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Abstract:
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 percent in Romania, 22 percent in Hungary, and 3 percent in Ukraine, with some variation across specifications, while in Russia it lowers it about 4 percent. Privatization to foreign rather than domestic investors has a larger impact (about 44 percent) 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."

Privatization, productivity, foreign ownership, Hungary, Romania, Russia, Ukraine, transition

Abstract:
Although the development of a new private sector is generally considered crucial to economic transition, there has been rather little empirical research on the determinants of startup firm growth. This paper uses panel data techniques to analyze a survey of 297 new small enterprises in Romania containing detailed information from the startup date through 2001. We find strong evidence that access to external credit increases the growth of both employment and sales. Taxes appear to constrain growth. The data suggest that entrepreneurial skills have little independent effect on growth, once demand conditions are taken into account. The evidence for the effectiveness of technical assistance is weak: only assistance provided by foreign partners yields a positive effect. A wide variety of alternative measures of the business environment (contract enforcement, property rights, and corruption) are tested, but none are found to have any clear association with firm growth.

Small Firms, Entrepreneurship, Microfinance, Business Environment, and Romania

Abstract:
This paper exploits the rapid rise in self-employment rates in post-communist Eastern Europe as a valuable "quasi-experiment" for understanding the sources of entrepreneurship. A relative demand-supply model and an individual sectoral choice model are used to analyze a 1993 survey of 27,000 adults in six transition economies. Estimated self-employment earnings premia are positive, and the data implies positive selection into both employee and self-employment status. Structural probit estimates show the probability of self-employment entry is unassociated with former Communist Party affiliation but positively related to schooling, pre-transition family income, receipt of property in restitution, pre-communist family business-holding, and predicted earnings differential. Cross-country variation in predicted self-employment entry rates and relative earnings provide evidence on the demand and supply factors affecting the decision to become an entrepreneur.

Abstract:
We investigate whether privatization, competitive forces, and hardening of budget constraints have yet begun to play efficiency-enhancing roles in Russia. The empirical work is based on information from a 1994 survey of privatized and state-owned Russian firms, together representing around 10 percent of Russian manufacturing output. We find robust evidence of a positive impact of privatization on labor productivity: in our basic specifications, we estimate that a ten percentage point increase in private share ownership raises real sales per employee by three to five percent. The evidence for the effect of product market competition is much weaker, depending on measurement and model specification: in some equations, domestic sales concentration is estimated to have a negative impact and the geographic scope of markets a positive effect on productivity, but the results are sensitive to minor changes in specification, and import penetration is never estimated to play a positive disciplinary role. While subsidies (soft budget constraints) are estimated to reduce the pace of restructuring in most of our models, the effect is usually small and rarely precisely estimated. We find some evidence that privatization and subsidy reduction are substitutes, that privatization and competition are complements when the latter is measured as the geographic scope of markets, and that competition and subsidy reduction are independent, in their impacts on Russian enterprise productivity.

Abstract:
We construct and analyze a unique database with 1992-99 information on privatization transactions and labor productivity for the entire surviving population of initially state-owned industrial corporations in Romania. The data permits us to describe the post-privatization ownership structure and to test the effect of alternative privatization policies on firm performance in a panel framework. The results of OLS, LAD, and fixed-effects estimations consistently show a positive, highly significant effect of private ownership share on the level and growth of labor productivity, the estimates ranging from 13 to 32 log points for the level, and 9 to 16 for productivity growth. The strongest estimated impacts arise from sales to foreign and domestic blockholders, but insider and mass privatization are also estimated to have positive, although smaller, impacts on firm performance.

Privatization, Ownership, Firm Performance, Restructuring, Transition, Romania

Abstract:
We study the character of self-employment, drawing upon household survey evidence from six transition economies. Multinomial-logit analysis distinguishing employers from own-account self-employed and comparing both groups to employees and unemployed finds that own-account status is intermediate in most characteristics; tests reject the pooling of any of these categories. Selection-bias-corrected earnings premia are large for employers and smaller for own-account. A structural polychotomous model shows that employers respond strongly to predicted earnings premia in all countries, while the own-account response is estimated to be negative, supporting the interpretation that individuals may be pushed into own-account status by lack of work opportunities.

self-employment, entrepreneurship, transition, private employment, Eastern Europe

Abstract:
We examine the impact of ownership concentration on firm performance using panel data for firms listed on the Budapest Stock Exchange, where ownership tends to be highly concentrated and frequently involves multiple blocks. Fixed-effects estimates imply that the size of the largest block increases profitability and efficiency strongly and monotonically, but the effects of total blockholdings are much smaller and statistically insignificant. Controlling for the size of the largest block, point estimates of the marginal effects of additional blocks are negative. The results suggest that the marginal costs of concentration may outweigh the benefits when the increased concentration involves "too many cooks".

Abstract:
We examine the impact of ownership concentration on firm performance using panel data for firms listed on the Budapest Stock Exchange, where ownership tends to be highly concentrated and frequently involves multiple blocks. Fixed-effects estimates imply that the largest block increases return on assets and operating efficiency strongly and monotonically, but the effects of total blockholdings are much smaller and statistically insignificant. Controlling for the size of the largest block, point estimates of the marginal effects of additional blocks are negative. The results suggest that the marginal costs of concentration may outweigh the benefits when the increased concentration involves "too many cooks."

ownership, performance, Budapest, stock, exchange, Earle, Upjohn

Abstract:
The "big-bang" liberalization of the inefficient Russian economy in 1992 provides a fruitful setting for analyzing the impact of several dimensions of market competition and other factors on enterprise efficiency. We analyze 1992-1998 panel data on 14,961 enterprises covering 75 percent of industrial employment, emphasizing the varied sources, geographic scope, intensity, time path, and survival effects of competitive pressures. We find large, positive effects on TFP from competition in domestic product and local labor markets, and from imports and better transportation infrastructure, although the first effect appears only gradually. Non-state firms outperform state enterprises, even after correction for selection bias.

