American Political Science Review

Research Article

Helping Hand or Grabbing Hand? State Bureaucracy and Privatization Effectiveness

J. DAVID BROWNa1 c1, JOHN S. EARLEa2 c2 and SCOTT GEHLBACHa3 c3

a1 Heriot-Watt University

a2 Upjohn Institute for Employment Research and Central European University

a3 University of Wisconsin–Madison and Centre for Economic and Financial Research

Abstract

Why have economic reforms aimed at reducing the role of the state been successful in some cases but not others? Are reform failures the consequence of leviathan states that hinder private economic activity, or of weak states unable to implement policies effectively and provide a supportive institutional environment? We explore these questions in a study of privatization in postcommunist Russia. Taking advantage of large regional variation in the size of public administrations, and employing a multilevel research design that controls for preprivatization selection in the estimation of regional privatization effects, we examine the relationship between state bureaucracy and the impact of privatization on firm productivity. We find that privatization is more effective in regions with relatively large bureaucracies. Our analysis suggests that this effect is driven by the impact of bureaucracy on the postprivatization business environment, with better institutional support and less corruption when bureaucracies are large.

Correspondence:

c1 J. David Brown is Reader in Finance, School of Management and Languages, Heriot-Watt University, Edinburgh EH14 4AS, United Kingdom (j.d.brown@hw.ac.uk).

c2 John S. Earle is Senior Economist, Upjohn Institute for Employment Research and Professor, Department of Economics, Central European University, 300 South Westnedge Avenue, Kalamazoo, Michigan 49007 (earle@upjohn.org).

c3 Scott Gehlbach is Associate Professor, Department of Political Science, University of Wisconsin–Madison, and Research Associate, Centre for Economic and Financial Research (CEFIR), 110 North Hall, 1050 Bascom Mall, Madison, WI 53706 (gehlbach@polisci.wisc.edu).

Footnotes

Much useful feedback was received from seminar, workshop, and conference participants at the Carnegie Moscow Center, CEFIR, the Davis Center for Russian and Eurasian Studies, Georgia State University, Heriot-Watt University, the Ronald Coase Institute, University of California at San Diego, the Upjohn Institute for Employment Research, Yale University, and annual meetings of the American Political Science Association and the Midwest Political Science Association. In addition, we are grateful for feedback from Lev Freinkman, Tim Frye, Vladimir Gimpelson, Henry Hale, Sergei Javoronkov, Pauline Jones Luong, Vladimir Mau, Mikhail Pryadilnikov, Susan Rose-Ackerman, Klara Sabirianova Peter, Mark Schaffer, Álmos Telegdy, Dan Treisman, Svetlana Tvorogova, the editor, and three anonymous reviewers. Galina Belokurova and Philipp Jonas provided excellent research assistance.

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