The Effects of Privatisation on Productive Efficiency: Evidence from the Baltics

While the Baltic Republics began transition from substantially similar starting points, diverse patterns of enterprise ownership soon emerged. This provides an unusual context in which to test competing theories on the productivity effects of alternative ownership structures, including the propositions that outside ownership is more efficient than insider ownership and that managerial ownership is preferred over employee ownership. New and unusual data sets for large samples of firms in Estonia, Latvia and Lithuania enable comparable production functions specifications to be estimated for all three countries for varying years during the period 1993-1996. The main findings are: (i) the effects of majority ownership varies over time within a country; (ii) the effects of majority ownership varies across countries; (iii) majority employee ownership has either positive or zero effects upon productivity. Findings thus provide only weak support for the conventional wisdom.