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Strategic privatization in developing countries

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  • Bjorvatn, Kjetil
  • Eckel, Carsten

Abstract

Privatization of state-owned enterprises may have important welfare implications, in particular in less developed economies where markets are small and domestic firms are typically relatively weak, both technologically and financially. In these environments, a high-tech foreign investor acquiring the state-owned assets may end up dominating the local market, thereby harming local consumer and producer interests. A foreign investor, however, is likely to be both willing and able to offer a higher bid for the assets than local investors. This paper addresses the trade-off for local governments between privatization revenues and foreign market power. The authors find that there may be an incentive to privatize \"strategically\" by selling the state-owned firm to a local (less advanced) investor at a lower price in order to achieve a more competitive post-privatization market structure.

Suggested Citation

  • Bjorvatn, Kjetil & Eckel, Carsten, 2011. "Strategic privatization in developing countries," Munich Reprints in Economics 20268, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:20268
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    Cited by:

    1. Ruiqiu Ou & Jie Li & Jing Lu & Chenxu Guo, 2016. "The Optimal Privatization Policies under an International Mixed Duopoly," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 228-238, February.
    2. Tai-Liang Chen, 2017. "Privatization and efficiency: a mixed oligopoly approach," Journal of Economics, Springer, vol. 120(3), pages 251-268, April.
    3. Lindsey Novak, 2014. "The Impact of Access to Water on Child Health in Senegal," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 431-444, August.

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