The Diffusion of Privatization in Europe: Political Affinity or Economic Competition?

Privatization has spread around the globe. While a number of studies find empirical evidence for the diffusion of privatization it remains unclear what the relevant linkages between states are. This paper analyses whether it is economic competition or political affinity that influences the diffusion of privatizing public utilities. The sample includes telecommunications, postal, and railway providers as the main network-based utilities operating at the national level in 15 European countries from 1980 until 2007. The results of the spatial regressions clearly show that governments follow each other for economic reasons. Trading partners strategically interact when privatizing their national public-utility providers, for example, to form strategic cross-border company alliances and to avoid competitive disadvantages in the global market. This applies particularly to economies that are highly integrated in the international market. Surprisingly, political and ideological similarities do not seem to matter for the diffusion of privatization.