Publication: The Transformative Effects of Privatization in China: A Natural Experiment Based on Politician Career Concern
Loading...
Published
2020-05
ISSN
Date
2020-06-04
Editor(s)
Abstract
The serious implications of privatizing state-owned enterprises for politicians, managers, and investors make such decisions highly contingent on firm characteristics and past performance, complicating the identification of the privatization effects. A unique opportunity for this identification arises from a rule of promotion of local politicians based on age requirements in China. This paper finds that Chinese cities whose top officials were older than age 58 were 20 percent less likely to privatize local state-owned enterprises during the wave of state-owned enterprise restructuring starting in the late 1990s. Relying on the regression discontinuity design, the analysis finds that privatizations led to productivity gains of more than 170 percent, an order of magnitude larger than the traditional estimates based on the firm fixed effect specification (including its random-growth variant). The paper further finds that the privatization effects are significantly larger when the government is less involved in the affairs of local firms. The findings underscore the need to deal with the time-varying selectivity of privatizations and highlight the crucial role that state-owned enterprise privatizations played in China's economic takeoff.
Link to Data Set
Citation
“Huang, Zhangkai; Liu, Jinyu; Ma, Guangrong; Xu, Lixin Colin. 2020. The Transformative Effects of Privatization in China: A Natural Experiment Based on Politician Career Concern. Policy Research Working Paper;No. 9261. © World Bank. http://hdl.handle.net/10986/33845 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication Climate and Social Sustainability in Fragility, Conflict, and Violence Contexts(Washington, DC: World Bank, 2026-01-07)Climate change is widely recognized as a driver of violent conflict, but its broader social effects remain less understood. Ignoring these dimensions risks a vicious cycle where climate policies might undermine socially just adaptation. Evidence is still limited on how climate shocks influence political participation, trust, or migration. This paper helps fill that gap by examining links between climate change, conflict, and social sustainability, with a focus on inclusion, resilience, cohesion, and legitimacy. Using secondary data from 2019–24, the study applies simple correlation-based methods to test three hypotheses on the nature, severity, and composition of these associations. The analysis combines multiple climate impact measures, new conflict classifications, recent social sustainability frameworks, and controls for population and geography. The results reveal strong correlations—not causation—between climate events and contexts of fragility, conflict, and violence. Climate impacts are most pronounced in both national and subnational conflict settings. The study also finds robust links between fragility, conflict, and violence and low levels of social sustainability, reflecting its role as both a driver and consequence of conflict. Some dimensions—such as violent events and insecurity—appear weaker in areas most affected by climate shocks. Two of the hypotheses are supported, and one remains inconclusive.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Institutional Capacity for Policy Implementation: An Analytical Framework(Washington, DC: World Bank, 2026-01-07)State capacity is an important prerequisite for policy implementation, yet at the country level it is difficult to measure, assess, and reform. This paper proposes a focus on institutional capacity: the ability of public institutions to implement the specific policy mandates for which they are responsible. Based on a review of existing literature, the paper defines the different dimensions that compose institutional capacity and groups them into two cross-cutting categories: organizational dimensions (personnel, financial resources, information systems, and management practices) and governance dimensions (transparency, independence, and accountability). The paper proposes measures for organizational and governance dimensions using existing data, shows intra-institutional variation of these measures within countries, and discusses how new data could be collected for better measurement of these concepts. Finally, the paper illustrates how the framework can be used to diagnose the sources of common problems related to weak policy implementation.Publication South Africa’s Fragmented Cities: The Unequal Burden of Labor Market Frictions(Washington, DC: World Bank, 2026-01-08)Using high-resolution administrative, census, and satellite data, this paper shows that South African cities are characterized by spatial mismatches between where people live and where jobs are located, relative to 20 global peers. Areas within 5 kilometers of commercial centers have 9,300 fewer residents per square kilometer than expected, which is 60 percent below the global median. Poor, dense neighborhoods are most affected. In Johannesburg, a 10-percentile increase in distance from the nearest business hub corresponds to a 3.7-percentile drop in asset wealth (a proxy of household wellbeing) and 4.9-percentile drop in employment. In Cape Town, the declines are 4.0 and 3.7 percentiles, respectively. Employment is 87 percent lower in the poorest decile than the richest in Johannesburg and 61 percent lower in Cape Town. These findings suggest that South Africa’s spatial organization of people and economic activity constrains agglomeration and reinforces inequality. This methodology provides a scalable and standardized data-driven framework to analyze spatial accessibility and agglomeration frictions in complex, data-constrained urban systems.Publication Investment in Emerging and Developing Economies(Washington, DC: World Bank, 2026-01-07)The world faces a pressing challenge to meet key development objectives amid slowing growth and rising macroeconomic and geopolitical risks. With the number of job seekers rising rapidly, infrastructure shortfalls continuing to be large, and climate costs mounting, the case for a significant investment push has never been stronger. Yet the capacity to respond in many emerging markets and developing economies has eroded. Since the global financial crisis, investment growth has slowed to about half its pace in the 2000s, with both public and private investment weakening. Foreign direct investment inflows—a