Privatisation and aggregate output : testing for macroeconomic transmission channels

In this paper we examine empirically the impact of privatisation on output in the UK, through macroeconomic transmission channels. While most privatisation studies focus on microeconomic shocks, namely at the firm level, we are interested to see whether a large scale privatisation policy, as the one pursued in the UK in the 1980 and 1990s, had a measurable impact on output. This may contribute to the ex post evaluation of this policy and complement the microeconomic evidence. We use quarterly data from 1979 to 1998 of privatisation proceeds, as our impulse policy variable, and of private consumption, gross fixed capital formation, net government expenditures, as transmission channels, and aggregate output as our final response variable. The econometric methodology is based on Structural Vector Auto-regressive models and Impulse Response Functions. Non-stationarity and cointegration properties of the time series have also been considered. We find that privatisation shocks do not have an impact in the consumption-output model, but have a moderate and transitory impact in the investment and the public expenditures models. Such positive demand effects, however, have not been completely matched by supply side effects, and, consequently, privatisation in the UK did not contribute to a sustained economic growth.