Methods of Privatization and Economic Growth in Transition Economies

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Economics of Transition Volume 15(4) 2007, 661–683

Methods of privatization and economic growth in transition economies1

B 2007 MethodsArticles Original compilation Ltd XXX Journal UK ©ennett,of Authors© U 0967-0750 Privatization and Economics strin and 2007 The European Bank ECOT Theof Transition rga Economic Growth for Reconstruction Development Oxford, E Blackwell Publishing

John Bennett*, Saul Estrin** and Giovanni Urga***

*Brunel University, UK. E-mail: **London School of Economics, UK. E-mail: ***Cass Business School, London, UK and Universita’ di Bergamo, Italy. E-mail:


We examine how different methods of privatization might have affected growth in transition economies. Using several econometric specifications, including fixed effects and GMM, we estimate a cross-country panel growth model for 1990–2003. We find only voucher privatization to have been significantly associated with faster growth. Moreover, neither private sector development per se nor capital market development exercised a significant influence. We speculate that voucher privatization may have been effective because of the speed with which links between firms and the state were severed. JEL classifications: L33, O40, P27, P31, C23, C33. Keywords: Privatization, transition economies, economic growth, panel data.

1 We thank Anders Aslund, John Bonin, Simon Commander, Stephen Fries, Mark Schaffer, Jan Svejnar and Chenggang Xu for valuable comments. We have also benefited from discussions at the 2003 ASSA Meetings, a CEPR workshop in August 2003 and in seminars at Cass Business School, London Business School, London School of Economics, University of Michigan, Oxford University, Queens University Belfast, Rome University and Sheffield University. We thank Maria Bytchkova and Alberto Montagnoli for data collection. Michele Meoli and Rhana Neidenbach provided superb research assistance. Any errors are our own....