We build a dataset on the economic weight of SOEs in Europe in the period between 2007 and 2016.
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We analyze empirically the growth effect of SOEs in the post-Lehman period.
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State-owned enterprises are not positive or negative for economic growth per se.
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The growth effect of SOEs improves significantly with the country’s institutional quality.
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With good institutions, the positive externalities of SOEs may outweigh their possible inefficiencies.
Abstract
This paper investigates the effect of state-owned enterprises (SOEs) on economic growth in 30 European countries in the period between 2010 and 2016. We build a unique dataset on the economic weight of SOEs based on the data of more than 130,000 large nonfinancial companies. In our regression analysis, we condition the growth effect of SOEs on different measures of institutional quality. According to our results, SOEs are not positive or negative for growth per se. Their impact hinges crucially upon the country’s institutions: with good (bad) institutions the effect of SOEs is more beneficial (detrimental), turning into significantly positive (negative) in the right-tail (left-tail) of the sample distribution of institutional quality. This result holds through a wide array of robustness checks. The policy conclusion is that with good institutions the positive external effects of SOEs may outweigh the loss in economic growth caused by SOEs’ possible inefficiencies.
