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...either loosely stated not defined at all, such that efforts to assess how well they perform become exercises in futility. In these latter cases, capturing whatever effects these enterprises are able to create improves the odds of conducting a holistic or a more complete assessment of their economic performance.
The purpose for this paper is to demonstrate the use of a path analytic model to examine effects created by state-owned enterprises or their economic contributions to society's output. To accomplish this goal, data previously applied to other econometric models are used to emphasize the practical application of this methodology. The intent is to determine whether improved results might emerge from applying a path analytic model to the same data since path analysis accounts for direct and indirect effects.
Background
The debate on how contributions made by state-owned enterprises to society should be measured has not subsided. The past decade, for instance, witnessed concerted drives to enhance productivity, operational efficiency and accountability in public sector organizations (Government Accounting Standard Series 1992, 2000; The Gore Report 1993; Kearns 1995). The goal had been to turn public sector organizations from pure production goals to efficiency objectives and to make them sensitive to prices, costs, and consumer demand (Lee and Nellis 1990). Several views emerged on mechanisms for achieving such goals. While improved performance remained the primary focus in those efforts, configuring generalizable frameworks for a systematic scrutiny of government economic activity became equally challenging.
This paper does not seek to rehash much of the work done over the past two decades in this area. (1) The paper is neither aimed at reformulating nor restructuring the debate on the overall performance of government. For, it is known in a general way that some government programs perform far below their expected potential. Further, a thorough analysis of the outcome of government economic activity over the past two decades provided data and answers to several of the questions regarding organizational performance, economic efficiency and viability (Neves, Wolf, and Benton 1986; Dollar 1990; Jefferson, Rawski, and Zheng 1992; Plane 1992; Lee and Nellis 1990; Doamekpor 1998).
In previous research work involving state-owned enterprises, Dollar (1990), Nellis (1986), and Perkins (1988), focused on allocative efficiency, financial performance, impact on resources, financial viability and total factor productivity. Plane (1992) examined performance using ordinary least squares and other regression-related methods. Doamekpor (1998) examined contribution to growth using the residual analysis approach. Caves and Christensen (1980) focused on efficiency using a case study method and productivity index analysis, in which measured quantities of output and input including shares of revenues and expenditures from output and input were applied. Swanson and Wolde-Semait (1988), Floyd et al. (1988), and Nair and Filippides (1988) examined the proportion of gross national output attributable to state-owned enterprises and considered questions of economic efficiency and economic viability. Lee and Nellis (1990), Prasnikar, Svejnar, and Klinedinst (1992), and Dollar (1990) examined enterprise reform programs and privatization issues in China and socialist enterprises following efforts world-wide to enhance productivity, profitability, accountability, and economic viability. In fact, most of these studies (Nellis 1986; Plane 1992; Doamekpor 1998; (2) Nair and Filippides 1988; Swanson and Wolde-Semait 1988; Prasnikar, Svejnar, and Klinedinst 1992) used cross-sectional data involving several countries to arrive at varying conclusions on different aspects of state-owned enterprises' economic activities.
The varying conclusions and mixed findings are not new for, questions regarding productivity, performance, economic efficiency and viability including measurement problems have long been associated with public organizations and state-owned enterprises. As a result, global efforts have also focused on factors that affected performance (Ayub and Hegstad 1986), methods for evaluation and for dealing with problems associated with production, productivity, economic viability and efficiency (Ross and Burkhead 1974; Urban Institute 1974; Floyd et al. 1984; The Gore Report 1993; Doamekpor 2001).
It appears, however, that more is still needed in methods and techniques for conducting analyses. For instance, the development of new methodologies that will take into account the overall effects generated by governmental economic activities could add to the existing pool of measures for answering questions regarding economic contribution. Further, such frameworks could become critical tools for responding to new problems emerging from recently implemented reform programs.
To explore the development of one of these methodologies, I analyze the direct and indirect effects created by state-owned enterprises in the context of a path analytic model. I argue that both effects must be analyzed and interpreted concomitantly with effects generated by other explanatory variables. The intent is to apply a structural framework that will facilitate assessment of the direct and indirect effects of enterprises on economic performance. A proxy for economic performance in this instance is the gross domestic product.
I do this with three goals in mind. First, I intend to examine the significance of causal relationships among selected structural variables. One of these variables is the value-added of state-owned enterprises. Second, I seek to determine the direct and indirect effects generated by these enterprises as well as their impacts on output growth, measured by the gross domestic product. Third, I plan to estimate the strength of the causal relationships among the variables. Achieving these goals will entail the use of state-owned enterprises as a criterion variable in one instance and a predictor in another, in combination with other structural variables.
The gains from the application of the path analytic procedure are worth noting. Its adoption does not stand against any previously applied methodology. Although it does not seek to provide all the answers required to address the numerous questions regarding efficiency, economic viability, and measurement in a single format, it does offer an opportunity to account for direct and indirect effects of enterprises. Specifically, the path analytic method will facilitate the identification and separation for analysis of the direct and indirect effects of enterprises. It will make possible the examination of mediating effects of other variables when used in combination with the effects of enterprises. It will simplify the determination of the depressing effects of state-owned enterprises on the dependent variable when used in concert with other variables and facilitate the integration of several ordinary least squares models to constitute a single structure....
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