The Privatization Process: A Natural Order Or Shock Therapy?

Abstract

McKinnon (1991) argues that there is a natural order of economic liberalization and privatization. Sachs (1990) and Becker (1995) argue that the value of speed is so important it outweighs the value of waiting to discover the optional sequence. This paper investigates the question of order as it specifically applies to privatization of the industrial and financial sectors. Empirical evidence indicates that, while order is important, simultaneous change provides the necessary order. In this case, there is, in fact, no conflict between the natural order case and the shock therapy argument. A quick leap, the simultaneous privatization of the industrial and financial sectors, provides the necessary order.