Privatisation and Economic Growth in Developing Countries

Abstract

this paper is to re-examine the relation between privatisation and economic growth using data for 63 developing countries over a time period of 1988-97. The next section provides a brief review of the theoretical links between a change in ownership from public to private and economic growth, and of the empirical literature that has examined this relationship. The third section discusses the methods adopted to explore the relation between privatisation and economic growth and the data used. The fourth section discusses the results of the analysis. The final section provides a summary and draws some broad conclusions. 2. THEORY AND EMPIRICAL ANALYSIS Policy-makers in developing economies have often set a broader agenda for privatisation than the efficiency and resource allocation objectives that were implicit in the policy conditions of structural adjustment programmes. The motives for privatisation have encompassed improved fiscal equity and distributional performance, although the importance attached to each has varied between and within countries over time (UNCTAD, 1996, Yarrow, 1999). Nevertheless, the link between privatisation and economic growth relates most directly to the microeconomic theories used to justify privatisation. At the heart of the debate are theoretical perspectives on the ownership issue drawn from property rights theory, public choice theory and principal agent analysis (Alchian, 1965; Tullock, 1965; Jensen and Meckling, 1976). By the end of the 1970s these theories were influencing attitudes towards public ownership among policy-makers in developed and developing countries (Cook and Kirkpatrick, 1988; Martin and Parker, 1997). The key theoretical elements underpinning the argument for a change in ownership from public to private related firstly ...