Politicians and firms in seven central and eastern European countries

Stijn Claessens () and Simeon Djankov

No 1954, Policy Research Working Paper Series from The World Bank

Abstract: The authors test several propositions derived by Shleifer and Vishny (1994, 1996) about how privatization and stabilization (hard budget constraints) affect enterprise behavior. They document the changes in financing, employment, and operating efficiency that have occurred in more than 6300 manufacturing enterprises in seven Central and Eastern European countries (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovak Republic, and Slovenia). They then compare the relative performance of privatized and state-owned enterprises. Controlling for institutional differences and the endogeneity of privatization choices, they find that privatization is associated with significant improvements in total factor productivity and reductions in employment. Reductions in soft financing are associated with further productivity gains. State-owned enterprises employ more workers, have lower productivity, receive more financing and direct subsidies, and have higher variable costs than privatized firms, particularly firms privatized for more than three years. Privatized firms also consistently outperform state enterprises in productivity growth. Over time, the role of politicians in allocating bank financing and subsidies appears to have declined, however, and banks have played a greater role in (efficiently) allocating resources. And the institutional environment appears to have improved in most countries, suggesting that the influence of corruption has declined over time. The results--which provide significant support for the Shleifer-Vishny model--demonstrate the beneficial effects of privatization in the presence of stabilization and decreasing corruption.

Keywords: Construction Industry; Common Carriers Industry; Food & Beverage Industry; General Manufacturing; Pulp & Paper Industry; Plastics & Rubber Industry; Labor Markets; State Owned Enterprise Reform; Public Sector Administrative & Civil Service Reform; Privatization; Energy Privatization; Energy Demand; Energy and Environment; Energy and Mining; Business Cycles and Stabilization Policies; Democratic Government; Economics and Finance of Public Institution Development; Public Sector Administrative and Civil Service Reform; De Facto Governments (search for similar items in EconPapers)
Date: 1998-08-31
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Citations: View citations in EconPapers (42)

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