. 
Foreword xvii Acknowledgments xix 1. THE TRUTH ABOUT PRIVAllZA1l0N IN LA1lN AMERICA 1 
Alberto Chong and Florencio López-de-Silanes 
2. THE BENEFrrS AND COSTS OF PRNA1lZA1l0N IN 
ARGEN1lNA: A MICROECONOMIC ANAL YSIS 67 
Sebastián Galiani, Paul Gertler, Ernesto Schargrodsky, and Federico Sturzenegger 
. 
3. PRNA1lZA1l0N AND FIRM PERFORMANCE IN BOLIVIA 117 
Katherina Capra, Alberto Chong, Mauricio Garrón, Florencio López-de-Silanes, and Carlos Machicado 
4. COSTS AND BENEFrrS OF PRNA1lZA1l0N: EVIDENCE 
FROM BRAZIL 145 
Francisco Anuatti-Neto, Milton Barossi-Filho, 
Antonio Gledson de Carvalho, and Roberto Macedo 
5. THE EFFECTS OF PRNAllZA1l0N ON FIRMS: 
THE CHILEAN CASE 197 
Ronald Fischer, Rodrigo Gutiérrez, and Pablo Serra 
6. PRNAllZA1l0N IN COLOMBIA: A PLANT . PERFORMANCE ANALYSIS 275 
Carlos Pombo and Manuel Ramírez 
7. PRNAllZAllON IN MEXICO 349 
Alberto Chong and Florencio López-de-Silanes 
8. PERUVIAN PRNAllZAllON: IMPACTS ON FIRM PERFORMANCE 407 
Máximo Torero 
Acronyms and Abbreviations 479 
Index 483 
FIGURES 
1.1 Economic Activity of State-Owned Enterprises, 
1978-97 4 
1.2 Revenues from Privatization in Latin America, 
1990-2000 7 
1.3 Availability of Privatization Data on Latin America 16 1.4 Profitability Changes after Privatization in 
Latin America 20 1.5 Operating Efficiency Changes after Privatization in 
Latin America 21 1.6 Percentage Changes in Employment after Privatization 
in Latin America 22 1.7 Median Changes in Output after Privatization in 
Latin America 24 1.8 Net-Income-to-Sales Gap between Privatized and 
Private Firms before and after Privatizatiod 25 1.9 Cost-per-Unit Gap between Privatized and 
Private Firms before and after Privatization 26 1.10 Median Real and Industry-Adjusted Changes in 
Wages after Privatization 30 1.11 Transfers from Workers as a Percentage of Increased 
Profitability after Privatization 31 1.12 Median Changes in Profitability of Privatized Firms in 
Competitive and Noncompetitive Industries in 
Latin America 33 1.13 Changes in Employment and Output of Privatized 
Firms in Competitive and Noncompetitive Industries 
in Latin America 35 1.14 Rehiring after Privatization, by Region 48 2.1 Percentage of Accumulated Income from 
Privatizations, 1990-98 73 2.2 Logarithm of Population Connected to the Water 
Network and Fitted Values, Aguas Argentinas, 
1980-99 93 

2.3 Displaced Workers' Earnings Rents: 1991 and 2001 102 4.1 Formal Employment before and after Privatization, 
1995-99 166 
5A.l Cost per Unit before and after Privatization, 
Adjusted and Unadjusted 251 5A.2 Investment as a Fraction of Physical Assets (PPE) 
before and after Privatization, Adjusted 
and Unadjusted 254 5A.3 Investment as a Fraction of Sales before and 
after Privatization, Adjusted and Unadjusted 257 5A.4 Net Income as a Fraction of Physical Assets before 
and after Privatization, Adjusted and Unadjusted 260 5A.5 Operating Income as a Fraction of Physical Assets 
before and after Privatization, Adjusted and 
Unadjusted 262 5A.6 Operating Income as a Fraction of Sales before 
and after Privatization, Adjusted and Unadjusted 264 6.1 Markup Rates for IFI Sample and Total 
Manufacturing, 1970-98 298 6.2 Total Factor Productivity Indexes for IFI Sample 
and Total Manufacturing, 1970-98 300 6.3 Investment Rates for IFI Sample and Total 
Manufacturing, 1970--98 301 6.4 Labor Productivity Indexes, IFI Sample and Total 
Manufacturing, 1970-98 303 6.5 Thermal Capacity versus Thermal Generation, 
1991-99 312 
7.1 Gap between Privatized Firms and Prívate Firms 358 7.2 The Overall Fiscal Impact of Privatization 369 7.3 Total Net Debt of the Public Sector 371 7.4 Deregulation Actions Taken before Privatization 381 7.5 Mexican Banks' Profitability Indicators before and 
