What is foreign aid’s impact, then, on the decisions of governments in developing countries to privatize state-owned enterprises?
In an analysis of factors influencing the decision to privatize with respect to pace, timing and intensity of the process in 35 developing countries, we find that foreign aid has no systematic impact on the privatization process. Aid, especially technical assistance, can positively affect the pace and intensity of privatization and the findings point toward increasing the technical assistance component in aid. We find strong evidence of foreign aid being a facilitating factor in privatization in the presence of complementary institutional capacity. Ultimately, privatization is driven by domestic political and economic factors, and foreign aid can facilitate implementation only when developing countries have, or are able to create, market-supporting institutions.
