Productivity and factor misallocation in Ukraine: the role of state ownership

Abstract

This study explores firm dynamics and the efficiency of factor allocation in manufacturing and business service sectors of Ukraine. The period under study was one of rapid growth at the economy level, while the main sectors have undergone considerable churn and reallocation. The findings are based on an analysis of firm-level data and display dramatically different pictures for the two main sectors. In business services large establishments that are mostly state-owned use an important portion of production factors inefficiently. Firms need to be very productive to enter the market and, on average, exiting firms are more productive than incumbents in business services. In contrast, in manufacturing industries the market selection mechanism is effective, the state-owned firms are as productive as private establishments and factor allocation is more efficient.

Acknowledgements

I would like to thank Eric Bartelsman, Sabien Dobbelaere, Henri de Groot and Mika Maliranta for valuable comments and discussions. I would also like to thank the participants in the EPI 2012 conference and the ICOAE 2013 conference for useful feedback. This article is an outcome of a research project at VU University Amsterdam. The statements, findings, interpretations and conclusions are those of the author and do not necessarily reflect the view of or endorsements from STATEC. This study makes use of confidential firm-level data obtained for a background report for the World Bank's Country Economic Memorandum for Ukraine. The statements, findings, interpretations and conclusions are those of the author and do not necessarily reflect the view of or endorsements from the Board of Executive Directors of the World Bank, or the governments they represent.