & Latika Chaudhary, 2013. "Off the Rails: Is State Ownership Bad for Productivity?," Working Papers 131401, University of California-Irvine, Department of Economics, revised Feb 2015.
  • Handle: RePEc:irv:wpaper:131401
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    Cited by:

    1. Alfonso Herranz-Loncán & Johan Fourie, 2018. "“For the public benefit”? Railways in the British Cape Colony," European Review of Economic History, Oxford University Press, vol. 22(1), pages 73-100.

    More about this item

    Keywords

    Nationalization; State owned enterprises; India; Railways; Institutions.;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • N75 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Asia including Middle East
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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