Political Selection of Firms into Privatization Programs - Evidence from Romanian Comprehensive Data

Adam Szentpeteri () and Almos Telegdy
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Adam Szentpeteri: Central European University, Eotvos Lorand University

No 826, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: Exploiting a unique institutional feature of the early Romanian privatization setup, when a group of firms was explicitly barred from any privatization, we test how politicians select firms into privatization programs. Using a comprehensive dataset that includes all firms inherited from socialism, we estimate the relation between pre-privatization firm characteristics (the information known to politicians at the time of decision making) and the effect of privatization on employment, efficiency and wages. We argue that other objectives, such as revenue maximization or bribe collection were of secondary importance in the early Romanian privatization. Using the estimated coefficients, we simulate the effect of privatization on non-privatizable and privatizable firms, including in the latter group both privatized and not privatized enterprises. The simulations show that politicians expected the reduction of employment by 5.2 percent of the non-privatizable group, as a consequence of privatization. Contrary to this expectation, employment in the privatizable group was likely to grow by the same proportion. We do not find such discrepancies in the expected change in firm efficiency, as the simulated efficiency effect of privatization is large and positive for both groups of firms, and it is around 40 percent. The analysis does not support the hypothesis that wages played an important role in privatization decisions. These results do not change qualitatively if the privatizable group is disaggregated into privatized and not privatized groups. Our study suggests that employment concerns played the key role in selecting firms for privatization, even if efficiency gains had to be sacrificed.

Keywords: Privatization; Government objectives; Firm behavior; Romania (search for similar items in EconPapers)
JEL-codes: L33 P26 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-12
New Economics Papers: this item is included in nep-lab, nep-pol and nep-tra
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Related works:
Journal Article: POLITICAL SELECTION OF FIRMS INTO PRIVATIZATION PROGRAMS. EVIDENCE FROM ROMANIAN COMPREHENSIVE DATA (2010)
Working Paper: Political Selection of Firms into Privatization Programs. Evidence from Romanian Comprehensive Data (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:has:discpr:0826

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