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The financial system and public enterprise reform : concepts and cases

Author

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  • Demirguc-Kunt, Asli
  • Levine, Ross
  • DEC

Abstract

Public enterprise reform is an important part of policy strategies to accelerate economic growth in many countries. The authors identify two distinct but complementary approaches to public enterprise reform : the private sector development approach and the corporatization approach. The private sector development approach involves privatizing public enterprises and encouraging private sector development to improve economic efficiency and shrink the relative size of the public sector. The corporatization approach involves improving managerial incentives and clarifying budget constraints on public enterprises, so their performance improves without the government relinquishing ownership. The authors study the relationship between the financial system and public enterprise reform. The conceptual framework describes the role of three financial services -- mobilizing resources, evaluating firms and monitoring managers -- in promoting both the private sector development and corporatization approaches to reform. Using nine country case studies (of Chile, Egypt, Ghana, India, Mexico, the Philippines, the Republic of Korea, Senegal, and Turkey), they study the links between public enterprise reform and both financial sector reform and the initial state of the financial system. They reach three broad, tentative conclusions: Public enterprise reform is more successful in countries whose financial systems are relatively well developed and less successful in countries with relatively underdeveloped financial systems; countries will be more successful in implementing large-scale public enterprise reform if they also implement substantial, well-designed financial sector reform; and successful reform of the financial sector generally involves implementing three components in the following order --building financial infrastructure, liberalizing the sector, and expanding the number of private financial intermediaries (removing impediments to the expansion of private intermediaries, downsizing public banks, and privatizing some publicbanks). Failure to implement any of these components severely jeopardizes the chance that financial reform will support public enterprise reform.

Suggested Citation

  • Demirguc-Kunt, Asli & Levine, Ross & DEC, 1994. "The financial system and public enterprise reform : concepts and cases," Policy Research Working Paper Series 1319, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1319
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    References listed on IDEAS

    as
    1. Swanson, D. & Wolde-Semait, T., 1989. "Africa'S Public Enterprise Sector And Evidence Of Reforms," Papers 95, World Bank - Technical Papers.
    2. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    3. Shirley, Mary M., 1989. "Improving public enterprise performance : lessons from South Korea," Policy Research Working Paper Series 312, The World Bank.
    4. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    5. Demirguc-Kunt, Asli & Levine, Ross, 1993. "Stock market development and financial intermediary growth : a research agenda," Policy Research Working Paper Series 1159, The World Bank.
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    Citations

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    Cited by:

    1. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in France," MPRA Paper 27056, University Library of Munich, Germany.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
    3. Tatahi, Motasam, 2010. "Enterprise performance, privatization and the role of ownership in Austria," MPRA Paper 27053, University Library of Munich, Germany.
    4. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Poland," MPRA Paper 27062, University Library of Munich, Germany.
    5. Tatahi, Motasam, 2010. "Enterprise performance, privatization and the role of ownership in Bulgaria," MPRA Paper 27054, University Library of Munich, Germany.
    6. Campos, Jose Edgardo & Esfahani, Hadi Salehi, 2000. "Credible Commitment and Success with Public Enterprise Reform," World Development, Elsevier, vol. 28(2), pages 221-243, February.
    7. Tatahi, Motasam, 2010. "Enterprise performance, privatization and the role of ownership in Belgium," MPRA Paper 27051, University Library of Munich, Germany.
    8. David M. Kemme, 2000. "Russian Financial Transition: The Development of Institutions and Markets for Growth," William Davidson Institute Working Papers Series 455, William Davidson Institute at the University of Michigan.
    9. Clarke, George R. G. & Cull, Robert, 1999. "Why Privatize? The Case of Argentina's Public Provincial Banks," World Development, Elsevier, vol. 27(5), pages 865-886, May.
    10. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in the Netherlands," MPRA Paper 27067, University Library of Munich, Germany.
    11. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Italy," MPRA Paper 27059, University Library of Munich, Germany.
    12. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Norway," MPRA Paper 27060, University Library of Munich, Germany.
    13. Shirley, Mary M., 1999. "Bureaucrats in business: The roles of privatization versus corporatization in state-owned enterprise reform," World Development, Elsevier, vol. 27(1), pages 115-136, January.
    14. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in the UK," MPRA Paper 27065, University Library of Munich, Germany.
    15. Sudeshna Ghosh Banerjee & Michael C. Munger, 2004. "Move to markets? An empirical analysis of privatization in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 213-240.
    16. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Portugal," MPRA Paper 27063, University Library of Munich, Germany.
    17. Gouri, Geeta, 1997. "The new economic policy and privatization in India," Journal of Asian Economics, Elsevier, vol. 8(3), pages 455-479.
    18. Tatahi, Motasam, 2010. "Enterprise performance, privatization and the role of ownership in Germany," MPRA Paper 27057, University Library of Munich, Germany.
    19. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Sweden," MPRA Paper 27066, University Library of Munich, Germany.
    20. Tatahi, Motasam, 2010. "Enterprise Performance, Privatization and the Role of Ownership in Denmark," MPRA Paper 27064, University Library of Munich, Germany.
    21. Tatahi, Motasam, 2010. "Enterprise performance, privatization and the role of ownership in Finland," MPRA Paper 27055, University Library of Munich, Germany.
    22. Kane, Edward J., 1998. "Lessons of privatization1," Pacific-Basin Finance Journal, Elsevier, vol. 6(3-4), pages 235-249, August.

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