Abstract:
The paper reviews theories of information technology adoption and organizational form and applies them to an empirical analysis of firm choices and characteristics in four transition economies: the Czech Republic, Hungary, Romania, and Slovakia. We argue that these economies have gone through two major structural changes - one concerning new technology and another concerning ownership and boundaries of firms - and we consider if and how each one of the two structural changes has affected the other. We test the impact of firm size, integration, and ownership on the extent of new information technology adoption (measured by growth in the fraction of employees using personal computers or computer-controlled machinery), and the impact of information technology on changes in the boundaries and the ownership structure of enterprises, drawing upon a sample survey of 330 firms.

technology, organizational, form, transition, Earle, Pagano, Lesi, Upjohn

Abstract:
A critical, but largely unexamined assumption in the debate over transition policy design concerns the complementarity or substitutability of market competition and private ownership in increasing firm efficiency. We analyze a simple Cournot model that distinguishes two aspects of privatization interacting with market opening: privatization of a firm and privatization of its competitors. Under plausible conditions, the model implies that privatizing a firm is a substitute for exposing it to competitive markets, but privatizing its competitors is complementary. Our empirical analysis uses augmented 3-factor translog production functions estimated on 1992-99 panel data for 13,288 Russian manufacturing enterprises accounting for 80.5 percent of total manufacturing employment in 1992. We find that nonstate ownership of a firm reduces the marginal efficiency impact from increased market dispersion, measured to account for geographic dispersion, but the share of its competitors that are nonstate increases this marginal impact. Disaggregating nonstate ownership, we find that domestic mixed and private ownership of a firm are substitutes with increased market dispersion, while foreign ownership is independent; but the share of competitors in all three nonstate types is complementary, with the strongest complementarity involving foreign ownership. The evidence suggests that an important indirect impact of private ownership may be the intensification of market competition, and thus that competition only among state-owned enterprises may be ineffectual in stimulating them to increase efficiency.

Abstract:
Comprehensive panel data on privatization transactions and labor productivity in Romanian industrial corporations are used to describe the post-privatization ownership structure, and to estimate the effect of Romania's diverse privatization policies on firm performance. The econometric results show consistently positive, highly significant effects of private ownership on labor productivity growth, the point estimates implying an increased 1.0 to 1.7 percentage growth for a 10 percent rise in private shareholding. The strongest estimated impacts are associated with sales to outside blockholders; insider transfers and mass privatization are estimated to have significantly smaller-although still positive-effects on firm performance.

Romania, privatization, industry, Earle, Telegdy, Upjohn

Abstract:
This paper uses 1985-1999 manufacturing census data for old Russian enterprises to calculate the magnitude and productivity effects of gross job flow rates before and after reforms. Job creation was low throughout the period in this sector, but increased slightly during the transition, while job destruction rose markedly. Heterogeneity in firm employment change also increased significantly. Intra- and inter-sectoral job reallocation had no effect on aggregate labor productivity during the socialist period, while they have made a strong positive contribution during the transition. Privatization and product market competition have not led to greater job destruction overall, but rather have helped to focus the destruction in the firms with the lowest productivity.

Job Destruction, Job Reallocation, Productivity, Transition, Russia

Abstract:
We analyze the role of privatization in creating a constituency for economic reform, markets, and democratic institutions, focusing on the Czech Republic. Drawing on a 1996 survey, we examine the 1,459 respondents' opinions on reforms, economic policies and systems, the legitimacy of transition, and democratic values. Using ordered probit estimation, we find that receiving property through restitution is strongly associated with support for reform and markets. Concerning voucher privatization, we find positive effects for participants retaining shares, but little impact of participation alone. Our simulations suggest that policy designs have substantial consequences for citizens' support of reforms, markets, and democracy.

Abstract:
We analyze the role of privatization in creating a constituency for economic reform, markets, and democratic institutions, focusing on the Czech Republic. Drawing on a 1996 survey, we examine the 1459 respondents' opinions on reforms, economic policies and systems, the legitimacy of transition, and democratic values. Using ordered probit estimation, we find that receiving property through restitution is strongly associated with support for reform and markets. Concerning voucher privatization, we find positive effects for participants retaining shares, but little impact of participation alone. Our simulations suggest that policy designs have substantial consequences for citizens' support of reforms, markets, and democracy.

Abstract:
We use 1994-1998 data from the Russian Longitudinal Monitoring Survey (RLMS) to measure the incidence and determinants of several types of worker training and to estimate the effects of training on workers' interindustry, interfirm, and occupational mobility, their labor force transitions, and their wage growth in Russia compared to the U.S. We hypothesize that the shock of economic liberalization in Russia may raise the benefits of training, particularly retraining for new jobs, but uncertainty concerning the revaluation of skills may raise the costs, with an overall ambiguous effect on the amount of training undertaken. The RLMS indicates a lower rate of formal training than studies have found for the U.S., suggesting that the second effect dominates. Previous schooling is estimated to affect the probability of training positively, but the relationship is much stronger for additional training in the same field than for retraining for new fields, consistent with the hypothesis that schooling and training are complementary but become more substitutable in a restructuring environment. Additional training in workers' current fields is estimated to reduce mobility and earnings, suggesting inertial programs from the pre-transition era. Retraining in new fields increases all types of worker mobility and has higher returns than those typically observed for training in the U.S., but it also raises the variance of earnings and the probability of unemployment, consistent with a search view of such retraining. Given the large returns to retraining, the efforts of Russian workers to learn new skills may increase as uncertainty is resolved and restructuring proceeds.

