Politics and Privatization: Exogenous pressures, domestic incentives and state divestiture in Latin America

Despite a pervasive trend towards state retrenchment in Latin America since the 1980s, there remains significant variation in the levels of privatization across the region. However, very few cross-national studies of the determinants of privatization have been conducted and we still do not truly know why states privatize. This paper examines the determinants of privatization for 14 Latin American states over the period 1975 to 2003. I contend that privatization is best conceptualized as a two-stage process involving an initial decision to privatize, followed by a subsequent decision concerning the extent and intensity of privatization. In addition, privatization cannot be simply explained by either international or domestic level-variables. Rather, endogenous and exogenous variables will have different impacts at different stages of this process. The results of the statistical tests yield two important insights. Firstly, the initial decision to privatize is primarily shaped by international factors, in particular, international diffusion, while variation in the level of state divestiture across the region can primarily be explained by domestic economic and political conditions.