Why are Developing Countries Privatizing?

Abstract

This article tests alternative hypotheses about why developing countries are pursuing privatization, a policy that gained considerable popularity in the 1980s. Univariate and multivariate analysis indicate that privatization was more likely to be pursued by countries with high budget deficits, high foreign debt, and high dependence on international agencies like the World Bank and the IMF. In regions such as Latin America and Asia, the trend was also more likely in countries (a) that seemed to have “overused” state enterprises in the past, and (b) those in which the private sector had grown faster than average and was thus more ready to assume tasks once assigned to state enterprises. In Africa, however, the policy may have been imposed by external agencies on countries that were not necessarily ripe for privatization. For multinational firms, the international opportunities created by privatization are likely to be greater in the 1990s than in the 1980s.