Privatization, Convergence, and Growth

In this paper, the authors study the empirical relationship between privatization, income convergence, and economic growth using the open economy versions of two competing growth models. The predictions of the theory are tested empirically for transition countries using static and dynamic panel data estimation techniques. The results for privatization are robust with respect to the estimation method used and reveal that only small-scale privatization is positively associated with growth. The evidence for external openness is mixed and depends on the estimation method employed and the presence of individual time effects for particular years of the sample. In most specifications, the authors document the presence of the income convergence effect. This implies that privatization and external openness have only temporary effects on the rate of growth in transition countries.