after Privatization 383 7.6 Mexican Banks' Performance Indicators before and 
after Privatization 384 7.7 Terms of Related and Unrelated Loans 387 7.8 Default and Recovery Rates: Related and 
Unrelated Loans 388 7.9 Market Capitalization as Percentage of GDP 
and Number of Companies Listed in the Mexican Stock Exchange 390 8.1 Evolution of the Privatization Process, 1991-2000 414 8.2 Privatization Revenues by Sector, 1991-99 415 
8.3 Privatization Process Progress, 1991-2000 416 8.4 Public Approval of Privatization, 1991-2000 417 8.5 Evolution of Performance Indicators 428 
T ABLES 
1.1 Proceeds from Privatization in Developing Countries, 1990-99 5 
1.2 Recent Studies on Firm Performance after Privatization 
in Latin America 9 1.3 Reasons for Firm Exclusion from the 
Privatization Sample 18 1.4 Labor Restructuring before Privatization, by Region 44 1.5 Labor Restructuring and Privatization Prices in 
Latin America 45 1.6 New Hires and Rehires in Privatized Firms in 
Latin America 50 2.1 Privatization Revenues in Argentina, by Sector 72 2.2 Nonfinancial Companies Included in the Database 75 2.3 Nonfinancial Privatizations in Argentina Not 
Included in the Database 77 2.4 Privatized Banks in Argentina: Included in 
the Database 79 2.5 Changes in Profitability for the Sample of 
Nonfinancial Privatized Firms 82 2.6 Changes in Performance for the Sample of 
Nonfinancial Privatized Firms 83 2.7 Changes in Profitability for the Sample of 
Privatized Banks 88 2.8 Changes in Performance for Privatized Public Banks 89 2.9 Access to Water and Sewerage Services, 1991 92 2.10 Difference in Difference of the Proportion of 
Households with Access to Water Connection, 
1991-97 94 2.11 The Effect of Privatization on Child Mortality Rates, 
1990-99 96 2.12 The Effect of Privatization on Displaced Workers' 
Earnings Flows 101 2B.l Description of the Variables Used to Evaluate 
the Impact of Privatization on the Performance 
of Nonfinancial Firms 109 2B.2 Description of the Variables Used to Evaluate 
the Impact of Privatization on the Performance 
of Financial Firms 111 
3.1 Cornmon Objectives for Privatizations 119 3.2 Reasons for Excluding Firms from the Sample 129 3.3 Changes in Performance of the Sample of Privatized 
Firms on Bolivia 131 3.4 Industry-Adjusted Changes in Performance for the 
Sample of Privatized Firms 135 3A.l List of Privatized Firms, 1992-2001 137 3A.2 Description of the Variables Used in Tables 3.3 
and 3.4 139 4.1 Description of the Privatization Program and 
Coverage of the Sample, 1991-2000 150 4.2 Privatized Brazilian Companies by Industry . 
Classification 152 4.3 Summary of Results 153 4.4 Changes in Performance: GMM-IV Panel Data 
Analysis 159 4.5 Employment in Selected Industries, by Public 
or Prívate Ownership, 1995-99 164 4A.l Federal State Enterprises Privatized, 1991-2000 175 4A.2 Companies Privatized by BNDES on Behalf of 
Brazilian States, Minority Shares Privatized by Federal Government, and Sao Paulo State 
Privatization Program 180 4A.3 Remaining State-Owned Enterprises 182 4B.l Description of the Variablés 184 4C.l Change in Performance: Tests of Means and 
Medians (Two Years before Privatization versus 
Two Years after, without Adjustment) 186 4C.2 Change in Performance: Tests of Means and 
Medians (Two Years before Privatization versus 
Two Years after, with Adjustment) 188 4C.3 Change in Performance: Tests of Means and 
Medians (All Years before and after Privatization, 
without Adjustment) 189 4C.4 Change in Performance: Tests of Means and 
Medians (All Years before and after Privatization, 
with Adjustment) 191 4D.l Definition of the Control Variables Included in 
the Vector of the Econometric Model 192 5.1 Nationalization and Privatization of Firms in Chile, . 
