The Effects of Privatization on Company Performance in Belarus

Abstract

Privatization is usually argued to improve corporate performance in all situations (see Megginson and Netter, 2001; Megginson, 2005), though the situation has been less clear-cut in transition economies (see Djankov and Murrell, 2002), perhaps because the institutional framework was insufficiently developed. One way to explore the relationship between privatization and institutional development more deeply is to focus on the impact of private sector development on corporate performance in an economy where institutional development has been limited. In this paper, we focus on Belarus, a country which has been lagging from the outset in the reform process (see EBRD Transition Report, 2005). Indeed, Nuti (2004) argues that Belarus is not in transition at all; rather he describes it as a ‘command economy’.² We use a new dataset on Belarusian firms to investigate how privatization and new firm entry has acted on a variety of measures of enter-prise performance. Our findings are compared with those in the literature for transition economies which are more advanced in the reform process.

The authors acknowledge comments from Lev Freinkman, Mario Nuti, and participants in a World Bank seminar in Minsk in June 2005. Research assistance from Rhana Neidenbach and Yevheniya Bazhenova is also gratefully acknowledged. Any remaining errors are our own.