Corruption,Privatisation and Economic Growth in Post-communist Countries

Abstract

This article empirically investigates the effects of corruption and privatisation on economic growth in the post-communist countries of Central and Eastern Europe and the former USSR. We use a corruption and privatisation augmented open-economy leader–follower endogenous growth model to derive our research hypotheses. In this setting, corruption, privatisation and external openness jointly determine the per capita income in the follower economy. This model predicts that economies with higher shares of private ownership, lower corruption, and higher external openness enjoy higher rates of growth. Our empirical verification of these predictions is based on a panel of 29 post-communist countries during the period 1996–2014. Our estimation results confirm the negative effects of corruption, while the positive effects of privatisation are limited to small-scale privatisation.     

Management Discretion and Political Interference in Municipal Enterprises. Evidence from Italian Utilities

The attention of scholars and policy-makers is shifting from full privatisation to alternative measures as a means to improve the efficiency of public services. This article focuses on three restructuring measures adopted by local governments: partial privatisation (without transfer of control rights), inter-municipal joint ventures, and the presence of outside directors on the Board. Divergent hypotheses on these measures have emerged from two economic theories, namely public choice and the agency perspective. An empirical analysis investigates the effects of restructuring processes on a sample of Italian municipal utilities. Partial privatisation has been shown to play a significant and positive role, while Board independence from management has a less significant influence. Multi-government utilities have been found to suffer from severe coordination costs, which are not outweighed by scale benefits. Our findings reveal that management discretion is a significant source of inefficiency in municipal enterprises.     

Privatising Local Public Services: Between Industrial Legacy and Political Ambition

Since the 1980s, research on the privatisation of local services has analysed the factors affecting government's delivery choices; but this research has not given unanimous results, for reasons connected both to the different methodologies adopted and the dynamic nature of privatisation processes. This article introduces the case of Italian water services reform, drawing attention to the economic and political dynamics that make privatisation an extremely complex choice, in which the preferences of politicians have to be balanced with industrial heritage and the strategies of the utilities. By privileging a historical analysis of the conditions in which such choices take place, it is possible to grasp the changing relations between local governments and utilities and to look at the relative power of firms, citizens and governments in the process of service delivery choice.     

Privatisation in Developing Countries: A Review of the Evidence and the Policy Lessons

Privatisation is widely promoted as a means of improving economic performance in developing countries. However, the policy remains controversial and the relative roles of ownership and other structural changes, such as competition and regulation, in promoting economic performance remain uncertain. This article reviews the main empirical evidence on the impact of privatisation on economic performance in developing economies. The evidence suggests that if privatisation is to improve performance over the longer term, it needs to be complemented by policies that promote competition and effective state regulation, and that privatisation works best in developing countries when it is integrated into a broader process of structural reform.     

Higher education and economic growth in Africa

This paper uses panel data over the 1960–2000 period, a modified neoclassical growth equation, and a dynamic panel estimator to investigate the effect of higher education human capital on economic growth in African countries. We find that all levels of education human capital, including higher education human capital, have positive and statistically significant effect on the growth rate of per capita income in African counties. Our result differs from those of earlier research that find no significant relationship between higher education human capital and income growth. We estimate the growth elasticity of higher education human capital to be about 0.09, an estimate that is twice as large as the growth impact of physical capital investment. While this is likely to be an overestimate of the growth impact of higher education, it is robust to different specifications and points to the need for African countries to effectively use higher education human capital in growth policies.     

Privatisation Discontent and Utility Reform in Latin America

Privatisation faces strong and increasingly popular opposition in Latin America. This paper uses individual data on social attitudes, socioeconomic status and demographic information from three waves of Latinobarometro surveys (1998, 2000 and 2002) in 17 countries to study the role of privatisation of utilities and its distributional impact. We find that disagreement with privatisation is most likely when the respondent is on a low-to-middle income and when it involves a high proportion of public services such as water and electricity. This complements recent empirical research that points to distributional concerns in the implementation of privatisation in Latin America, particularly because of inadequate regulation of utilities.     

Post-Arab Spring: changes and challenges

This paper advances the proposition that post-Arab Spring politics are a product of globalisation’s economic and social liberalisation. The global market and privatisation have fundamentally deconstructed centralised autocratic rule over state and society, while facilitating corruption and selective development, culminating in public outrage. The political order of the Middle East and North Africa since the Arab Spring synthesises globalisation’s dialectic duality, in which economic integration has contributed to the demise of national authoritarianism, inciting communalism and political fragmentation. This paper analyses emerging political trends and challenges based on a comparative analysis of Egypt and Tunisia.     

