Does Privatization Raise Productivity? Evidence from Comprehensive Panel Data on Manufacturing Firms in Hungary, Romania, Russia, and Ukraine

Authors

J. David Brown, Heriot-Watt UniversityFollow
John S. Earle, W.E. Upjohn Institute for Employment Research
Álmos Telegdy, Central European UniversityFollow

Publication Date

11-1-2004

Series

Upjohn Institute Working Paper No. 04-107

DOI

10.17848/wp04-107

Abstract

We analyze the impact of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. Controlling for firm and industry-year fixed effects and employing a wide variety of measurement approaches, we estimate that majority privatization raises MFP about 28 percent in Romania, 22 percent in Hungary, and 3 percent in Ukraine, with some variation across specifications, while in Russia it lowers it about 4 percent. Privatization to foreign rather than domestic investors has a larger impact (about 44 percent) and is much more consistent across countries. The positive effects emerge within a year in Hungary, Romania, and Ukraine and continue to grow thereafter, but are still ambiguous even after 5 years in Russia. Pre-privatization MFP exceeds that of firms remaining state-owned in all countries, implying that cross-sectional estimates overstate privatization effects. The patterns of the estimated effects cast doubt on a number of explanations for "when privatization works."

Issue Date

November 2004

Sponsorship

The CEU Research Board supported early data collection in Romania and Russia; the Hungarian National Bank provided data support on the Hungarian analysis, EROC (Economic Research and Outreach Center at the Kiev School of Economics) supported the Ukrainian data collection and analysis, the National Council for East European and Eurasian Research supported the Hungarian and Romanian analysis, and the U.S. Dept. of State (through a grant administered by the William Davidson Institute at the University of Michigan Business School) supported the Russian analysis.

Subject Areas

INTERNATIONAL ISSUES; International labor comparisons; Transition economies