How Does Privatization Affect Efficiency, Productivity and
Technology Choice?: Evidence from Turkey

by

Cagla Okten
Bilkent University 

Uncovering the effects of privatization is difficult, because privatization of a particular
firm usually is not an accident. This paper tests the effects of privatization on efficiency,
firm productivity and technology choice by using a rich panel data set of privatized
cement firms from Turkey. Since all public cement firms were privatized and we have
pre and post privatization data for all of them, we are able to avoid the problem of
endogeneity associated with sample selection. In addition, panel nature of our data allows
us to control for both firm and time specific effects. Our results indicate that privatization
has a positive and significant effect on labor productivity and output while it has a
negative and significant effect on per unit costs and prices. We also find that privatized
firm switches to a more capital-intensive technology as capital and capital labor ratio
both increase and employment decreases following privatization. These results provide
support for an agency model of public ownership presented in Shleifer and Vishny (1994).