Privatization, Credit Application, and Credit Constraints in Eastern Europe and Central Asia

Abstract

Using data compiled by the World Bank from over 4,000 firms in 30 developing countries, this study examines the impact of a firm’s privatization on its credit applications and credit constraints. The results indicate that privatized firms are more likely to be credit constrained, more likely to be discouraged when applying for credit, and more likely to face severe financing obstacles. In addition, privatized firms operating in underdeveloped economies are more likely to face credit constraints. The results confirm that relative to privatization, firm-government relationships play a more important role in a firm’s credit constraints.