The Reversal of Privatization: Determinants and Consequences
45 Pages Posted: 5 Nov 2013 Last revised: 3 Apr 2015
Date Written: April 2, 2015
We document large-scale reversal of privatization in China — local government re-possessing controlling ownership stakes in previously privatized firms during the period 1999-2007. Privatized firms are ‘re-nationalized’ to ease the burden of unemployment in the local market. Firms located in provinces with newly appointed, top-ranked Communist Party leaders who are not affiliated with any of the dominant political factions are more likely to be re-nationalized. With a number of instrument variables including the political status of the top-ranked provincial Party leader, we find that re-nationalization leads to lower profitability and labor productivity, and does not appear to have any long-term economic benefits in the region.
Keywords: re-nationalization, privatization, political faction, unemployment, productivity
JEL Classification: G32, H11, P31, L22
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