The Impact of Privatization in Post-Communist Countries and China
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Transcript of The Impact of Privatization in Post-Communist Countries and China
The Impact of Privatization in Post-Communist Countries
and ChinaPresented by Saul Estrin
Padma Desai Conference, Columbia University, April 25th 2007
Objective To evaluate the economic effects of
privatization, focusing on experiences in post communist countries and China
Joint work with Jan Hanousek, Evcen Kocenda, Jan Svejnar
Current View
Privatization in transition economies only improved company performance when other factors, eg privatization methods, ownership structures, market supporting institutions were appropriate.
Djankov and Murrell, 2002; Megginson, 2005 Privatization does not always improve
performance because: Done badly Wrong owners Weak institutions
Problems with Literature Endogeneity/selection problems Findings often based on small, possibly
unrepresentative sample surveys Data usually cross sectional or short
time period Little time had elapsed since
privatization
Reasons for New Survey
• Large number of new papers on transition countries using large panel data sets and controlling for endogeneity
• Emergence of new literature on impact of privatization of state owned firms in China
Methodological Issues We use all available studies (150 plus)
and categorise by quality of estimation method and sample size: C1- large samples and control for
endogeneity C2 –smaller samples and control for
endogeneity C3 – use OLS methods
Methodological IssuesLarge variety of performance measures (TFP,
labour productivity, profitability, financial performance, sales, employment, wages)
Focus on findings with respect to total factor productivity and profitability
Overlap with Djankov and Murrell limited
Privatization and Company Performance We summarize findings on:
Foreign Direct Investors as Owners Domestic Owners Domestic and Foreign de novo Entrants
Foreign Direct Investors in Transition Economies 9 C1 studies of TFP (out of 21); 4 C1
studies of profitability ( out of 13). All post 1998
All find privatization to foreign owners increases company TFP or profitability
Foreign Direct Investors in Transition Economies Holds in countries with both weaker and
stronger institutions e.g Hungary, Czech republic, Poland, Russia and Ukraine Examples: Brown Earle and Telegdy, 2006
(TFP), Claessens and Djankov, 1999 (profitability)
Foreign Direct Investors in China Find positive significant effect of foreign
ownership on TFP ( e.g Hu, Song, Zhang, 2005); rarely covered for profits
TFP improvements usually via joint ventures
Domestic Owners in Transition Economies Domestic private ownership also raises TFP the effect is quantitatively smaller than for
foreign ownership depends on institional quality:TFP effect
positive in CEE but negative in Russia
Domestic Owners in Transition Economies Two of the three C1 studies find the effects
of privatization to domestic owners on profitability to be positive; other insignificant
7 studies look at insider domestic ownership; effects insignificant in 6 and positive in one
Domestic Owners in China
Only one C1 Studies! Findings mixed but generally identify a
positive and sometimes significant effect on private domestic ownership on company performance (both TFP and profits)
Privatized Firms and de novo Entrants Sabirinova et al, 2005 find foreign start
ups less efficient than existing foreign owned firms, but more efficient than domestic start-ups, which are themelves more efficient than existing domestic firms
Conclusions Clear picture is emerging from
methodologically sound studies on transitions economies.
Despite reservations about the methods at the time, privatization not a failure when considered more than ten years hence
Conclusions 1 Privatization to foreign owners clearly
raises performance relative to state ownership, and to domestic private ownership
Privatization to domestic owners also raises performance if institutions are better developed
Reasons for Superior Performance of Foreign Owned Firms
Limited skills and access to world markets of domestic owners and managers
Domestic ownership sometimes associated with looting, tunnelling, defrauding minority shareholders, reducing performance
Privatization process prevented domestic ownership concentration initially; it took time to squeeze out dispersed shareholders.
Foreign versus Domestic Owners in Transition Their corporate governance compensates
for underdeveloped local institutions, laws and norms
They bring access to global distribution networks.
Domestic owners can achive the same in time, and are increasingly doing so however.