Privatization and productivity in China

Abstract

We study how ownership affects productivity in the context of China's privatization of state-owned enterprises (SOEs). Its true impact remains unclear and controversial, partly because the government selectively privatized or liquidated nonperforming SOEs. To address this selection problem, we augment the Gandhi–Navarro–Rivers nonparametric production function to incorporate endogenous ownership changes. Results suggest private firms are 53% more productive than SOEs on average, but the benefits of privatization take several years to fully materialize. This productivity gap is smaller among larger firms and in economically more liberal times and places; it is larger in consumer-facing and high-tech industries.