Privatisation Methods and Economic Growth in Transition Economies

Abstract

In low-income countries privatization, if implemented appropriately, may play an important role in generating growth. Using data recently available from Central and Eastern Europe, we therefore investigate the impact of alternative methods of privatization on economic growth. Our analysis suggests that the use of conventional privatization methods to match owners with firms can be inefficient in economies with underdeveloped capital markets, particularly if wealth is poorly correlated with managerial and entrepreneurial ability. In these circumstances mass privatization, with firms being given away or sold at a nominal price, may be the appropriate policy choice.