Upjohn Institute Working Paper No. 05-121

**Published Version**

Journal of Political Economy 114 (1) (February 2006): 61-99




This paper estimates the effect of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. We exploit the key longitudinal feature of our data to measure and control for pre-privatization selection bias and to estimate long-run impacts. We find that the magnitudes of our estimates are robust to alternative functional forms, but sensitive to how we control for selection. Our preferred random growth models imply that majority privatization raises MFP about 15% in Romania, 8% in Hungary, and 2% in Ukraine, while in Russia it lowers it 3%. Privatization to foreign rather than domestic investors has a larger impact, 18-35%, in all countries. Positive domestic effects appear within a year in Hungary, Romania, and Ukraine and continue growing thereafter, but take 5 years after privatization to emerge in Russia.

Issue Date

October 2005


Presented at: Chinese University of Hong Kong, Hong Kong, May 2005; World Bank Conference on Productivity in the Eastern Europe and Former Soviet Union Countries, Washington, DC, October 31, 2005

Subject Areas

INTERNATIONAL ISSUES; International labor comparisons; Transition economies


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Brown, J. David, John S. Earle, and Álmos Telegdy. 2005. "The Productivity Effects of Privatization: Longitudinal Estimates from Hungary, Romania, Russia, and Ukraine." Upjohn Institute Working Paper No. 05-121. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.