On-the-job Training, Restructuring, Wage Growth, Human Capital Investments

Abstract:
This paper investigates whether the efficiency effect of product market dispersion is a function of the infrastructural and policy environment. We hypothesize that more developed transportation and communication infrastructure and lower government regulation may reduce transaction costs, intensifying the competition associated with a given market structure, and we use data from the recently liberalized and regionally diverse country of Russia to test the hypothesis. Estimating translog production functions on a large 1992-99 panel of manufacturing firms, we find that the efficiency impact of market dispersion varies positively with the regional density of highway, railroad and telephone infrastructure, but negatively with regional price regulation and the share of votes received by the Communist Party.

market structure; competition; infrastructure; Russia; transition

Abstract:
We organize an empirical analysis of Russian wage arrears around hypotheses concerning factors that create incentives for firms to pay late and for workers to tolerate late payment, both reinforced by a prevalent environment of overdue wages.

Our analysis draws upon nationally representative household panel data matched with employer data to show substantial interfirm variation with the probability of arrears positively related to firm age, size, state ownership, and declining performance.

Estimation of a constrained multinomial logit model also reveals intrafirm variation related to job tenure and small shareholdings in the firm. Workers tend to have higher arrears in rural regions with low hiring rates, concentrated labor markets, and more prevalent arrears in the past.

We argue that wage arrears, unlike wage cuts, have a theoretically ambiguous effect on workers' quit behavior, and we show empirically that the effect varies negatively with the extent of the practice in the local labor market.

Russia, pay, arrears, Earle, Zabirianova, Upjohn

Abstract:
Why have economic reforms aimed at reducing the role of the state been successful in some cases but not others? Are reform failures the consequence of leviathan states that hinder private economic activity, or of weak states unable to implement policies effectively and provide a supportive institutional environment? We explore these questions in a study of privatization in postcommunist Russia. Taking advantage of large regional variation in the size of public administrations, and employing a multilevel research design that controls for pre-privatization selection in the estimation of regional privatization effects, we examine the relationship between state bureaucracy and the impact of privatization on firm productivity. We find that privatization is more effective in regions with relatively large bureaucracies. Our analysis suggests that this effect is driven by the impact of bureaucracy on the post-privatization business environment, with better institutional support and less corruption when bureaucracies are large.

privatization, bureaucracy, economic reform, Russia

Abstract:
We estimate the effects of privatization on firm-level wages and employment in four transition economies. Applied to longitudinal data on manufacturing firms, our fixed effect and random trend models consistently fail to support workers' fears of job losses from privatization, and they never imply large negative effects on wages; only for domestic privatization in Hungary and Russia are small (3-5%) negative wage effects found. Privatization to foreign investors has positive estimated impacts on both employment and wages in all four countries. The negligible consequences of domestic privatization for workers result from effects on scale, productivity, and costs that are large but offsetting in Hungary and Romania, and from small effects of all types in Russia and Ukraine. The positive employment outcome under foreign ownership results from a substantial scale-expansion effect that dominates the productivity-improvement effect, and the positive wage outcome from a productivity effect that dominates the effect on cost reduction.

privatization, employment, wages, foreign ownership, Hungary, Romania, Russia, Ukraine

Abstract:
This paper estimates the effect of privatization on multifactor productivity using comprehensive panel data on initially state-owned manufacturing firms in four economies. We exploit the data's longitudinal dimension to control for preprivatization selection and estimate long-run impacts. The estimates are robust to functional form but sensitive to selection controls. Our preferred random growth estimates imply positive multifactor productivity effects of 15 percent in Romania, 8 percent in Hungary, and 2 percent in Ukraine, but a -3 percent effect in Russia. The foreign privatization effect is larger (18-35 percent) in all countries. Positive domestic effects appear immediately in Hungary, Romania, and Ukraine and continue growing thereafter, but only emerge five years after privatization in Russia.

privatization, productivity, foreign ownership, random growth model, transition, Hungary, Romania, Russia, Ukraine

Abstract:
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 pre-privatization 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.

privatization, productivity, foreign ownership, random growth model, transition, Hungary, Romania, Russia, Ukraine

Abstract:
How do economic reforms affect resource reallocation processes and their contributions to productivity growth? This paper studies the consequences of enterprise privatization and liberalization of product markets, labor markets, and imports in the former Soviet Republics of Russia and Ukraine. Analyzing interfirm reallocation of output, labor, capital, and an input index with annual industrial census data from 1985 to 2001, we find that Soviet Russia displayed low reallocation rates that bore little relationship to relative labor and multifactor productivity across firms. Since reforms began, resource flows have increased in both countries, and their contributions to aggregate productivity growth have become substantial both through increased flows from less productive to more productive continuing firms and through higher exits of less productive entities - i.e., through creative destruction. Among the policy-relevant factors that may explain firm-level variation, privatization is estimated to have positive effects on productivity-enhancing reallocation, but there is less evidence of such effects from domestic product market competition, labor market competition, or import penetration.

