The Benefits of Privatization: Evidence from MexicoCriticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks. |
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Page 6
... Paasche price index for each firm which measures the change in prices in the post - privatization period . The firm - level price index is based on annual data on both the prices and the physical quantities sold for each of the main ...
... Paasche price index for each firm which measures the change in prices in the post - privatization period . The firm - level price index is based on annual data on both the prices and the physical quantities sold for each of the main ...
Page 12
... Paasche price index is the ratio ( expressed as a percentage ) of the total value in the given year of the quantity of each commodity produced in the given year to what would have been the total value of these quantities in the base ...
... Paasche price index is the ratio ( expressed as a percentage ) of the total value in the given year of the quantity of each commodity produced in the given year to what would have been the total value of these quantities in the base ...
Page 3
... ( Paasche ) 53 100 00 105.48 5.4780 2.69 " 30 100 00 97.18 -2.8248 -0.95 8.3028 1.87 VII . Net Taxes Net Taxes / Sales 104 0.0000 0.0413 0.0675 9.00 * 61 Net Taxes 106 0.0000 1,512.9 2,009.7 9.690 61 0.0077 167.99 0.0985 0.0815 6.65 ...
... ( Paasche ) 53 100 00 105.48 5.4780 2.69 " 30 100 00 97.18 -2.8248 -0.95 8.3028 1.87 VII . Net Taxes Net Taxes / Sales 104 0.0000 0.0413 0.0675 9.00 * 61 Net Taxes 106 0.0000 1,512.9 2,009.7 9.690 61 0.0077 167.99 0.0985 0.0815 6.65 ...
Common terms and phrases
1993 INEGI Census a-Significant Austan Goolsbee averaging its value behavior Blue Collar Wage Blue Collar Workers changes in profitability competitive and non-competitive competitive sector control group Cost per unit deregulation dummy variable employment fixed assets gains in profitability growth in sales higher profitability income to sales industry-adjusted investment Kathleen McGarry labor layoffs Log Blue Collar Log Employees Log(Sales Luigi Zingales market power mean median Mexico NBER Working Papers net-income-to-sales non-competitive sector number of employees number of firms oligopolistic Oligopoly operating income Operating Income/Sales operating-income-to-sales output Paasche percent percentage points post-privatization 168 post-privatization 170 post-privatization period post-privatization value corresponds pre-privatization 170 pre-privatization period pre-privatization value corresponds precede privatization price index price/quantity controls privatized firms ratio by averaging ratio is taken ratio of operating Real Prices Relative to Global restructuring sample SOEs Table taken from information total number trade barriers transfers from workers White Collar Wage white collar workers Z-stat