What Causes Privatization? Evidence from Import Competition

45 Pages Posted: 3 Dec 2018 Last revised: 10 Jan 2019

See all articles by Qing Hu

Qing Hu

The University of Hong Kong - Faculty of Business and Economics

Wenjing Li

Jinan University, School of Management

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Lai Wei

Lingnan University - Department of Finance and Insurance

Date Written: January 2019

Abstract

This paper identifies product market competition as a fundamental impetus for privatization. Based on the economy with the largest state sector and shocks to product market competition caused by its trade liberalization, we explore whether and how competition affects privatization. We find that state-owned enterprises (SOEs) more affected by the competitive shocks are more responsive to introduce private ownership and more likely to render the state’s controlling positions. Responses are stronger when SOEs operate in industries with greater technology and efficiency/productivity gap from frontier economies or operate with excess employment and costs in regions with larger fiscal burdens. We further explore the role of oversight governments and find the results stronger among (1) local SOEs supervised by governments at a lower layer of an administrative cohort and (2) central SOEs located farther away from the central government, suggesting that information asymmetries and strategic importance of SOEs are key considerations of the state’s privatization decisions. Finally, we find regions with better market and legal institutions attract private investors and facilitate SOEs’ privatization under competitive pressures.

Keywords: Privatization, State Ownership, Competition, Trade Liberalization

JEL Classification: G32, L33, F10

Suggested Citation

Hu, Qing and Li, Wenjing and Lin, Chen and Wei, Lai, What Causes Privatization? Evidence from Import Competition (January 2019). Available at SSRN: https://ssrn.com/abstract=3291805 or http://dx.doi.org/10.2139/ssrn.3291805

Qing Hu (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

Wenjing Li

Jinan University, School of Management ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Lai Wei

Lingnan University - Department of Finance and Insurance ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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