Interfirm, reallocation, post-Soviet, Ukraine, Russia, Earle, Upjohn Institute, Brown

Abstract:
Gross job and worker flows in Russian industry are studied using panel data from a recent survey of 530 firms selected through national probability sampling. The data permit an examination of several important measurement issues - including the timing and definition of employment, the roles of split-ups and mergers, and the relative magnitudes of rehiring and new hiring and of quits and layoffs - and they contain a rich set of firm characteristics that may affect job and worker turnover. The results imply that job destruction and worker separation rates in industrial firms rose in the early 1990s, as did job flows as a fraction of worker flows, and layoffs as a fraction of separations. By contrast, job creation and worker hiring rates were flat until 1999, the former low and the latter surprisingly high. Heterogeneity in individual firm behavior increased throughout. New firms and old enterprises that have been reorganized display much larger flows compared with unreorganized enterprises. Unions appear to reduce worker flows, but the structure of neither product nor labour markets shows a significant impact. Private ownership has ambiguous effects: insider ownership, particularly by managers, is associated with higher worker flows and excess job reallocation, while outsider ownership, particularly by blockholders, is associated with lower flow rates. A measure of adjustment costs constructed from the worktime necessary to hire and train a new employee is strongly related to variables usually associated with adjustment costs, including worker wage, education, firm size, capital intensity, and labour productivity, but only weakly to job and worker turnover. Little evidence is found that firms' employment adjustments have become more sensitive to adjustment costs during the transition, but worker and manager ownership are associated with more sensitivity than are other types of ownership.

Job creation, job destruction, labour turnover, layoffs, transition, Russia

Abstract:
Gross job and worker flows in Russian industry are studied using panel data from a recent survey of 530 firms selected through national probability sampling. The data permit an examination of several important measurement issues; including the timing and definition of employment, the roles of split-ups and mergers, and the relative magnitudes of rehiring and new hiring and of quits and layoffs; and they contain a rich set of firm characteristics that may affect job and worker turnover. The results imply that job destruction and worker separation rates in industrial firms rose in the early 1990s, as did job flows as a fraction of worker flows and layoffs as a fraction of separations. By contrast, job creation and worker hiring rates were flat until 1999, the former low and the latter surprisingly high. Heterogeneity in individual firm behavior increased throughout. New firms and old enterprises that have been reorganized display much larger flows compared with unreorganized enterprises. Unions appear to reduce worker flows, but the structure of neither product nor labor markets shows a significant impact. Private ownership has ambiguous effects: insider ownership, particularly by managers, is associated with higher worker flows and excess job reallocation, while outsider ownership, particularly by blockholders, is associated with lower flow rates. A measure of adjustment costs constructed from the worktime necessary to hire and train a new employee is strongly related to variables usually associated with adjustment costs, including worker wage, education, firm size, capital intensity, and labor productivity, but only weakly to job and worker turnover. Little evidence is found that firms' employment adjustments have become more sensitive to adjustment costs during the transition, but worker and manager ownership are associated with more sensitivity than are other types of ownership.

Job Creation, Job Destruction, Labor Turnover, Layoffs, Transition, Russia

Abstract:
How do economic policies and institutions affect job reallocation processes and their consequences for productivity growth? This Paper studies the extreme case of economic system change and alternative transitional policies in the former Soviet Republics of Russia and Ukraine. Exploiting annual manufacturing census data from 1985 to 2000, we find that Soviet Russia displayed job flow behaviour quite different from market economies, with very low rates of job reallocation that bear little relationship to relative productivity across firms and sectors. Since liberalization began, the pace, heterogeneity, and productivity effects of job flows have increased substantially. The increases occurred more quickly in rapidly reforming Russia than in 'gradualist' Ukraine, as did the estimated effects of privatization and competitive pressures from product and labor markets on excess job reallocation and on the productivity-enhancing effects of job flows.

Job allocation, transition, Russia, Ukraine, productivity

Abstract:
How do economic policies and institutions affect job reallocation processes and their consequences for productivity growth? This paper studies the extreme case of economic system change and alternative transitional policies in the former Soviet Republics of Russia and Ukraine. Exploiting annual manufacturing census data from 1985 to 2000, we find that Soviet Russia displayed job flow behavior quite different from market economies, with very low rates of job reallocation that bore little relationship to relative productivity across firms and sectors. Since liberalization began, the pace, heterogeneity, and productivity effects of job flows have increased substantially. The increases occurred more quickly in rapidly reforming Russia than in "gradualist" Ukraine, as did the estimated effects of privatization and competitive pressures from product and labor markets on excess job reallocation and on the productivity-enhancing effects of job flows.

Job Reallocation, Productivity, Transition, Russia, Ukraine

Abstract:
We present a model of wage contract violation that implies a possibility of multiple equilibria in the level of arrears. Positive feedback arises because each employer's arrears affect the costs of late payment faced by other employers operating in the same labor market, resulting in a network externality or strategic complementarity in the adoption of the practice. We study the case of three equilibria, distinguishing two that are stable: the "punctual payment equilibrium" and the "late payment equilibrium." Our econometric analysis of linked employer-employee data for Russia supports the model's contention that the firm's costs of wage arrears ? as embodied in worker effort, quit and strike behavior, and the probability of legal penalties ? are attenuated by arrears in the local labor market. We estimate the arrears reaction function implied by the model, showing that it exhibits strongly positive feedback, and that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied in 1995 and 1998. Simulation results imply a late payment equilibrium characterized by six monthly overdue wages for a typical worker in 1995 and nine in 1998.

Wage arrears, contractual failure, institutions, institutional lock-in, social interactions, Russia, transition

Abstract:
This paper develops and implements a methodology for quantifying defense conversion in Russian manufacturing in the early 1990s. A two-sector, three-good model is employed to analyze the flows of resources from military to non-military uses and applied to firm-level survey data under alternative definitions of military production and the MIC. An aggregation framework is constructed to estimate the total quantity and change in Russian military production, the latter decomposed into intrafirm and intersectoral resource reallocation and overall industrial decline. Although there is evidence of substantial decline in military production, the data show little reallocation to productive civilian uses, neither within the MIC nor to other manufacturing sectors.

