Ownership and Productive Efficiency: Evidence from Estonia

The emergence of varied ownership configurations in Estonia since privatization enables conflicting hypotheses on the effects of ownership on enterprise performance to be tested. Findings based on a unique enterprise panel and fixed effects production function models for varying time periods during 1993-97 and using different proxies for key variables indicate that: (i) private ownership is 13-15% more efficient than state ownership; (ii) majority ownership by foreigners, managers and employees are respectively 19-21%, 15-31% and 13-24% more productive than state ownership. While the first result supports the standard theory of privatization, the second result provides stronger support for theorists who argue that insider ownership may be preferred in some circumstances in transition economies.