in the private sector. This is to explore whether public sector R&D has any spillovers on the private sector. We estimate a positive relationship between a firm’s own R&D stock and its revenue productivity (as measured by TFPR).21 Further, an increase in the R&D stock in the CPSE’s own industry is also associated with higher revenue per unit input: controlling for firm fixed effects, the estimate of δ is positive and statistically significant at the 10 percent level (column 2). This is not the case with the private R&D stock. The estimate of δ is only marginally sensitive to including controls for the share of the public sector in total industry revenue (column 3). Given the potential endogeneity of R&D spending, further research would be needed to better establish causation. But these patterns suggest that SOE R&D spending has positive spillovers on private firms in the same industry. This is consistent with the idea that SOEs make long-term investments with positive externalities that would otherwise not be undertaken by the private sector. Any efforts to reduce the state’s direct presence in the economy by reducing SOE ownership could thus start with a review to identify those industries in which state presence could be beneficial in the long term, could be needed to create markets, or could expand reach in the medium term and then exit, as opposed to those industries in which state presence is hard to justify.
Only a Combination of Internal and External Policy Reforms Can Help Better Manage Contingent Liabilities from SOEs in South Asia This chapter has shown that the contingent liabilities arising from SOEs in South Asia can be large but difficult to precisely quantify due to their largely implicit and opaque nature and the lack of data. Governments in South Asia do not track contingent liabilities from SOEs in a systematic manner. Hence, they are ill prepared if those liabilities are triggered. In some cases, it is difficult to quantify even the total liabilities and debt of
SOUT H A SI A ’ S ST A TE - OWNED ENTER P RISES
SOEs, let alone the contingent liabilities associated with them. Therefore, the fundamental policy message emerging from this chapter is that it is important for governments to better assess and monitor the fiscal risks from SOEs, incorporate them into their fiscal planning and debt management frameworks, and ensure that adequate provisions have been made for meeting triggered contingent liabilities without disrupting public spending plans. For instance, the government’s medium-term fiscal framework (MTFF) should incorporate these contingent liabilities by assessing SOE debt trajectories and their sensitivity to shocks, keeping track of likely government commitments in case of distress (World Bank 2019b).
Corporate governance guidelines should be strengthened and enforced, and more and better performance contracts should be adopted. It is also important to mitigate unnecessary contingent liabilities from SOEs. The evidence presented in this chapter suggests that this will entail combining internal, SOE-level reforms to improve their efficiency with external reforms to address the soft budget constraint on SOEs and undue political intrusions into their operations. Internal reforms alone are unlikely to be enough because they seem to work only when SOEs operate in a truly competitive environment (Bartel and Harrison 2005). Global lessons for the World Bank’s experience with SOE reforms also suggest that efforts to improve SOE financial performance entail working on several levers, many of which entail efforts to strengthen the broader governance environment of SOEs (World Bank 2019b).
Internal, SOE-Level Reforms: Improving Corporate Governance and Performance Incentives Corporate governance reforms that professionalize the boards of SOEs, increase their autonomy, and improve financial reporting and
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