Review of Industrial Organization
14: 355–375, 1999.
1999 Kluwer Academic Publishers. Printed in the Netherlands.
The Economic Performance of State-owned
Enterprises in Argentina an Empirical Assessment
Department of Economics, College of William and Mary, Williamsburg, VA 23187-8795
MELISSA H. BIRCH
School of Business Administration, University of Kansas, Lawrence, KS 66045
Abstract. This paper empirically investigates the economic performance of 13 Argentine SOEs.
Among them, one displays a behavior consistent with proﬁt maximization, eight exhibit a behavior
consistent with output maximization with a maximum loss constraint, and four show a behavior
consistent with employment maximization. Such behavior taken together is consistent with the use
of SOEs to achieve government macroeconomic targets. We also have found that, although different
political regimes have different effects on the behavior of individual SOEs, there is no evidence that
the SOEs as a group performed differently under military regimes than under the populist Peron
Key Words: Proﬁt maximization, output maximization, employment maximization, economic per-
formance, public enterprises, Argentina
JEL Citation Index: L21, L32, C12, C22
Over the last 50 years, governments of nearly all political persuasions have used
public enterprises as important tools of industrial policy to achieve economic and
social objectives. Public enterprises proliferated in developing countries, in part,
because of a policy preference by multilateral lending institutions for government
guaranteed loans (Gillis, 1980). Yet in the late 1980s, reversing a trend of more
than 40 years, many governments, especially those in Latin America, turned to
privatization as a solution to regional economic declines.
Because many smaller
public enterprises had already been closed or sold in the early 1980s, Latin Amer-
ican governments turned their attention to large state-owned enterprises (SOEs)
in the late 1980s. Between 1988 and 1992, the value of SOEs privatized by Latin
American governments totaled some $40 billion (Ramamurti, 1995, p. 4). Despite
this well-publicized trend of privatization, public enterprises persist worldwide
We thank Sam Baker, Paul Koch, Carl Moody, Len Schifrin, Roger Sherman, Russell Smith, John
Whitaker, and the anonymous referees for the helpful comments. All remaining errors are entirely
For an overview of the outcome of privatization, see Galal and Shirley (1994).