Privatization Benefits in Eastern Europe

We document changes in the performance of over 6000 privatized and state-owned manufacturing enterprises in seven Eastern European countries over the initial transition period. We find that privatization is associated with significant increases in sales revenues and labor productivity, and, to a lesser extent, with fewer job losses. The positive effect of privatization is stronger in economic magnitude and statistical significance as the time elapsed since privatization increases. Enterprises privatized for less than 2 years have labor productivity growth similar to that of state-owned enterprises. In contrast, enterprises privatized for 3 or more years significantly outperform state-owned enterprises. The results are robust to the use of alternative econometric specifications (fixed effects, cluster effects, and random effects), and survive in six of the seven individual country samples (the exceptions being Hungary for sales growth and Romania for labor productivity growth)