Privatization, Deregulation, and Capital Accumulation

Abstract

In this paper, we study how the privatization and deregulation of intermediate goods industries influence capital accumulation. Our model is solved under three alternative scenarios: (i) the intermediate sector is composed of a public monopoly under government control; (ii) the intermediate sector is dominated by a private monopoly; and (iii) the intermediate sector is competitive. The comparison of these models suggests that the income benefits of state‐to‐market transitions are mostly due to increased competition on the deregulated market and that the privatization of state enterprises is not likely to generate significant changes in the economy when the public monopoly is replaced by a private monopoly. We find that elimination of monopoly rights can increase aggregate income significantly.