Disentangling liberalization and privatization policies: Is there a political trade-off?

• Published in: Journal of Comparative Economics Vol. 42; no. 4; pp. 1033 - 1051
• Main Authors: Belloc, Filippo, Nicita, Antonio, Sepe, Simone M.
• Format: Journal Article
• Language: English
• Published: San Diego Elsevier Inc 01.12.2014; Elsevier BV
• Subjects: Developing countries; LDCs; Liberalization; Market economy; Market regulation; Network industries; Partisanship; Politics; Privatization; Trade-off; C33; Partisanship; P16; Privatization; L50; Liberalization; Network industries; D72
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2013.11.003

•We investigate the political determinants of pro-market policies in OECD countries.•Unlike previous studies, we unbundle liberalization and privatization reforms.•We find that ideological divisions of governments affect policy design.•Right governments privatize more and liberalize less, in comparison to left ones.•We shed new light on the political-economic rationale underpinning pro-market choices. We empirically investigate the political determinants of liberalization and privatization policies in six network industries of 30 OECD countries (1975–2007). We unbundle liberalization and privatization reforms and study their simultaneous determination in a two-equation model. Unlike previous studies, we account for cross-effects between the two pro-market measures. Our findings unveil that both right-wing and left-wing governments implement liberalizations and privatizations, showing a common trend under the so-called neo-liberalism wave. However, although the privatization rate is higher than liberalization in right-wing environments, the opposite occurs under left-wing governments. We argue that ideological cleavages still affect pro-market reforms, particularly the combination of privatization and liberalization policies. We conclude that different deregulation patterns should be expected under governments characterized by different political ideologies. Our results shed new light on the literature investigating the political-economic rationale underpinning pro-market choices.