Saul Estrin, Jan Hanousek, Evžen Kočenda, and Jan Svejnar Journal of Economic Literature, 47(3), 1–31.

Saul Estrin Professor and Head of Dept. of Management at The London School of Economics and Political Science Main Areas of Research: labor and industrial economics, transition economics and economic development, privatization and foreign direct investment Jan Hanousek Professor at CERGE-EI, Charles University, Czech Republic Main Area of Research: Economics of Transition

Evžen Kočenda Professor at CERGE-EI, Charles University, Czech Republic Main Areas of Reasearch: Applied economics and econometrics, International money and finance, Transition and European integration, Corporate performance and governance, Nonlinear procedures Jan Svejnar Professor of Business Administration, Director of the International Policy Center, and Professor of Economics and Public Policy at the University of Michigan Main Areas of Research: economic development and transition, labor economics, and behavior of the firm

 Literature survey over studies dealing with effects of privatization and ownership on economic performance, mainly productivity, profitability, revenue, employment, wages, and other economic indicators

 Keystone of Transition  Improve efficiency  Break with command economy of communism  Part of broader systemic change  Type I Reforms: macro stabilization, price liberalization, and dismantling of old communist institutions  Type II Reforms: development and enforcement of laws, regulations, and institutions helpful for market economy- included privatization, development of market-oriented legal system

 Simeon Djankov and Peter Murrell (2002)  Combined different performance indicators into one composite measure of restructuring  Early studies on transition  Improvements with current paper  Didn’t combine for meta-analysis because of different measures used for performance  Covers both early transition (early-to-mid 1990s) and later transition period (mid-to-late 1990s onward)  Only uses studies that correct for selection bias

 Studies almost uniformly show that privatization to foreign owners greatly increases efficiency  Domestic private ownership in CEE is also positive but smaller, takes longer to have an effect  Privatization in CIS to domestic owners can have a negative or insignificant effect  With regards to privatized SOEs and new firms  Privatized SOEs to foreign owners most efficient, then new foreign owned firms, then new domestic owned firms, and finally privatized SOEs to domestic owners

 Another indicator of company performance, though may be underreported for tax evasion or reflect market power  Found to have a positive or insignificant effect, significance depending on type of ownership  Concentrated domestic private ownership, managerial ownership, and foreign ownership have positive effect (though foreign effect is smaller)  In CEE, profitability in unaffected by whether or not state kept a large share of company, a “golden share”

 In CEE, there is a strong and positive effect of private ownership on revenue  Smaller if study only covers the early transition period  Foreign ownership has greater effect than domestic  Positive in CIS in early period, but varied in later  In terms of revenue growth, in CEE:  High positive effect to foreign owners in early period  Small effect in later period  Insignificant effect of privatizing to domestic owners

 Indicator of extent of restructuring of economy  Privatized firms, especially those with foreign ownership, tend to increase employment or at least keep it constant compared with SOEs  Different from what is predicted in theoretical models  Different from what is observed in developing nations such as Mexico

 CEE and CIS led the transition with large privatizations, and experienced a large recession for the first 3 to 8 years of transition  China did not lead the transition with privatization and avoided the transition recession  China already had other market institutions in place when began privatization  Still too early though to be able to draw large conclusions about China’s transition

 One interesting fact…  In the CEE and CIS, foreign ownership has a larger positive effect on economic performance than domestic ownership  Due to good management and corporate governance and access to world markets  In China, though more studies are needed, privatization to domestic owners has a larger positive effect on economic performance  Due to government restrictions on foreign firms and an already functioning legal system

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