Political Objectives and Privatization Decisions

Abstract:     
In early Romanian privatization a group of firms was explicitly banned from privatization. We use this institutional feature to test which factors contributed to the selection of firms for long‐term state ownership, and find that politicians sheltered from privatization large and inefficient firms which paid low wages and had high overdue payments. These results are consistent with minimization of employment losses, even if efficiency enhancement of privatization had to be sacrificed. We conjecture that the unfavourable economic conditions bringing large employment losses motivated Romanian politicians to fear the possible negative employment effects of privatization.

Number of Pages in PDF File: 15

Keywords: Privatization, government objectives, Romania

JEL Classification: L33, P26

Accepted Paper Series