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Privatization in Vertically Related Markets: Insights from a General Equilibrium Approach

Dianshuang Wang () and Xiaochun Li ()
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Dianshuang Wang: School of Economics. Nanjing University
Xiaochun Li: School of Economics. Nanjing University

Hacienda Pública Española / Review of Public Economics, 2020, vol. 234, issue 3, 3-21

Abstract: A three-sector general equilibrium model is built to investigate how deepening privatization of an upstream state-owned enterprise (SOE) influences the whole economy in developing economy. The SOE, facing privatization, owns a monopolistic position in upstream market and offers an essential intermediate input for downstream manufacturing sector. After the privatization, the SOE improves its efficiency. We conclude the efficiency-enhancing effect is crucial for determining the impacts of privatization and provide a new perspective for analyzing this issue. Deepening privatization lowers (raises) price of the intermediate input and increases its output if the efficiency-enhancing effect is relatively large (small). When the effect is moderate, an increase in the privatization level raises the output of manufacturing and agricultural and improves social welfare.

Keywords: Privatization; state-owned enterprise; vertical structure; efficiency-enhancing effect; general equilibrium. (search for similar items in EconPapers)
JEL-codes: L33 L12 O12 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:hpe:journl:y:2020:v:234:i:3:p:3-21