Abstract:
What role do community norms play in the diffusion and persistence of new organizational practices? We explore this question through an examination of the widespread practice of wage arrears, the late and non-payment of wages, in Russia during the 1990s. Existing research on wage arrears most often examines this practice as a means of flexible wage adjustment under difficult economic conditions. We develop an alternative theory that explains wage arrears through their acceptance as a legitimate form of organizational behavior within local communities. Our empirical analysis finds some support for the neoclassical position that wage arrears reflect adjustment to negative shocks, but this perspective fails to account for a number of important facts, including a high level of arrears among apparently successful firms. In contrast, our results find strong support for the institutional perspective. The statistical analysis demonstrates powerful and robust community effects both in firm adoption of this practice, controlling for firm performance, liquidity, and fixed firm effects, and in workers' reaction to arrears, through their quit (exit) and strike (voice) behavior.

Institutions, norms, legitimacy, arrears, organizational practices, sociology, Russia

Abstract:
We use longitudinal methods and universal panel data on 30,000 initially state-owned manufacturing firms in four transition economies to estimate the impacts of privatization on employment and wages. The results in all four countries consistently reject job losses and they never imply large wage cuts from privatization to either foreign or domestic owners. The domestic privatization estimates are close to zero for employment, while for wages they are negative but small in magnitude; estimated foreign privatization effects are nearly always positive and sometimes large for both outcome variables. We find that the negligible consequences of domestic privatization result from effects on scale, productivity, and costs that are large but offsetting in Hungary and Romania, and from small effects of all types in Russia and Ukraine. The positive employment outcome of foreign ownership results from a substantial scale-expansion effect that dominates the productivity-improvement effect, and the positive wage outcome from productivity improvement dominating the cost-reduction effect.

privatization, employment, wages, foreign ownership, Hungary, Romania, Russia, Ukraine

Abstract:
The challenge for labor market policy in the transition economies has been to redress the sharp drops in employment and rises in unemployment in a way that fosters the creation of productive jobs. The authors first document the magnitude and productivity of job and worker reallocation. Then they investigate the effects of privatization, product and labor market liberalization, and obstacles to growth in the new private sector on reallocation and its productivity in Hungary, Romania, Russia, and Ukraine. The authors find that market reform has resulted in a large increase in the pace of job reallocation, particularly that occurring between sectors and through firm turnover. Unlike under central planning, the job reallocation during the transition has contributed significantly to aggregate productivity growth. Privatization has not only stimulated intrasectoral job reallocation, but the reallocation is more productive than that among remaining state firms. The effect of privatization on firm productivity varies considerably across countries and is not always positive. The productivity gains from privatization have generally not come at the expense of workers but are rather associated with increased wages and employment.

Economic Theory & Research, Labor Markets, Microfinance, Small Scale Enterprise, Privatization

Abstract:
We analyze the pace and patterns of job reallocation in Ukraine using 1992-2000 panel data on nearly the surviving universe of manufacturing firms inherited from the Soviet Union. Employment growth displays substantial increase in heterogeneity during this transition period, with a corresponding rise in excess job reallocation. Unlike data for Soviet Russia in the 1980s, Ukrainian job reallocation in the 1990s was clearly productivity-enhancing, both within and across industries. The paper also estimates the effects of firm and market characteristics on the magnitude of reallocation and on the extent to which it has contributed to aggregate productivity growth.

Reallocation, post-Soviet, Ukraine, Russia, Earle, Upjohn Institute, Brown

Abstract:
Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.

Abstract:
Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps in the data, 0.24 for public-private and 0.40 for foreign-domestic, are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia to 0.16 and 0.34, respectively, and controlling for employment size further reduces them to 0.07 and 0.28. We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium to 0.07. The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and they illustrate the value of analyzing LEED to take such correlated factors into account.

wages, linked employer-employee data, public sector labor markets, foreign direct investment

Abstract:
We estimate the impact of schooling on monthly earnings from 1950 to 2000 in Romania. Nearly constant at about 3-4 percent during the socialist period, the coefficient on schooling in a conventional earnings regression rises steadily during the 1990s, reaching 8.5 percent by 2000. Our analysis finds little evidence for either the standard explanations of such an increase in the West (labor supply movements, product demand shifts, technical change) or the transition-specific accounts sometimes offered (wage liberalization, border opening, increased quality of education). But we find some support for institutional and organizational explanations, particularly the high productivity of education in restructuring and entrepreneurial activities in a disequilibrium environment.

Returns to schooling, human capital, education, wage differentials, transition, Romania

Abstract:
We present a model of neighborhood effects in wage payment delays. Positive feedback arises because each employer's arrears affect the late payment costs faced by other firms in the same local labor market, resulting in a strategic complementarity in the practice. The model is estimated on panel data for workers and firms in Russia, facilitating identification through the use of a rich set of covariates and fixed effects at the level of the employee, the employer, and the local labor market. We also exploit a policy intervention affecting public sector workers that provides an instrumental variable to estimate the endogenous reaction in the non-public sector. Consistently across specifications, the estimated reaction function displays strongly positive neighborhood effects, and the estimates of four feedback loops - operating through worker quits, effort, strikes, and legal penalties - imply that costs of delays are attenuated by neighborhood arrears. We also study a nonlinear case exhibiting two stable equilibria: a punctual payment equilibrium and a late payment equilibrium. The estimates imply that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied in our data.

