Move to markets? : an empirical analysis of privatization in developing countries

We analyze when, and to a lesser extent how, privatization occurred in a group of thirty-five low or middle-income developing countries. The theoretical perspective turns on the concept of net political benefits, which in our model is the primary determinant of privatization policies. Privatization is a means to an end, of course, rather than an end in itself. But we proceed under the assumption that policymakers have decided, for whatever reason, that privatization is a desirable goal.The decision to privatize is captured here in three related, but distinct, dependent variables: (1) timing, (2) pace, and (3) intensity. Our notion of the independent variable, 'net political benefits,' is not measured directly, but is instead proxied by an array of macroeconomic, political, and institutional variables. Our key finding is that, though political benefits turn out to explain the timing, pace, and intensity of privatization, the effects are very different in each case.From the theoretical framework, we hypothesize that net political benefits positively affects the timing, pace, and intensity of privatization. The timing hypothesis is tested using a Cox proportional hazard model. The Pace hypothesis is tested using a random effects negative binomial model. The intensity hypothesis is tested using the random effects model. Analyzing the causal relationships in the three models provides a macro overview of the privatization process between 1982-99.The decision to begin to privatize (timing) is fundamentally different from the choice to implement select particular units to privatize (pace) and begin to sell off assets (intensity). In fact, we find that the factors that improve timing delay intensity: early adopters are later implementers. Furthermore, we find that a privatization policy is much more like to be a crisis-driven, last ditch effort to turn the economy around, rather than a carefully chosen policy with explicit, long-term goals. A related, and very important, finding in our analysis has to do with the "lock-in" of institutions. Large public sectors create significant pressures for privatization, in terms of timing, but large public sectors also endow important political actors with powerful resources for delaying, or blocking completely, the implementation of privatization policies. The particular form of political institutions, foreign aid regimes, and level of development of property rights systems in the nation have significant conditioning influences on the extent of lock-in. These relationships may be important for informing policy decisions, and for understanding apparent "failures" of privatization policies.