1970-2001 199 
5.2 State-Owned and State-Seized Firms, 1970-2001 204 5.3 Number of State-Owned Firms, by Year, 1973-2001 205 
5.4 Privatized State-Owned Enterpiises, 1972-2001 207 5.5 Revenues from Privatization of Chilean Public 
Enterprises, 1985-89 210 5.6 Net Income to Equity for Privatized Firms before 
Privatization, 1970-86 216 5.7 Employment Changes in Privatized Firms, 1970-92 220 5.8 Privatization of Chilean Telecommunications Firms, 
1984-89 221 5.9 Privatization of Electric Power Firms, 1984-89 222 5.10 ENDESA: Investment, Power Generation, and 
Labor Productivity 228 5.11 Chilectra: Sales, Employees, Labor Productivity, 
and Energy Loss 229 5.12 Change in Node Prices and Residential Rates 229 5.13 Profits of the Main Electric Sector Companies: 
1987-2000 231 5.14 Telecommunications Statistics, 1987-2000 232 5.15 Telefónica-CTC: Basic Fixed Phone Statistics 233 5.16 Cost of Local Monthly Telephone Service for the 
Average Family 234 5.17 Profits of Telecommunications Enterprises, 
1987-2000 235 5.18 Concessions in Operation 239 5.19 Valparaíso: Time Spent Loading and Unloading 
and Transfer Speed 246 5A.l Changes in Profitability of Privatized Firms 249 5A.2 Changes in Operating Efficiency of Privatized Firms 252 5A.3 Changes in Investment and Assets in Privatized Firms 255 5A.4 Changes in Profitability of Privatized Firms, Adjusted 258 5A.5 Changes in Operating Efficiency of Privatized Firms, 
Adjusted 261 5A.6 Changes in Investment and Assets in Privatized Firms, 
Adjusted 263 5A.7 Employment in Privatized Firms 265 5A.8 Physical Productivity before and alter Privatization 266 5A.9 Concession Projects under Construction 268 5A.I0 Projects in Concession Process 269 6.1 Privatization Program in the Real Sector in Colombia, 
1986-98 279 6.2 IFI Privatization Program, 1986-97 281 6.3 ECOPETROL Privatization Program, 1993-99 285 6.4 Privatization in the Power Sector, 1995-98 289 
6.5 Average Changes in Manufacturing Basic Variables after Privatization for IFI Sample and Total Manufacturing 292 6.6 Changes in Performance for the Sample of 
Privatized IFI Firms 294 6.7 Industry-Adjusted Changes in Performance for 
the Sample of Privatized IFI Firms 296 6.8 IFI Firms: Role of Transfers from Workers 305 6.9 Changes in Performance in the Sample of 
Privatized Power Utilities and Public Enterprises of Medellín 307 6.10 Industry-Adjusted Changes in the Performance I 
of Privatized Power Utilities 309 6.11 Annual Averages for Wholesale Electricty Market 
Efficiency Variables, 1996-2000 314 6.12 Markup Determinants for IFI Firms 317 6.13 Total Factor Productivity Determinants for 
IFI Firms 321 6.14 Determinants of Thermal Plants' Efficiency Scores 325 6A.1 Infrastructure Concession Projects with Ongoing 
Private Investment by 1998 329 6B.1 List of IFI Enterprises in the Sample 330 6C.1 The Indicators for IFI Firms in the Sample 330 6D.1 Colombia: Power Sector Statistics and Description 
of the Data Sets 337 6D.2 Thermal Plants: Input and Output Variables 339 6E.1 DEA Efficiency Scores in Thermal Generation 
before and after the Regulatory Reform 340 7.1 State-Owned Enterprises in Mexico, 1917-2003 351 7.2 State-Owned Enterprises, 1982-2003 353 7.3 The Privatization Program in Perspective 354 7.4 Changes in Performance for the Sample of 
Privatized Firms 356 7.5 Industry-Adjusted Changes in Performance 
for the Sample of Privatized Firms 360 7.6 Median Performance Changes in Privatized Firms 
in Competitive versus Noncompetitive Industries 361 7.7 The Role of Transfers from Workers 365 7.8 Other Benefits of Privatization Programs 366 7.9 The Fiscal Impact of Privatization: 1983-2003 368 7.10 Foreign Direct Investment in Privatization 370 7.11 Restructuring Actions before Privatization 373 7.12 Prior Restructuring: Dos and Don'ts 375 
7A.l Definition ofVariables 394 8.1 Privatization Revenues and Investment, 1991-2001 412 8.2 Firm Performance Measures 419 8.3 Nonfinancial Companies Included in the Study 425 8.4 Nonfinancial Companies Not Included in the Study 427 8.5 Privatized Banks Included in the Study 430 8.6 Changes in Performance for the Privatized Firms 433 8.7 Performance Indicators of Privatized Utilities, 
Difference in Difference 435 8.8 Changes in Performance in the Financial Sector 
after Privatization 439 8.9 Performance Indicators of Privatized Banks, 
Difference in Difference 442 8.10 Changes in Employment after Privatization 444 8.11 Impact of Layoffs on Performance Indicators 
for Major Privatized Firms 446 8B.l Description of Variables 451 8C.l Evolution of Privatization in the Electricity Sector 458 8C.2 Evolution of Privatization in the Financial Sector 460 8D.l Basic Statistics of Privatized Firms 463 8E.l Changes in Performance after Privatization 
for Telefónica del Perú 468 8E.2 Changes in Performance after Privatization 
for Electrolima 470 8E.3 Changes in Performance after Privatization 
for Electroperú 472