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Firm Ownership and Economic Efficiency

  • George C. Bitros

    (Athens University of Economics & Business)

The objective in this paper is to improve the existing evidence regarding the role ownership plays in economic efficiency. It is pursued through enhancements in modeling, estimation techniques, and experimental design. With respect to modeling, state ownership is explicitly introduced into the simple model of the financially constrained firm in order to trace its implications. In turn, the interrelated, three-equation input demand model that emerges is estimated with consistent panel data techniques, using information gathered from state and private firms that operated in large-scale Greek manufacturing during the 1979-1988 period. The results show that, per unit of output, the amounts of labor, capital, and credits employed by state firms were 15.7, 12.2, and 49.1 percent larger than those employed by private firms in the same industries. Moreover, taking input prices into consideration, these findings indicated that state firms incurred 46.2 percent higher costs per unit of output and that liable for their relative inefficiency were technical, allocative and ownership reasons by contributing respectively 16.3, 25.5 and 4.4 percentage points. Last, but not least, state ownership was found to alter significantly the conventional patterns in which the employment of inputs responds to equity and input price changes. Thus, in contrast to claims made by some researchers, state ownership may influence economic efficiency as well as exercise several other important effects.

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File URL: http://128.118.178.162/eps/mic/papers/0303/0303002.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0303002.

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Length: 31 pages
Date of creation: 12 Mar 2003
Date of revision:
Handle: RePEc:wpa:wuwpmi:0303002
Note: Type of Document - Acrobat.pdf; prepared on IBM PC - PC; to print on HP/PostScript; pages: 31 ; figures: included. Acrobat PDF document submitted via ftp.
Contact details of provider: Web page: http://128.118.178.162

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  1. Rafael La Porta & Florencio López-de-Silanes, 1997. "The Benefits of Privatization : Evidence from Mexico," World Bank Other Operational Studies 11583, The World Bank.
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  3. Arellano, Manuel, 1989. "A note on the Anderson-Hsiao estimator for panel data," Economics Letters, Elsevier, vol. 31(4), pages 337-341, December.
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  7. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  8. Ehrlich, Isaac & Georges Gallais-Hamonno & Zhiqiang Liu & Randall Lutter, 1994. "Productivity Growth and Firm Ownership: An Analytical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 1006-38, October.
  9. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
  10. Ohlsson, H., 1995. "Ownership and Input Prices a Comparison of Public and Private Entreprises," Papers 1995-08, Uppsala - Working Paper Series.
  11. De Fraja, Giovanni, 1991. "Efficiency and Privatisation in Imperfectly Competitive Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 39(3), pages 311-21, March.
  12. Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  13. Zhenhui Xu & Melissa Birch, 1999. "The Economic Performance of State-owned Enterprises in Argentina an Empirical Assessment," Review of Industrial Organization, Springer, vol. 14(4), pages 355-375, June.
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