Privatization, Competition, and Budget Constraints: Disciplining Enterprises in Russia

SITE Working Paper No. 128

41 Pages Posted: 14 May 1998

See all articles by John S. Earle

John S. Earle

George Mason University - Schar School of Policy and Government; IZA Institute of Labor Economics

Saul Estrin

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: March 1998

Abstract

We investigate whether privatization, competitive forces, and hardening of budget constraints have yet begun to play efficiency-enhancing roles in Russia. The empirical work is based on information from a 1994 survey of privatized and state-owned Russian firms, together representing around 10 percent of Russian manufacturing output. We find robust evidence of a positive impact of privatization on labor productivity: in our basic specifications, we estimate that a ten percentage point increase in private share ownership raises real sales per employee by three to five percent. The evidence for the effect of product market competition is much weaker, depending on measurement and model specification: in some equations, domestic sales concentration is estimated to have a negative impact and the geographic scope of markets a positive effect on productivity, but the results are sensitive to minor changes in specification, and import penetration is never estimated to play a positive disciplinary role. While subsidies (soft budget constraints) are estimated to reduce the pace of restructuring in most of our models, the effect is usually small and rarely precisely estimated. We find some evidence that privatization and subsidy reduction are substitutes, that privatization and competition are complements when the latter is measured as the geographic scope of markets, and that competition and subsidy reduction are independent, in their impacts on Russian enterprise productivity.

JEL Classification: D21, D73, H2, L10, L33, P00

Suggested Citation

Earle, John S. and Estrin, Saul, Privatization, Competition, and Budget Constraints: Disciplining Enterprises in Russia (March 1998). SITE Working Paper No. 128. Available at SSRN: https://ssrn.com/abstract=87113 or http://dx.doi.org/10.2139/ssrn.87113

John S. Earle (Contact Author)

George Mason University - Schar School of Policy and Government ( email )

3351 Fairfax Drive
MS 3B1
Arlington, VA 22201
United States
703-993-8023 (Phone)

HOME PAGE: http://earle.gmu.edu

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Saul Estrin

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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