Wage arrears, contract violation, neighborhood effect, social interactions, multiple equilibria, network externality, strategic complementarity, transition, Russia

Abstract:
This paper looks behind the standard, publicly available employment and unemployment statistics that studies of transition economy labor markets have typically relied upon. We analyze microdata on detailed labor force survey responses in Russia, Romania, and Estonia to measure nonstandard, boundary forms and alternative definitions of labor force status. Our estimates show that measured employment and unemployment rates are quite sensitive to definition, particularly in the treatment of household production (subsistence agriculture), unpaid family helpers, and discouraged workers, while the categories of part-time work and other forms of marginal attachment are still relatively unimportant. We find that tweaking the official definitions in apparently minor ways can produce alternative employment rates that are sharply higher in Russia but much lower in Romania and slightly lower in Estonia, and alternative unemployment rates that are sharply higher in Romania and moderately higher in Estonia and Russia.

alternative measures of unemployment and employment, transitional

Abstract:
This paper looks behind the standard, publicly available labor force statistics relied upon in most studies of transition economy labor markets. We analyze microdata on detailed labor force survey responses in Russia, Romania, and Estonia to measure nonstandard, boundary forms and alternative definitions of employment and unemployment. Our calculations show that measured rates are quite sensitive to definition, particularly in the treatment of household production (subsistence agriculture), unpaid family helpers, and discouraged workers, while the categories of part-time work and other forms of marginal attachment are still relatively unimportant. We find that tweaking the official definitions in apparently minor ways can produce alternative employment rates that are sharply higher in Russia but much lower in Romania and slightly lower in Estonia, and alternative unemployment rates that are sharply higher in Romania and moderately higher in Estonia and Russia.

transition, nonstandard, data, unemployment, Russia, Romania, Estonia

Abstract:
This paper estimates the effects of privatization on worker separations and wages using retrospective data from a national probability sample of Ukrainian households. Detailed worker characteristics are used to control for compositional differences and to assess types of observable "winners" and "losers" from privatization. Preprivatization worker-firm matches are used to control for unobservables in worker and firm selection. The results imply that privatization reduces wages by 5 percent and cuts the layoff probability in half. Outside investor ownership reduces separations but leaves wages unaffected. Winners from privatization tend to be higher-skilled employees of larger firms, but there is no discernable relationship with gender, education, or experience.

privatization, layoffs, wages, Ukraine

Abstract:
We analyze a model of wage delay in which strategic complementarity arises because each employer's costs of violating its contracts decrease with the arrears in its labor market. The model is estimated on panel data for workers and firms in Russia, facilitating identification through fixed effects for employees, employers, and local labor markets, and instrumental variables based on policy interventions. The estimated reaction function displays strongly positive neighborhood effects, and the estimated feedback loops - worker quits, effort, strikes, and legal penalties - imply that costs of wage delays are attenuated by neighborhood arrears. We also study a nonlinear case with two stable equilibria: a punctual payment and a late payment equilibrium. The estimates imply that the theoretical conditions for multiple equilibria under symmetric labor market competition are satisfied in our data.

contract violation, wage arrears, social custom, strategic complementarity, neighborhood effect, social interactions, multiple equilibria, network externality, transition, Russia

Abstract:
We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism. After reforms, they rise dramatically, and productivity contributions greatly exceed those observed in market economies. Early in transition, faster reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates much higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.

productivity, reallocation, industry dynamics, creative destruction, reform, transition, Georgia, Hungary, Lithuania, Romania, Russia, Ukraine

Abstract:
Why have economic reforms aimed at reducing the role of the state been successful in some cases but not others? Are reform failures the consequence of leviathan states that hinder private economic activity, or of weak states unable to implement policies effectively and provide a supportive institutional environment? We explore these questions in a study of privatization in postcommunist Russia. Taking advantage of large regional variation in the size of public administrations, and employing a multilevel research design that controls for pre-privatization selection in the estimation of regional privatization effects, we examine the relationship between state bureaucracy and the impact of privatization on firm productivity. We find that privatization is more effective in regions with relatively large bureaucracies. Our analysis suggests that this effect is driven by the impact of bureaucracy on the post-privatization business environment, with better institutional support and less corruption when bureaucracies are large.

privatization, bureaucracy, economic reform, Russia

Abstract:
Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker- year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.

privatization, employment, wages, ownership, Hungary

Abstract:
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'.

Abstract:
A critical, but largely unexamined assumption in the debate over reform policy design, concerns the complementarity or substitutability of market competition and private ownership in increasing firm efficiency. We analyse a simple Cournot model that distinguishes two aspects of privatization interacting with market opening: privatization of a firm and privatization of its competitors. Under plausible conditions, the model implies that privatizing a firm is a substitute for exposing it to competitive markets, but privatizing its competitors is complementary. Our empirical analysis uses augmented 3-factor translog production functions estimated on 1992-99 panel data for 13,288 Russian manufacturing enterprises. We find that nonstate ownership of a firm reduces the marginal efficiency impact from product market dispersion, but the share of its competitors that are nonstate increases this marginal impact. Disaggregating nonstate ownership, we find that the shares of competitors in all three nonstate types are complementary with dispersed market structure, where the strongest complementarity involves foreign ownership. The evidence suggests that an important indirect impact of private ownership may be the intensification of market competition, and thus that competition only among state-owned enterprises may be ineffectual in stimulating them to increase efficiency.

Competition, market structure, privatization, Russia, structure conduct performance, transition

Abstract:
We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism, but they rise dramatically after reforms, and productivity contributions greatly exceed those observed in market economies. Early in transition, more reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.

productivity, reallocation, industry dynamics, entry, exit, creative destruction, reform, transition, Georgia, Hungary, Lithuania, Romania, Russia, Ukraine

Abstract:
This Paper investigates whether the efficiency effect of product market dispersion is a function of the infrastructural and policy environment. We hypothesise that more developed transportation and communication infrastructure and lower government regulation may reduce transaction costs, intensifying the competition associated with a given market structure, and we use data from the recently liberalized and regionally diverse country of Russia to test the hypothesis. Estimating translog production functions on a large 1992-99 panel of manufacturing firms, we find that the efficiency impact of market dispersion varies positively with the regional density of highway, railroad and telephone infrastructure, but negatively with regional price regulation and the share of votes received by the Communist Party.

