Does privatization raise productivity ? Evidence from comprehensive panel data on manufacturing firms in

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% in Romania, 22% in Hungary, and 3% in Ukraine, with some variation across specifications, while in Russia it lowers it about 4%. Privatization to foreign rather than domestic investors has a larger impact (about 44%) 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.” *Heriot-Watt University, Upjohn Institute for Employment Research and Central European University (CEU), and CEU and Institute of Economics of the Hungarian Academy of Sciences, respectively. We are grateful to Vladimir Bessonov, Simeon Djankov, Barry Ickes, Sherwin Rosen, and two referees for comments on earlier drafts, Gabor Kezdi for advice on robust estimation, Joanne Lowery for editorial assistance, Jeff Nault for help with tables and figures, Anna Horváth and Ágnes Töröcsik for help with the Hungarian data, Catalin Pauna and Ruxandra Visan for help with the Romanian data, and Natalia Akhmina, Tatiana Andreyeva, Serhiy Biletsky, Larisa Leshchenko, Ivan Maryanchyk, Alexander Scherbakov, and Vladimir Vakhitov for help with the Ukrainian data. We thank the CEU Research Board for early support of data collection in Romania and Russia, the Hungarian National Bank for cooperation and data support on the Hungarian analysis, EROC (Economic Research and Outreach Center at the Kiev School of Economics) for support of Ukrainian data collection and analysis, the National Council for East European and Eurasian Research for support of the Hungarian and Romanian analysis, and the U.S. State Department (through a grant administered by the William Davidson Institute at the University of Michigan Business School) for support of the Russian analysis. All errors are our own.