critical source of capital, technology, and managerial know-how—have also fallen sharply and become increasingly concentrated, leaving low-income countries with only a marginal share. The risks of further retrenchment are significant, as trade tensions, policy uncertainty, and elevated debt levels continue to weigh on investment. Reigniting momentum will require ambitious domestic reforms to strengthen institutions, rebuild macro-fiscal stability, and deepen trade and investment integration—the foundations of a supportive business climate. At the same time, international cooperation is indispensable. A renewed commitment to a predictable system of cross-border trade and investment flows, combined with scaled-up financial support and sustained technical assistance, is essential to help emerging markets and developing economies—especially low-income countries and economies in fragile and conflict situations—bridge financing gaps and implement the domestic reforms needed to restore investment as an engine of growth, jobs, and development.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Diagnosing Development Bottlenecks : China and India(2011-04-01)Although it had a a lower income level than India in 1980, China's 2006 per capita gross domestic product stands more than twice that of India's. This paper investigates the role of the business environment in explaining China's productivity advantage using recent firm-level survey data. The analysis finds that China has better infrastructure, more skilled workers, and more labor-hiring flexibility than India, but a worse access to finance and higher regulatory burden. Infrastructure appears to be a key constraint for India: it lags significantly behind China, yet it has important indirect effects for the effectiveness of labor flexibility. Labor flexibility is also likely a major constraint for India, as evident in the predominance of small firms, the importance of firm size in accounting for India's disadvantage in productivity, and the complementarity of proxies of labor flexibility with infrastructure and access to finance. Interestingly, regulatory uncertainty has adverse effects in India but not in China. The empirical analysis suggests that it is important to consider country-specific growth bottlenecks and the indirect effects of policy reforms.Publication Hayek, Local Information, and the Decentralization of State-Owned Enterprises in China(World Bank, Washington, DC, 2015-06)Hayek argues that local knowledge is a key for understanding whether production should be decentralized. This paper tests Hayek’s predictions by examining the causes of the Chinese government’s decision to decentralize state-owned enterprises. Since the government located closer to a state-owned enterprise has more information over that enterprise, a greater distance between the government and the enterprise should lead to a higher likelihood of decentralization. Moreover, where communication costs and the government’s uncertainty over an enterprise’s performance are greater, the government is more likely to decentralize enterprises so that it can better utilize local information. This paper finds empirical support for these implications.Publication Hayek, Local Information, and Commanding Heights(American Economic Association, 2017-08)Hayek (1945) argues that local information is key to understanding the efficiency of alternative economic systems and whether production should be centralized or decentralized. The Chinese experience of decentralizing SOEs confirms this insight: when the distance to the government is farther, the SOE is more likely to be decentralized, and this distance-decentralization link is more pronounced with higher communication costs and greater firm-performance heterogeneity. However, when the Chinese central government oversees SOEs in strategic industries, the distance-decentralization link is muted. We also consider alternative agency-cost-based explanations, and do not find much support.Publication From Flying Geese to Leading Dragons : New Opportunities and Strategies for Structural Transformation in Developing Countries(2011-06-01)Economic development is a process of continuous industrial and technological upgrading in which any country, regardless of its level of development, can succeed if it develops industries that are consistent with its comparative advantage, determined by its endowment structure. The secret winning formula for developing countries is to exploit the latecomer advantage by building up industries that are growing dynamically in more advanced fast growing countries that have endowment structures similar to theirs. By following carefully selected lead countries, latecomers can emulate the leader-follower, flying-geese pattern that has served well successfully catching-up economies since the 18th century. The emergence of large middle-income countries such as China, India, and Brazil as new growth poles in the world, and their dynamic growth and climbing of the industrial ladder, offer an unprecedented opportunity to all developing economies with income levels currently below theirs --including those in Sub-Saharan Africa. Having itself been a "follower goose," China is on the verge of graduating from low-skilled manufacturing jobs and becoming a "leading dragon." That will free up nearly 100 million labor-intensive manufacturing jobs, enough to more than quadruple manufacturing employment in low-income countries. A similar trend is emerging in other middle-income growth poles. The lower-income countries that can formulate and implement a viable strategy to capture this new industrialization opportunity will set forth on a dynamic path of structural change that can lead to poverty reduction and prosperity.Publication Warlords, State Failures, and the Rise of Communism in China(World Bank, Washington, DC, 2021-08)This paper documents that the spread of communism in China was partly caused by state failures in the early 20th century. It finds that famines became more frequent after China fell into warlord fragmentation, especially for prefectures with less rugged borders and those facing stronger military threat. The relation between topography and famines holds when using historical border changes to instrument border ruggedness. More people from famine-inflicted prefectures died in the subsequent decades for the communist movement, but not for the Nationalist Army. There is evidence that famines exacerbated rural inequality, which pushed more peasants to the side of the communists.
