Privatization, competition, and budget constraints: disciplining enterprises in Russia

TitlePrivatization, competition, and budget constraints: disciplining enterprises in Russia
Publication TypeJournal Article
AuthorsEarle, J. S., and S. Estrin
Journal titleEconomics of Planning
Pages1 - 32

We investigate whether privatization, competitive forces, and the hardening of budget constraints played efficiency-enhancing roles in Russia in the immediate post-privatization period. We find evidence of a positive impact of privatization on labor productivity: a 10% point increase in private share ownership raises real sales per employee by 3–5%. The evidence on product market competition is weaker, depending on model specification. Soft budget constraints are usually found to reduce restructuring but the effect is small and insignificant. We find that in terms of their impacts on productivity, privatization and subsidy reduction are substitutes; privatization and competition (measured as the geographic scope of markets) are complements; and that competition and subsidy reduction are independent.


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Department of Economics and Business