Privatization and globalization: An empirical analysis
Dr. Nassima Debab
Ahlia University, Bahrain
Abstract
This paper examines the link between globalization-measured by foreign direct investment (FDI) and foreign portfolio investment (FPI) – and privatization of state-owned enterprises, in a multi-country sample that focuses on developing countries. We hypothesize that privatization has an effect on FDI/FPI as the process of fostering private sector participation is often accompanied by liberalization reforms, and by allocations of substantial shares of newly privatized firms to foreign investors. Similarly, we expectFDI/FPI to foster privatization efforts as new capital inflows, technology and managerial skills that accompany FDI/FPI make the environment more prone to competition, providing governments with incentives to privatize inefficient firms that need to be turned around. This relation is assessed in two ways, first in a dynamic panel using a generalized method of moments approach, and second through panel causality tests. We find a bi-directional positive relation between privatization proceeds and globalization, particularly in the case of FDI.
Highlights
► We provide evidence of a bi-directional positive relation between privatization proceeds and FDI.
► We find a positive relation running from FDI to share issue privatizations, and vice-versa.
► We do not find a causal relation between foreign portfolio flows and privatization proceeds.
Keywords
- Privatization;
- Foreign direct investment;
- Foreign portfolio investment;
- Dynamic panel GMM;
- Panel causality test
Journal of Banking & Finance,Volume 37, Issue 6, June 2013, Pages 1898–1914