Market structure, competition, infrastructure, Russia, transition

Abstract:
This Paper uses 1985-99 manufacturing census data for old Russian enterprises to calculate the magnitude and productivity effects of gross job flow rates before and after reforms. Job creation was low throughout the period in this sector, but increased slightly during the transition, while job destruction rose markedly. Heterogeneity in firm employment change also increased significantly. Intra- and inter-sectoral job reallocation had no effect on aggregate labour productivity during the socialist period, while they have made a strong positive contribution during the transition. Privatization and product market competition have not led to greater job destruction overall, but rather have helped to focus the destruction in the firms with the lowest productivity.

Job destruction, job allocation, productivity, transition, Russia

Abstract:
Gross job and worker flows in Russian industry are studied using panel data from a survey of 530 firms selected through national probability sampling. The data permit examination of several crucial measurement issues, including the timing and definition of employment and the role of reorganizations, and they contain rich information on firm characteristics. We find that new and reorganized firms display larger flows than unreorganized enterprises. Product market dispersion and managerial and dispersed outsider ownership are associated with greater worker churning, and unionization and concentrated outsider ownership with less.

There is little evidence that the average firm's employment adjustments have become more responsive to adjustment costs during the transition, but private ownership and product market competition appear to increase responsiveness.

Abstract:
We test whether foreign and domestic product market as well as domestic factor market competition affect firm efficiency, using a 1992-1998 panel of 14,961 Russian industrial firms covering 75 percent of industrial employment in 1992. The results provide strong evidence that domestic product market competition, import competition, and local labor market competition have large, positive effects on total factor productivity. The impact of liberalization appears only gradually in the domestic product market, taking about four years to attain 90 percent of the long-run value, but we find no such lags with respect to import competition or labor market competition. The data indicate that local product market competition may be more important than national competition in Russia, suggesting that markets are geographically segmented. Better transportation infrastructure appears to facilitate product market competition, while at the same time reducing firms' monopsony power on the labor market by facilitating worker mobility. We also find that non-state firms outperform state enterprises, even after controlling for selection bias in the determination of ownership. The results suggest that a reduction in import barriers, investment in transportation infrastructure, and elimination of interregional administrative trade barriers would stimulate industrial growth.

Abstract:
Long-term unemployment in Romania has grown in both absolute and relative terms in the last few years, leading to increased expenditures--both absolutely and in relation to unemployment benefits--for the support allowance and social assistance programs and for pensions to labor force drop-outs. The paper uses a variety of data sources, including registration information, labor force surveys, and our own survey of registered unemployed (SRU) to describe these trends in the characteristics of Romanian unemployment and to examine differences across unemployment benefit (UB) and short-term and long-term support allowance (SA) recipients. We employ the data to estimate the transition flow probability from the UB to the SA program; discuss the work incentives, income maintenance effects, and public costliness of the labor market and social insurance (including pension and disability) policies; and investigate the effects of the policies and of other characteristics of the unemployed and the areas where they live on the hazard for the escape rate from unemployment for UB and SA recipients separately.

Abstract:
This paper analyzes the ownership structure emerging from the Russian privatization process, using information from a sample survey of 439 state and privately owned manufacturing companies conducted in July 1994, just after the voucher programme was completed. The Russian ownership structure calls for a new approach to the analysis of corporate control because of the presence of multiple types of owners pursuing conflicting objectives and facing different constraints and because of the weakness of other corporate governance mechanisms in the Russian economy.

We distinguish four important categories of owners: the state, workers, managers, and outside investors (of which we consider several types). Our empirical results include new findings on the distribution of ownership across these categories, on the implications of alternative privatization methods for ownership structure, on the incidence of non-voting and voting shares, and on the extent of concentration of ownership within groups (with a particular focus on outside blockholders). As potential determinants of the ownership structure, we investigate measures of the size, complexity, capital intensity, and industrial relations of firms; the impact of regulation and other state actions; and the heterogeneity of the firm's productive activities and of its work-force. Finally, we examine the effects of ownership structure on enterprise performance, measured by labor productivity, several types of restructuring, and an overall index of restructuring activity.

We find evidence of positive effects of private ownership on enterprise performance. The effects vary across types of private owners, however, with managerial and institutional investor ownership having the strongest and most robust impacts, the latter accounted for mostly by investment fund ownership, which has an impact estimated to be quite large in a number of specifications. Remarkably, the impact on performance of outsider blockholders appears to be strengthened in the instrumental variables (IV) estimates compared to the ordinary least squares (OLS) estimates, suggesting that the privatization process may have contained a negative selection bias with respect to ownership by outside investors.

Abstract:
Has the rapid ownership transformation in Russia had an impact on enterprise performance or on worker behavior and attitudes? This paper investigates this issue using data from a nationwide survey of 1,176 Russian workers conducted in April 1995. We focus on the two primary types of ownership change in Russia: the privatization of existing state-owned enterprises, and the creation (de novo) of new, private organizations. Examining such types of firm behavior as restructuring of product lines, investment in new equipment, changes in internal organization, influences on decision-making, and labor market behavior, we find large and significant differences between privatized and state- owned enterprises, and between new private and all old organizations, controlling for other firm characteristics. Differences in the labor market behavior and attitudes of workers are significant when comparing new and old firms, but less so when comparing privatized to state enterprises. Finally, we analyze the relationship between the ownership of the firm in which an individual works and her political attitudes and voting intentions, finding that employees of the privatized companies tend to be the most anti-reform group while those in new private firms are the most pro-reform.

