Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data

51 Pages Posted: 18 Apr 2001

See all articles by J. David Brown

J. David Brown

US Census Bureau Center for Economic Studies; IZA Institute of Labor Economics

John S. Earle

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

Date Written: April 2001

Abstract

A critical, but largely unexamined assumption in the debate over reform policy design, concerns the complementarity or substitutability of market competition and private ownership in increasing firm efficiency. We analyse a simple Cournot model that distinguishes two aspects of privatization interacting with market opening: privatization of a firm and privatization of its competitors. Under plausible conditions, the model implies that privatizing a firm is a substitute for exposing it to competitive markets, but privatizing its competitors is complementary. Our empirical analysis uses augmented 3-factor translog production functions estimated on 1992-99 panel data for 13,288 Russian manufacturing enterprises. We find that nonstate ownership of a firm reduces the marginal efficiency impact from product market dispersion, but the share of its competitors that are nonstate increases this marginal impact. Disaggregating nonstate ownership, we find that the shares of competitors in all three nonstate types are complementary with dispersed market structure, where the strongest complementarity involves foreign ownership. The evidence suggests that an important indirect impact of private ownership may be the intensification of market competition, and thus that competition only among state-owned enterprises may be ineffectual in stimulating them to increase efficiency.

Keywords: Competition, market structure, privatization, Russia, structure conduct performance, transition

JEL Classification: L10, L32, L33, P23

Suggested Citation

Brown, J. David and Earle, John S., Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data (April 2001). Available at SSRN: https://ssrn.com/abstract=267274

J. David Brown (Contact Author)

US Census Bureau Center for Economic Studies ( email )

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IZA Institute of Labor Economics

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John S. Earle

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

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IZA Institute of Labor Economics

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