Growth, Initial Conditions, Law and Speed of Privatization in Transition Countries: 11 Years Later

30 Pages Posted: 22 Apr 2006 Last revised: 29 Jun 2009

See all articles by Sergio Godoy

Sergio Godoy

Larrain Vial

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: January 2006

Abstract

This paper examines alternative hypotheses concerning the determinants of success in the transition from Communism to the market. In particular, we look at whether speed of privatization, legal institutions or initial conditions are more important in explaining the growth of the transition countries in the years since the end of the Cold War. In the mid 90s a large empirical literature attempted to relate growth to policy measures. A standard conclusion of this literature was the faster countries privatized and liberalized, the better. We now have more data, so we can check whether these conclusions are still valid six years later. Furthermore, much of the earlier work was flawed since it did not adequately treat problems of endogeneity, confused issues of speed and level of privatization, and did not face up to the problems of multicollinearity. Our results suggest that, contrary to the earlier literature, the speed of privatization is negatively associated with growth, but is confirms the result of the few earlier studies that have found that legal institutions are very important. Other variables, which seemed to play a large role in the earlier literature, appear to have at most a marginal positive effect.

Suggested Citation

Godoy, Sergio and Stiglitz, Joseph E., Growth, Initial Conditions, Law and Speed of Privatization in Transition Countries: 11 Years Later (January 2006). NBER Working Paper No. w11992. Available at SSRN: https://ssrn.com/abstract=879257

Sergio Godoy

Larrain Vial

Chile

Joseph E. Stiglitz (Contact Author)

Columbia Business School - Finance and Economics ( email )

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HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

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