Globalization and Privatization: Evidence from China

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Globalization and Privatization Evidence from
China

• Jian Su

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Why study this issue?

• Globalization and Privatization Two of the most
  important phenomena in current world economy and
  politics

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Why choose China?

• A quasi-natural experiment of globalization and
  privatization processes
• Data availability

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Why choose China? (1)
A quasi-natural experiment of globalization and
privatization processes

• Started at the same time
• 1978 The Third Session of the 11th
  Plenary Meeting of
• the Communist Party of
  China

• No private ownership and little international
• linkage at the beginning

• Gradual nature of privatization

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Data availability
Why choose China? (2)

• Unique dataset provided by the National Bureau of
  Statistics of China
• Contains the population of Chinese Large and
  Medium Enterprises
• Spans the period from 1995 to 2001

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The definition of privatization (1)

• The actual privatization process is very
  complicated.
• The speed and strategy of a firms
  privatization
• process vary significantly across
  countries and firms
• because of the policies the
  countries adopted and other
• firm-specific characteristics.
• Some SOEs may change to private enterprises
  quickly and directly, while many others may take
  several steps and take several years to change to
  private ownership.

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The definition of privatization (2)
In most researches on privatization, a firm is
said to be privatized when the private ownership
is above some threshold.

• Estrin and Rosevers (1999a) 0
• Derek Jones and Niels Mygind (2002) 50
• Frydman et al. (1999) 33.3
• Claessens and Djankov (2000) 66.7
• Su and Jefferson (2003) change of ownership type

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The Channels of Globalization and Data
Availability
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The channels of globalization considered in this
paper

• Inflow of capital FDI
• Outflow of goods export
• Inflow of firm-specific technology purchase of
  foreign technology
• Inflow of common knowledge RD personnel

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Why use the RD personnel to represent the
inflow of common knowledge?

• Almost all the modern science and technology are
  developed in western countries
• China is thus basically a pure learner of modern
  science and technology
• The knowledge grasped by RD personnel was all
  created by foreigners, thus represents the inflow
  of common knowledge

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How to measure the four channels of globalization

• Goods outflow the ratio of a firms export to
  its sales revenue
• Capital inflow the proportion of foreign
  ownership of the firm
• Inflow of firm-specific technology the ratio of
  a firms import of technology to its sales
  revenue
• The inflow of common knowledge the ratio of
  technology development personnel to the total
  employment of the firm.

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From Globalization to Privatization (1)

• The specification of the model (Probit)
• yit a0 GaXß µit
• where
• G is a vector representing the three channels of
  globalization FDI, export, inflow of common
  knowledge
• X is a vector including some economic variables,
  year dummies, size dummies, industry dummies and
  regions dummies

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Regression results From globalization to
privatization
Results with one-year-lag data
significant at 1 significant at 5 a
significant at 10 b significant at 15
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From privatization to globalization OLS model

• Specification
• DlnZt-1,2001a0a1 COVt a2 lnZt-1 a3YEAR ut

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Regression results From privatization to
globalization