The Benefits of Privatization: Evidence from Mexico / Rafael La Porta, Florencio Lopez-de-Silane.

Format:

Book

Author/Creator:

La Porta, Rafael.

Contributor:

National Bureau of Economic Research.

Lopez-de-Silane, Florencio.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6215.

NBER working paper series no. w6215

Language:

English

Subjects (All):

Privatization--Law and legislation.

Privatization.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Benefits of Privatization

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Cambridge, Mass. : National Bureau of Economic Research, 1997.

Summary:

Criticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks.

Notes:

Print version record

October 1997.

Includes bibliographical references.