Dependency,the state and class in the neoliberal transition of Taiwan

The remarkable economic growth in Taiwan has served as a model of the developmental state as well as a source of scepticism about neoliberal policy for many less developed countries. However, since the mid-1980s Taiwan has gravitated from its previous statist model to the universally embraced 'market-orientated' restructuring. This study seeks to explain this neoliberal transition. A disaggregated approach is employed to break neoliberalism down into three distinct dimensions: market openness, fiscal austerity, and privatisation of public sector enterprises. The analysis results confirm that: (1) Taiwan's trade dependency on the USA constituted a decisive factor in the state opening its domestic market; (2) distributional politics was forged in a new but weak democracy to incorporate more interest groups in the fiscal expansion of the post-authoritarian era; and (3) the slow but increasingly steady progress of privatisation plans was influenced not by a 'back-to-the-market' idea but by the statist legacy with which bureaucrats attempted to manage public sector enterprises even after they became de jure private firms. The theoretical implications of this transition are discussed in the conclusion.     

Debt,adjustment and the politics of effective response to HIV/AIDS in Africa

Today in much of Africa economic growth has slowed and living standards for the majority have suffered in the face of rising unemployment and mass poverty, resulting in incomes that are presently below the 1970 level. One problem that has been the focus of much attention and contention over the past 20 years is the huge foreign debt owed by African countries to bilateral donors and multilateral institutions. Debt servicing is consuming a disproportionate amount of scarce resources at the expense of the provision of basic services to the poor. In order to receive help in servicing their debts, countries must agree to implement structural economic reforms. This often entails drastic cuts in social expenditures, the privatisation of basic services, and the liberalisation of domestic trade consistent with WTO rules. These policy decisions have had a direct impact on the capacity of African countries to promote, fulfill and protect the right to health of their citizens. This is further compounded by ill-conceived privatisation of basic services such as water and health services, without any regard for the ability of the poor to access these essential services at a cost they can afford. Finally, adherence to WTO trade rules, which often comes as an extension of liberalisation policy, hampers the capacity of African governments to produce or purchase less expensive generic drugs for their citizen without fear of retaliation from the developed countries.     

How EU Integration and Legacies Mattered for Foreign Direct Investment into Central and Eastern Europe

This essay uses the case of foreign direct investment (FDI) in Central and Eastern Europe to stipulate how European Union (EU) integration affected the economic globalisation of the post-socialist region. Existing studies argue that expectations of impending EU membership had a direct effect on raising FDI inflows because they reduced perceived investment risks for potential investors. In contrast, I show that the EU accession process worked through an indirect effect on FDI: it influenced post-socialist states' efforts to promote FDI as a desirable strategy of economic development and the behaviour of firms. These state efforts, in turn, increased FDI inflows, net of conventional risk and return factors. Further analyses indicate that decisions about state FDI-promotion have been influenced not only by EU conditionality but also, and importantly, by particular legacies, namely the countries' initial choice of privatisation strategies, extent of reform during socialism and history of state sovereignty. Overall, the results suggest that EU integration and legacies of the past shape both the structural and the ideational context for domestic decision-making elites in Central and Eastern Europe, and may act not only as constraints but also as enabling conditions facilitating the global economic integration of the region.     

The fiscal impact of privatisation in Latin America

The goal of achieving fiscal balance through privatisation is misplaced because the revenues generated are rarely large or timely enough to bring the budget deficit under control. In Mexico, Argentina, Brazil, and Chile fiscal crisis preceded and encouraged the decision to privatise, but only in Argentina did the revenues from privatisation contribute significantly to fiscal adjustment. The article develops a model, incorporating time preferences and longer term fiscal impacts, which shows that major fiscal benefits can be expected only under rare circumstances. Politicians continue to tout the fiscal benefits of privatisation perhaps to gain support or to signal their commitment to economic reform.     

Swedish politicians’ preferences regarding the privatisation of elderly care

Since the 1990s, Sweden has embarked on a series of market reforms in public services, aiming for greater efficiency and better service quality. Nevertheless, the political debates do not seem to fade away and local politicians still have to decide on privatisation issues. We argue that attitude studies of local politicians are of importance and present a 2014 survey in this regard, using Swedish elderly care as one example. Our findings show that altitudinal difference between left- and right-wing politicians on private for-profit providers remains distinctive. Moreover, political orientations of individuals, political majority in the municipality, as well as privatisation level already achieved locally are identified as important factors in explaining local politicians’ willingness to privatise further. This case study serves as a good example to examine the market development of public welfare in advanced welfare states and also contributes to the contentious discussion of political roles in welfare reform.     

The cost efficiency of water utilities: when does public ownership matter?

This study explores the impact of different ownership types on the efficiency of water utilities. Theories and evidence have shown a puzzling relationship between ownership and performance. Moreover, relatively recent contributions (Andrews et al. 2011) have argued that this relationship can be further convoluted by the effect of organisational and environmental variables. The current study aims to contribute to this literature by providing some empirical evidence for Italy, by proposing a methodology that combines non-parametric efficiency estimation and cluster analysis. Our main findings indicate that privately owned utilities indirectly controlled by a public organisation reach the highest level of efficiency but, when size and geographical location enter the analysis, ownership has a stronger significant effect on efficiency, and mixed utilities gain higher cost efficiency. Therefore, we may conclude that administrative reforms about privatisation and the institutional setting should consider a set of variables that characterise each individual organisation.     

