Does Privatization Raise Productivity? Evidence from Comprehensive Panel Data on Manufacturing Firms in Hungary, Romania, Russia, and Ukraine
W.E. Upjohn Institute Staff Working Paper No. 04-107
52 Pages Posted: 29 Dec 2004
Date Written: November 2004
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."
Keywords: Privatization, productivity, foreign ownership, Hungary, Romania, Russia, Ukraine, transition
JEL Classification: D24, G34, L33, P31
Suggested Citation: Suggested Citation