Abstract:
This paper investigates the impact of ownership structure on the productivity performance of Russian industrial enterprises. The analysis compares the effects of several types of new private owners--insiders (managers and other employees) and outsiders (individual and institutional investors)--with continued ownership by the state, and it takes into account possible selection effects in the privatization process that may bias the observed ownership-performance relationship. Drawing upon a large survey of enterprises in July 1994, the paper provides OLS regression estimates that controlling for other factors show a positive impact of private share ownership, relative to state, on labor productivity, with most of this result due to the positive effects of insider, especially managerial ownership; among outsiders, only individual share ownership has a positive and statistically significant impact. But some of these OLS results appear to be artifacts of simultaneity bias in the process determining ownership: IV estimates show a positive impact of outside ownership but the estimated effects of both types of inside ownership are insignificant. Among different types of outside owners, the estimated impact of concentrated institutional investors is strengthened in the IV compared to the OLS estimates, becoming larger in magnitude and statistically significant, while that of dispersed individuals is weakened. Overall, the results provide some evidence that ownership change in Russia was already having some positive effects, shortly after the conclusion of the voucher privatization process, but that those effects were strongest in companies with concentrated outside owners. Because the design of the Russian privatization program appears to have been biased against such institutional investors, the latter finding only emerges after a careful analysis of the simultaneous determination of ownership and performance through the privatization process.

Abstract:
This paper employs matched labor force survey data to investigate the magnitude and determinants of the labor market flows associated with the decline of industrial employment in Romania from 1993 to 1995. The data show not only a large decline in aggregate industry employment, but also a decline in each of the disaggregated two-digit sectors. Nonetheless, there are substantial gross flows in both directions, again with significant heterogeneity across sectors. Workers leaving jobs in industry have a variety of different destinations: jobs in other industrial sectors, in agriculture, and in services, as well as unemployment and non-participation in the labor force; the data show all of these paths to be significant. Multinomial logit estimates indicate that the probability of paths is affected by both individual and firm characteristics. Among other results, university and general high school education tend to raise the probability of job-to-job flows, particularly from industrial jobs to other industrial jobs and to service sectors, but not to agriculture. Workers with primary and vocational education have the highest probability of becoming unemployed and the lowest probability of finding new jobs in services (less than a third the probability for those with university education). Compared with workers in state-owned companies, workers from the private sector, especially from enterprises of mixed ownership, have a greater probability of exiting their industry, as well as higher probabilities of finding jobs in services. The largest outflows, however, concern workers from industrial cooperatives, most of whom became unemployed. The data present a mixed picture of social dislocation and improved reallocation.

Abstract:
We investigate whether competitive forces and privatization have yet began to play an efficiency-enhancing role in Russia. The empirical work is based on a large enterprise panel of Russian firms 1990-94, representing around 10% of Russian manufacturing output. We find evidence that privatization is having an impact on enterprise efficiency and restructuring, particularly associated with managerial share holdings. Domestic market structure, however, does not appear to have such an effect, but there is some evidence that Russian firms are sensitive to the degree of import penetration.

Abstract:
This paper provides an assessment of the contribution to privatization in Romania of the 1995-96 Mass Privatization Program (MPP), which offered shares in nearly 5000 companies to citizens in exchange for coupons. Analyzing a comprehensive database of MPP companies, we find that an average of only 18.7 per cent of their shares were actually transferred to Romanian citizens, and only 7.8 per cent of the companies were majority privatized (on a size-weighted basis). We estimate that the MPP accounted for only about 5.5 per cent of the value of state-owned enterprise assets inherited from the socialist period. The design of the program created highly dispersed ownership structures, which is likely to create particularly difficult problems in the many small companies in the program. We place our findings in the context of the history of Romanian privatization policies since 1990, we provide some comparisons with mass privatization programs in other countries, and we analyze the implications of the MPP for the corporate governance and restructuring of enterprises.

Abstract:
This paper provides a first assessment of the contribution of the Mass Privatization Program (MPP) to privatization in Romania. Despite the potential importance of the 1995-96 program, which offered shares in nearly 5000 companies to citizens in exchange for coupons, little information has been made available to the public on its outcomes. Analyzing a comprehensive database of companies in the MPP, we find that an average of only 18.7 percent of the shares of the companies were actually transferred to Romanian citizens, and only 7.8 percent of the companies in the program were majority privatized (on a size-weighted basis). We estimate that the so-called "mass privatization" accounted for only about 5.5 percent of the state-owned enterprise assets in the country, despite the enormous hype about the program from the previous government. We place our findings in the context of the history of Romanian privatization policies since 1990, we provide some comparisons with mass privatization programs in other countries, and we analyze the implications of the MPP for the corporate governance and restructuring of enterprises.

Abstract:
This paper presents an empirical analysis of the role of privatization policy design in creating a constituency for economic reform, focusing on the case of the Czech Republic in the early 1990s. Drawing on a sample survey of 1459 Czech individuals in January 1996, we construct attitudinal indicators of the respondents' reactions to reforms, their opinions on the roles of the state and the market in the economy, their perceptions of the legitimacy of transition, and their democratic values. Using ordered probit estimation techniques, and controlling for income and a variety of other individual characteristics, we find that receiving property through the extensive Czech program of restitution is strongly associated with higher support for reform, markets, and democracy. Concerning the voucher privatization program, we find that participants tend to be more supportive of reform than non-participants, but most of this effect is accounted for by the stronger support of participants who have retained their shares rather than selling shortly after receiving them. Among workers employed in firms of different ownership types, there is a weak tendency for workers in privatized firms to oppose reforms, but a clear propensity of entrepreneurs to support them. The magnitude of these estimated effects is typically large: our policy simulations show, for example, that the total impact of all these dimensions of the privatization process nearly double the proportion of the population in "strong" opposition to price controls. The results provide evidence for the hypothesis that the particular design of a reform program may have important effects on the attitudes of the citizenry, including their willingness to support reforms and their faith in markets and democracy.