State-Owned Enterprises and Endogenous Growth

Abstract

This article analyzes the growth impact of state ownership in enterprises by
introducing state-owned enterprises (SOEs) into the endogenous, Romer-type
economic growth model. We build on the empirical firm-level analysis showing
that SOEs underperform their privately owned counterparts and consider SOEs’
inefficiency and related subsidization in the growth model. Our model predicts
that the growth rate is decreasing in the SOE inefficiency and SOE shares in
final goods production and R&D sectors. The model helps to shed light on the
mechanisms behind empirical facts observed in European economies in the 21st
century - lower growth and innovation rates in countries with larger SOE shares.