An unanswered question in the debate on public-sector inefficiency is whether reforms other than government divestiture can effectively substitute for privatization. Using a 1981–1995 panel data set of all public and private manufacturing establishments in Indonesia, we analyze whether public-sector inefficiency is primarily due to agency-type problems or to the environment in which public-sector enterprises (PSEs) operate, as measured by the soft budget constraint and the degree of internal and external competition. The results, obtained from fixed-effects specifications, provide support for both models. Ownership matters because, for a given level of government financing or competition, PSEs perform worse than their private-sector counterparts. The environment matters because only PSEs which received government financing or those shielded from import competition or foreign ownership performed worse than private enterprises. The results suggest that the efficiency of PSEs can be increased through privatization, through manipulation of the environment, or through a combination of both approaches.

Recent export experience of some large, emerging economies has raised important questions about the trade determinants of the modern-services-driven sectors and the goods-production-driven sectors. In our empirical analysis of the determinants of Indian exports of software services and of the total Indian goods exports, we raise the following questions: How (dis)similar is the performance of the Indian exports of software from the determinants of India's total exports of goods? Are such differences significant? Is the pattern of the performance of the determinants stable over time? Our findings concerning the effects of size, distance, linguistic connections, and trade-facilitating networks enable us to make some important inferences of policy relevance.