Privatization and Globalization: an Empirical Analysis

This paper examines the link between globalization measured by foreign direct investment (FDI) and foreign portfolio investment (FPI) and privatization of state-owned enterprises in a multi-country sample that focuses on developing countries. We hypothesize that privatization has an effect on FDI/FPI as the process of fostering private sector participation was often accompanied by liberalization reforms, and by allocations of substantial shares in newly privatized firms to foreign investors. Similarly, we expect FDI/FPI to foster privatization efforts as new capital inflows, technology and managerial skills that accompany FDI/FPI make the environment more prone to competition, providing governments with incentives to privatize inefficient firms that need to be turned around. This relation is assessed in two ways, first in a dynamic panel using a generalized method of moments approach, and second through panel causality tests.Privatization, foreign direct investment, foreign portfolio investment, dynamic panel GMM, panel causality tests

The Dynamics of Foreign Direct Investment and Privatization: An Empirical Analysis

This article examines the link between foreign direct investment (FDI) and privatization of state-owned enterprises. We hypothesize that privatization has an effect on FDI as the process of fostering private sector participation is often accompanied by liberalization measures, and by allocating the shares of newly privatized firms to foreign investors. Similarly, we expect FDI to foster privatization efforts as capital inflows, technology and managerial skills that accompany FDI make the environment more prone to competition, and provide governments with a good environment to privatize inefficient firms. Our results provide support for our conjectures.Cet article examine le lien entre l’investissement direct à l’étranger (IDÉ) et la privatisation des entreprises étatiques. Nous faisons l’hypothèse que la privatisation affecte l’IDÉ dans la mesure où la participation du secteur privé s’accompagne souvent de mesures de libéralisation et de l’allocation d’actions des entreprises nouvellement privatisées à des investisseurs étrangers. De même, nous prévoyons que l’IDÉ favorise la privatisation dans la mesure où les entrées de capitaux, la technologique, et les habiletés de gestion qui accompagnent l’IDÉ créent un environnement plus compétitif et plus propice à la privatisation d’entreprises inefficaces. Nos résultats tendent à confirmer nos hypothèses.Este artículo examina la relación entre la inversión directa en el extranjero (IDE) y la privatización de empresas estatales. Nuestra hipótesis es que la privatización afecta la IDE en la medida en que la participación del sector privado con frecuencia va acompañada por medidas de liberalización y de adjudiación de acciones de empresas recientemente privatizadas a inversores extranjeros. De la misma manera, suponemos que la IDE favorece la privatización en la medida en que la afluencia de capitales, la tecnología y las habilidades de gestión asociadas a la IDE crean un entorno más competitivo y propicio a la privatización de empresas ineficaces. Los resultados obtenidos tienen a confirmar nuestras hipótesis

Privatization and Globalization: an Empirical Analysis

This paper examines the link between globalization measured by foreign direct investment (FDI) and foreign portfolio investment (FPI) and privatization of state-owned enterprises in a multi-country sample that focuses on developing countries. We hypothesize that privatization has an effect on FDI/FPI as the process of fostering private sector participation was often accompanied by liberalization reforms, and by allocations of substantial shares in newly privatized firms to foreign investors. Similarly, we expect FDI/FPI to foster privatization efforts as new capital inflows, technology and managerial skills that accompany FDI/FPI make the environment more prone to competition, providing governments with incentives to privatize inefficient firms that need to be turned around. This relation is assessed in two ways, first in a dynamic panel using a generalized method of moments approach, and second through panel causality tests