The productivity effects of privatization : Longitudinal estimates from Hungary ,

This paper estimates the effect of privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in four economies. We exploit the key longitudinal feature of our data to measure and control for preprivatization selection bias and to estimate long-run impacts. We find that the magnitudes of our estimates are robust to alternative functional forms, but sensitive to how we control for selection. Our preferred random growth models imply that majority privatization raises MFP about 15% in Romania, 8% in Hungary, and 2% in Ukraine, while in Russia it lowers it 3%. Privatization to foreign rather than domestic investors has a larger impact, 18–35%, in all countries. Positive domestic effects appear within a year in Hungary, Romania, and Ukraine and continue growing thereafter, but take 5 years after privatization to emerge in Russia. *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. This paper is a very extensive revision of Brown, Earle, and Telegdy (2004). We thank Jeff Nault for dedicated research assistance, Philipp Jonas for very helpful econometric and programming input, and Joanne Lowery for conscientious editing. We also thank Vladimir Bessonov, Barry Ickes, Laurence Levin, Steven Levitt, Peter Murrell, Sherwin Rosen, and three referees for comments on earlier drafts, and Gabor Kézdi, Mark Schaffer, and Jeff Smith for econometric advice. Assembling and preparing the data for this project involved large teams of research assistants, and we are grateful for careful work by Anna Horváth, Anna Lovász, Béla Személy, and Ágnes Töröcsik on the Hungarian data; Ioana Dan, Victor Kaznovsky, Catalin Pauna, Irina Vantu, and most especially Ruxandra Visan on the Romanian data; and Natalia Akhmina, Tatiana Andreyeva, Serhiy Biletsky, Larisa Leshchenko, Ivan Maryanchyk, Alexander Scherbakov, and Vladimir Vakhitov on 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, and EROC (Economic Research and Outreach Center at the Kyiv-Mohyla School of Economics) for support of Ukrainian data collection. The project received overall support from the National Council for East European and Eurasian Research. All errors are our own.