Relaxing the constraints from above: Politics of privatising public enterprises in China

This paper addresses the factors that caused widespread privatisation in China in the late 1990s. It argues that the relaxation of constraints by the central government made local governments less worried about the political risks of privatisation such as resistance from workers and the banks. This relaxation based on the policies of the 15th Party Congress, together with the economic rationale of reforming inefficient public enterprises, became a strong incentive for local governments to carry out this reform. As local governments regarded such reform as an opportunity to show their loyalty to the central government and to evade debts, a number of problems emerged in the reform process that affected the interests of both the central government and the workers.     

Economic orthodoxy and the East Asian crisis

It is increasingly apparent that the Asian economic crisis has also led to a serious ideological crisis in the West. Before the collapse there was broad agreement among Western orthodox economists that developing countries should pursue a set of economic policies, often referred to as the 'Washington consensus', which included financial sector liberalisation, privatisation of state-owned enterprises, fiscal discipline and trade, exchange rate and foreign investment deregulation. Since the collapse, however, this consensus has broken down. This paper examines the emergence of the new so-called post-Washington consensus, with its emphasis on governance and social capital. The lexicon of the new policy paradigm underlying this new consensus includes civil society, safety nets, and, especially, governance, to be added to the conventional Washington terminology of open markets, deregulation, liberalisation and structural adjustment. Our central thesis is that this new post-Washington consensus is an attempt to place more emphasis on the political and institutional foundations for programmes of structural reform. However, it is also a kind of politics of antipolitics that attempts to insulate economic institutions from the process of political bargaining.     

Reassessing the Effect of Economic Growth on Well-being in Less-developed Countries, 1980–2003

Development debates have been greatly influenced by the growth consensus: the conventional wisdom that economic growth should be the primary priority for less-developed countries (LDCs) because it most effectively improves the well-being of the world’s poor. We compare the impact of growth to other independent variables in an unbalanced panel analysis of up to 109 LDCs and 580 observations across six time points (1980, 1985, 1990, 1995, 2000, and 2003). Our dependent variables include caloric consumption, infant survival probability, one-to-five year survival probability, female life expectancy, and male life expectancy. First, we find that gross domestic product (GDP) has significant positive effects on caloric consumption, female life expectancy, and male life expectancy. Second, GDP does not have robust effects on infant and one-to-five survival probabilities. Third, fertility, urbanization, and secondary school enrollment have larger effects than GDP in the majority of models. The more powerful effects of fertility, urbanization, and secondary schooling cannot simply be attributed to an indirect effect of GDP. Fourth, we find that dependency variables do not have robust significant effects. Fifth, over time, GDP has become much less effective at improving caloric consumption and infant and one-to-five survival. We infer that there are serious limitations to concentrating exclusively on economic growth to improve well-being in LDCs.     

Why Do Municipalities Cooperate to Provide Local Public Services? An Empirical Analysis

Intermunicipal cooperation is being increasingly adopted in various countries as a part of local service delivery reforms. This article draws on survey data from Spain's municipalities to examine the reasons underpinning the decisions of local governments to engage in intermunicipal cooperation and privatisation. Our empirical analysis indicates that small municipalities prefer to rely on cooperation for reducing costs, while their larger counterparts prefer to privatise the delivery of services. By cooperating, scale economies can be achieved with lower transaction costs and fewer concerns for competition than is the case via private production.     

How Economic Empowerment Reduces Women’s Reproductive Health Vulnerability in Tanzania

This article uses data from Northern Tanzania to analyse how economic empowerment helps women reduce their reproductive health (RH) vulnerability. It analyses the effect of women’s employment and economic contribution to their household on health care use at three phases in the reproductive cycle: before pregnancy, during pregnancy and at child birth. Economic empowerment shows a positive effect on health seeking behaviour during pregnancy and at child birth, which remains robust after controlling for bargaining power and selection bias. This indicates that any policy that increases women’s economic empowerment can have a direct positive impact on women’s RH.     

Foreign direct investment,financial development and economic growth

This article argues that the development of the financial system of the recipient country is an important precondition for FDI to have a positive impact on economic growth. A more developed financial system positively contributes to the process of technological diffusion associated with FDI. The article empirically investigates the role the development of the financial system plays in enhancing the positive relationship between FDI and economic growth. The empirical investigation presented in the article strongly suggests that this is the case. Of the 67 countries in data set, 37 have a sufficiently developed financial system in order to let FDI contribute positively to economic growth. Most of these countries are in Latin America and Asia.