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Abstract
There has been still a debate about the efficacy of privatization for economic
transformation of countries. Nonetheless, many developing countries including
Ethiopia have privatized public owned enterprises as a manifestation of their
commitment to implement the reform packages induced by multilateral institutions
through the Structural Adjustment Program. The proponents for pro-privatization
strongly argue that private enterprises operate more efficiently than those that are
owned by the state. The main objective of this paper is, therefore, to assess the
extent to which privatized industries operate more efficiently as compared to those
that remain under the public domain and other private industries. A Cobb-Douglass
stochastic frontier production function is estimated for the group and separately for
privatized industries. The econometric result revealed that the average technical
efficiency for the whole sample was about 73.4% during the period 1998/99-
2001/02. Privatized industries were found relatively inefficient with a score of 69%,
while public and other private industries reported 75% and 71%, respectively. It
was also found that efficiency of privatized enterprises continuously declined during
the same period. It is an indication, at least in the Ethiopian context, that
privatization may not necessarily ensure efficiency gain. Thus, government should
revitalize its hasty move towards transferring public enterprises to private hands.