A Comprehensive Perspective on Effects of Privatization on Economy

Abstract

Privatization, a method of reallocating assets and functions from the public sector to the private sector, appears to be a factor that could play a serious role in the quest for growth. In recent history, privatization has been adopted by many different political systems and has spread to every region of the world. The process of privatization can be an effective way to bring about fundamental structural change by formalizing and establishing property rights, which directly create strong individual incentives. Privatization, defined as the transfer of state owned enterprises (SOEs) to the private owners, has become a common economic policy tool all over the world. The trend toward privatization, however, has not been without debate. Indeed, the debate between the superiority of the private and public sectors has been going on for the past four to five decades. Privatization, a method of reallocating assets and functions from the public sector to the private sector, appears to be a factor that could play a serious role in the quest for growth. In recent history, privatization has been adopted by many different political systems and has spread to every region of the world. The process of privatization can be an effective way to bring about fundamental structural change by formalizing and establishing property rights, which directly create strong individual incentives. A free market economy largely depends on well-defined property rights in which people make individual decisions in their own interests. This paper is motivated by the ongoing debate among economists and policy makers about the efficiency and distributional effects of different methods and sequencing of privatizations around the world.

Keywords: privatization, economic, ownership, firm performance, growth