Privatization and Productivity in China

70 Pages Posted: 29 Nov 2015 Last revised: 20 Apr 2021

See all articles by Yuyu Chen

Yuyu Chen

Peking University - Guanghua School of Management

Mitsuru Igami

Yale University - Department of Economics ; Yale University - Cowles Foundation

Masayuki Sawada

Hitotsubashi University - Institute of Economic Research

Mo Xiao

University of Arizona - Eller College of Management - Department of Economics

Date Written: April 8, 2021

Abstract

We study how ownership affects productivity. Privatization of state-owned enterprises (SOEs) was a major economic reform during China's rapid growth, but its true impact remains controversial. Although private firms seem more productive than SOEs, the government selectively privatized (or liquidated) non-performing SOEs. To address this selection problem, we exploit a lag structure in the timing of ownership changes (i.e., privatization/liquidation takes time to implement). Results suggest private firms are 53% more productive than SOEs on average, but the benefits of privatization take several years to fully materialize. This productivity gap is smaller among larger firms and in economically more liberal times and places; it is larger in consumer-facing and high-tech industries. Increased managerial freedom appears to be the primary channel of productivity improvement.

Keywords: Privatization, Production function, Productivity

JEL Classification: D24, L11, L33, O47, P31

Suggested Citation

Chen, Yuyu and Igami, Mitsuru and Sawada, Masayuki and Xiao, Mo, Privatization and Productivity in China (April 8, 2021). RAND Journal of Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2695933 or http://dx.doi.org/10.2139/ssrn.2695933

Yuyu Chen

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Mitsuru Igami (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Masayuki Sawada

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Mo Xiao

University of Arizona - Eller College of Management - Department of Economics ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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