Privatization, Deregulation and Capital Accumulation

Abstract

In this paper we study how privatization and deregulation of production of intermediate goods influence capital accumulation. Our model is solved under three alternative scenarios: one where the intermediate sector is composed of a public monopoly under government control, one where the intermediate sector is dominated by a private monopoly, and one with a competitive intermediate sector. The comparison of these models suggests that the income benefits of state-to-market transitions are mostly due to increased competition on the deregulated market and that the privatization of state enterprises is not likely to generate significant changes in the economy when the public monopoly is replaced by a private monopoly. In fact, the model predicts that for high enough levels of public investment, a public monopoly would be preferred to a private monopoly in terms of the resulting aggregate income level. We find that elimination of monopoly rights can increase aggregate income by more than 20%.

Keywords: Privatization, Deregulation, Public Monopoly, Private Monopoly, Competition, Capital Accumulation

JEL Classification: E13, H11, 041, L33