Is Privatization a Free Lunch? New Evidence on Ownership Status and Firm Performance

Abstract:     
Recent studies that use panel data to assess the impact of privatization on firm performance suggest that privatization positively affects growth in sales, productivity and, more surprisingly, employment. Using survey data on 90 enterprises in the Republic of Kyrgyzstan during 1993-1995, we also find that the typical privatized Kyrgyz firm had substantially higher rates of growth of sales revenue and labor productivity, and somewhat higher employment growth, than the typical state-owned firm in 1995. Empirical evidence to date thus suggests that privatization would have reduced Kyrgyz unemployment, they do show that state enterprises were quite willing to fire workers. We find no evidence that positive selection bias was important in our sample, and we do not find that outsider-owned firms outperformed insider-owned firms. Finally, there is some evidence that the better productivity performance of privatized firms was due to managerial human capital turnover.

JEL Classification: H4

working papers series