Efficiency effect of privatization in the developing countries

Abstract

Privatization of state-owned enterprises (SOEs) has arguably become one of the most radical policies of economic reforms in developing countries. Many scholars believe that privatization has positive impacts on enterprise performance. These impacts could result from improving corporate governance, production and business operation, and labor condition. However, implementation of privatization programs might not induce these expected outcomes in the developing world because of less domestic savings, underdeveloped capital markets, ineective and poor regulations, and less market competitiveness. Vietnamese government has implemented an economic reform program known as \Doi moi" (Renovation) with the aim of creating a \socialist-oriented market economy" since 1986. At the heart of the reform, the government has put eort to privatize SOEs in order to reduce the size of state-owned sectors in the economy, and consequently, to improve the economy performance. However, SOEs have played a signicant role in the economy after more than two decades of privatization implementation. According to the data of Vietnam General Statistics Oce, SOEs employed 59 percent and 47 percent of total social capital and contributed 38 percent and 36 percent of GDP in 2001 and in 2005, respectively. These gures have decreased to 38 percent of total social capital and 28 percent of GDP by 2015. Some obstacles that may limit the privatization progress in the long term. Therefore, I try to investigate impacts of privatization on SOEs performance and evaluate current privatization strategies and policies with the aim of suggesting some valuable policy implications for accelerating privatization process in Vietnam. This dissertation review many studies on privatization of SOEs in theory and practice. I rst review privatization in theory and experiences of developed and developing countries and evaluate eciency eects of privatization on SOEs performance. Then, I investigate whether Vietnamese SOEs have beneted from the privatization programs and how privatization should be conducted in Vietnam to yield superior enterprise performance. In fact, there have been few empirical studies on impact of privatization on SOEs performance in Vietnam. However, most of these studies are based on their own surveys and applied methodologies that have some limitations. By using a dierence-indierences (DID) framework to rm-level panel data over the 2004-2008 period, I conrm that Vietnamese SOEs have signicantly improved its performance in terms of protability and productivity after privatization. This nding raises an important question of what are the main factors behind the improvement of privatized SOEs. In the next step, I thus examine the link between ownership structure, corporate governance, and rm performance in the post-privatization period by applying the method of two stage least squares (2SLS) to Vietnamese listed rms during the period of 2003-2015 and analyzing four listed rms which have dierent forms of ownership structure after privatization. The results suggest that formulating concentrated ownership structure after privatization is an important feature in inducing major restructuring process, and consequently, in improving enterprise performance. Based on the ndings and arguments, I suggest some guidelines on privatization plans, privatization implementation strategies, and a new privatization driver to facilitate ecient privatization process in Vietnam.