A Model of the Macroeconomic Effect of Privatization on Employment in Transition and Developing Countries with an Application to China

Transitional Studies Review, December 2011

18 Pages Posted: 6 Feb 2012

See all articles by Josef C. Brada

Josef C. Brada

Arizona State University (ASU) - Economics Department

Gene Hsin Chang

University of Toledo

Date Written: 2011

Abstract

It is generally agreed that privatization of state-owned enterprises (SOEs) improves economic efficiency, but it is also widely feared that it exacerbates unemployment especially in transition and development economies. This paper proposes a theoretical model of the macroeconomic relationships between privatization, efficiency, output, and employment. The model explains how privatization affects employment in transition and developing economies through different, and often opposing, channels. As a result, job losses at firms being privatized may result in overall job gains or losses in the economy, depending on the macroeconomic conditions.

We apply this model to the Chinese case and find that the model provides an intuitively appealing explanation for the job gains and losses caused by privatization in China during its transition. The model further suggests policies to maximize the gains and minimize the costs of privatization.

Keywords: Privatization, Employment, Transition, Developing countries, China

JEL Classification: E24, J23, L33, O4, P31

Suggested Citation

Brada, Josef C. and Chang, Gene Hsin, A Model of the Macroeconomic Effect of Privatization on Employment in Transition and Developing Countries with an Application to China (2011). Transitional Studies Review, December 2011, Available at SSRN: https://ssrn.com/abstract=1992598

Josef C. Brada

Arizona State University (ASU) - Economics Department ( email )

Box 873806
Tempe, AZ 85287-3806
United States
602-965-6524 (Phone)
602-965-0748 (Fax)

HOME PAGE: http://www.mesharpe.com/eee_main.htm

Gene Hsin Chang (Contact Author)

University of Toledo ( email )

Department of Economics
Toledo, OH 43606
United States
419-530-4677 (Phone)
419-530-7844 (Fax)

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