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The missing shock: the macroeconomic impact of British privatisation

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  • Massimo Florio
  • Mara Grasseni

Abstract

The privatisation policy pursued in the UK by Mrs Thatcher's government (1979-1990) and subsequently by Mr Major's government (1990-1997) was the largest experiment in public divestitures among capitalist economies. It had a deep impact on economic policy-making worlwide, and was vastly imitated, in Western Europe, in the former planned economies, in a number of less developed countries. In this paper we test the impact of privatisation on macroeconomic performance in the United Kingdom using quarterly data from 1979 to 1999. In the econometric model, we use privatisation proceeds as an explanatory variable and we control for several other variables. Testing for cointegration the results show that there is a long run equilibrium relationship between GDP growth and the variables used in the model. However, in our empirical analysis we find a weak evidence that privatisation generated an aggregate shock on output in the UK. This result is consistent with empirical literature on microecononmic evidence that shows that in the UK ownership change per se had little impact on long term productivity trends.

Suggested Citation

  • Massimo Florio & Mara Grasseni, 2003. "The missing shock: the macroeconomic impact of British privatisation," Departmental Working Papers 2003-21, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2003-21
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    References listed on IDEAS

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    1. Mr. George A Mackenzie, 1997. "The Macroeconomic Impact of Privatization," IMF Policy Discussion Papers 1997/009, International Monetary Fund.
    2. Mr. Steven A Barnett, 2000. "Evidenceon the Fiscal and Macroeconomic Impact of Privatization," IMF Working Papers 2000/130, International Monetary Fund.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Emanuele Bacchiocchi & Massimo Florio & Mara Grasseni, 2005. "The missing shock: the macroeconomic impact of British Privatizations," Applied Economics, Taylor & Francis Journals, vol. 37(14), pages 1585-1596.
    5. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
    6. Willem H. Buiter, 1990. "Principles of Budgetary and Financial Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524139, December.
    7. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    8. G. A. Mackenzie, 1998. "The Macroeconomic Impact of Privatization," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 363-373, June.
    9. Nicholas Oulton, 1995. "Supply Side Reform and UK Economic Growth: What Happened To The Miracle?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 154(1), pages 53-70, November.
    10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    11. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-692, December.
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    Cited by:

    1. Bastianin, Andrea & Castelnovo, Paolo & Florio, Massimo, 2018. "Evaluating regulatory reform of network industries: a survey of empirical models based on categorical proxies," Utilities Policy, Elsevier, vol. 55(C), pages 115-128.
    2. Emanuele Bacchiocchi & Massimo Florio & Mara Grasseni, 2005. "The missing shock: the macroeconomic impact of British Privatizations," Applied Economics, Taylor & Francis Journals, vol. 37(14), pages 1585-1596.
    3. Orietta DESSY & Massimo FLORIO, 2004. "Workers' earnings in the UK before and after privatisation: a study of five industries," Departmental Working Papers 2004-13, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    4. Schuster, Philipp & Schmitt, Carina & Traub, Stefan, 2013. "The retreat of the state from entrepreneurial activities: A convergence analysis for OECD countries, 1980–2007," European Journal of Political Economy, Elsevier, vol. 32(C), pages 95-112.
    5. Giuseppe Cinquegrana & Serena Migliardo & Domenico Sarno, 2016. "Comparative analysis of private and public provision of the water and waste services by the Italian municipalities," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2016(3), pages 149-176.
    6. Andrea Bastianin & Paolo Castelnovo & Massimo Florio, 2017. "The Empirics of Regulatory Reforms Proxied by Categorical Variables: Recent Findings and Methodological Issues," Working Papers 2017.22, Fondazione Eni Enrico Mattei.
    7. Emanuele Bacchiocchi & Toru Kitagawa, 2020. "Locally- but not globally-identified SVARs," CeMMAP working papers CWP40/20, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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    More about this item

    Keywords

    Privatisation; United Kingdom; GDP growth;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H82 - Public Economics - - Miscellaneous Issues - - - Governmental Property
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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