Privatisation and productivity growth

Project overview

Project lead: Amalavoyal Chari, University of Sussex

Start date: 1 November 2014

End date: 30 April 2018

Research Council project page

This research project aims to conduct the first empirical analysis of the effects of privatisation of State Owned Enterprises (SOEs) on the allocation of productive resources in a low-income country (LIC), addressing the following questions:

  •  How does privatisation impact the productivity of other private enterprises that have labour and input market linkages with the privatized SOE?
  •  How do the market and regulatory environments interact with privatisation? We will examine a number of policy features that are likely to condition the effects of privatisation, including labour legislation and trade openness.

The hypothesis is that the operation of state-owned enterprises (SOEs) may lock an economy into an inefficient allocation of resources. The research will gain an insight of when and under what conditions privatisation policy can serve as an instrument to restore allocative efficiency and improve aggregate productivity by releasing resources to more innovative sectors of the economy.

The project will use data from annual industry surveys, as well as data from household employment surveys, and combine these with data on privatisation in India. A comparison of changes in productivity and labour market outcomes for factories in districts that saw a reduction in the public sector due to privatisation will be made with districts that experienced no changes. This will allow the team to identify and estimate the effects of privatisation.