Users also downloaded
Showing related downloaded files
Publication How Universities Promote Economic Growth(Washington, DC : World Bank, 2007)This study was initiated in 1999 with the objective of identifying the most promising path to development in light of emerging global and regional changes. The purpose of this volume is to examine the role of universities in enhancing technological capability in Asian as well as other industrial countries. This volume also discusses the University-Industry Links (UIL) policies of national governments, corporations and sub national governments. Case studies, policies, strategies and conclusions for Switzerland, United Kingdom, Netherlands, Japan, Thailand, United States, China, Singapore, and India are all individually examined. The volume also covers topics such as knowledge transmission, knowledge production, knowledge sharing, research and development, lessons learned, best practices and innovation initiatives and their roles for economic growth in relation to UIL.Publication Tunisia Infrastructure Diagnostic(World Bank, Washington, DC, 2019-12)Tunisia’s has made significant investments in infrastructure, which has contributed to economic growth. The investments have enabled reasonably good access to basic infrastructure services. While access rates are high, the relative quality of Tunisia’s infrastructure has deteriorated significantly over the last ten years. State-owned enterprises (SOEs), which dominate the infrastructure sector, receive considerable subsidies and incur notable financial losses. Overall, there is a heavy reliance on external borrowing to fund infrastructure investment, which creates contingent liabilities, and enhances foreign exchange and macro-economic risk. Chapter one provides an overview of Tunisia’s infrastructure performance; chapter two discusses each sub-sector in more detail in terms of achievements and challenges; chapter three looks at historical trends in spending followed by a scenario analysis of investment needs with anecdotal examples, and discusses the present macro-economic and fiscal constraints; and chapter four presents possible action items for further discussion with the Tunisian government.Publication Examining Racism and Discrimination in the Middle East and North Africa Region(Washington, DC: World Bank, 2024-08-08)Racism and discrimination remain critical barriers to social inclusion and equity with detrimental effects for individuals, societies, and economies. Persistent discrimination and exclusion of marginalized groups reduces innovation and opportunities for growth, impedes sustainable development, and exacerbates drivers of fragility and conflict. It affects individuals’ access to markets, services and spaces, hinders their full realization of rights, and reduces their wellbeing and quality of life. Strengthening the focus on people who have been excluded and building socially sustainable communities and societies requires more systematic and nuanced understanding of racial discrimination and intersecting factors of exclusion in different contexts. Context-specific assessments and tailored solutions are key to addressing racism and intersecting forms of discrimination in MENA countries. Racism takes different forms in different MENA countries, ranging from demeaning stereotypes and prejudices, discriminatory attitudes and behavior in everyday interpersonal interactions, exclusion, marginalization and impoverishment, to structural racism and discrimination enshrined in legal frameworks, institutions and policies. Racism also intersects with other forms of discrimination based on gender, religion, nationality, sexual orientation, disability, citizenship status, class, or age which makes particular groups even more vulnerable. Building on the WBG’s commitments, the study underlines the importance of promoting inclusion and combating racial discrimination to improve the quality of life for all population groups. It specifically calls for targeted solutions for migrants and displaced persons, recognizing the high levels of racial discrimination against these groups in the region. Additionally, gender as an intersecting factor compounds effects of exclusion, illustrating the linkages between discrimination and violence among some populations and underlining the need for integrated approaches. Amplifying the voices of affected populations and fostering their meaningful participation in the design and implementation of programs and policies is a key recommendation of the report.Publication Afro-descendants in Latin America(World Bank, Washington, DC, 2018-08-28)About one in four Latin Americans self-identify as Afro-descendants today. They comprise a highly heterogeneous population and are unevenly distributed across the region, but share a common history of displacement and exclusion. Despite significant gains over the past decade, Afro-descendants still are overrepresented among the poor and are underrepresented in decision-making positions, both in the private and the public sector. The extent to which Latin America will be able to end extreme poverty and boost shared prosperity will therefore depend, to a very large degree, on the social inclusion of Afro-descendants. The objective of this study is to deepen the region's empirical understanding of the drivers behind the persistent exclusion of the afro-descendants, as a first step to design appropriate solutions. The report proposes a framework to organize and think of the myriad options available to address their situations, based on the experience accumulated by the region and the data available.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.