Privatization

Abstract

In this paper prepared for inclusion in the Oxford Handbook of the Russian Economy (Michael Alexeev and Shlomo Weber, eds.), we replicate, update, and extend our earlier work on manufacturing enterprise privatization and productivity in Russia. Our results suggest a more nuanced view of Russian privatization than that offered by either its critics or its defenders. We confirm earlier findings that the average impact on productivity of privatization to domestic owners is around -3 to -5 percent, though some regions show productivity gains similar to those in Central Europe (an increase of 10 to 20 percent). The regional variation is strongly positively associated with the size of the regional bureaucracy. Notwithstanding the average negative effect, our updated results through 2005 (the most recent year for which comparable data are available) show a pronounced change after 2002 as the productivity effects of Russian privatization have begun to approach those seen elsewhere much earlier. Privatization became most effective west of the Urals, in areas with greater market access. Initially an outlier, by 2005 Russia appeared to be becoming more of a “normal country,” at least in the narrow sense of the impact of private ownership on firm productivity.