Public enterprises in mixed economies: Their impact on economic growth and social equity

Privatization is a crucial component of the neoliberal policies prevailing over much of the world in the past two and half decades. The underlying theoretical argument of these policies is that state-owned enterprises (SOEs) are inherently inefficient and therefore hinder economic growth. However, the existing literature falls short of providing a solid theoretical basis for this argument. In fact, some argue that SOEs have the potential to contribute positively to economic growth and equity. Whether SOEs can realize this potential or not is an empirical question. Unfortunately, the few existing empirical studies considering the impacts of SOEs on growth and equity fail to offer any clear-cut conclusions. In addition, these empirical studies suffer some serious econometric and measurement problems. This study improves on the existing researches by utilizing a panel data set of all the mixed economies for the time period from the 1960s all through the 1990s. By applying fixed effects techniques, this study empirically explores the impacts of SOEs on economic growth and income equality. There are two main results. First, SOEs are found to have a significant and positive influence on per capita GDP growth. In addition, this study also identifies investment growth as one main channel of this influence. Second, it is shown that SOEs contribute significantly and positively to income equality. These results are supported by the summary statistics about public enterprises\u27 macro performances and case studies. The results from this study raise serious concerns over the desirability of indiscriminate privatization