Is Privatization Working in Ukraine? New Estimates from Comprehensive Manufacturing Firm Data, 1989-2013

40 Pages Posted: 9 Aug 2015  

J. David Brown

IZA Institute of Labor Economics

John S. Earle

George Mason University - Schar School of Policy and Government; IZA Institute of Labor Economics

Solomiya Shpak

George Mason University - School of Policy, Government, and International Affairs

Volodymyr Vakhitov

Kyiv School of Economics; Kyiv School of Economics - Kyiv Economics Institute (KEI)

Date Written: August 7, 2015

Abstract

This paper estimates the relative multi-factor productivity (MFP) of privatized and state-owned enterprises using a long panel on all initially state-owned manufacturing firms in Ukraine. The large size and length of the time series in the data permit us to track the privatization process and to estimate the impact of privatization within industry-year cells and with controls for firm fixed effects and trends. Results with these methods imply an average 5-10% relative MFP for majority privatized versus state-owned firms. The gap increases with time since privatization, reaching about 15-17% five years after privatization. It also increases with calendar time although recent privatizations are associated with smaller relative MFP. We find no evidence of “sequencing” of privatization based on 1992 relative MFP, but the data suggest a higher survival rate for privatized versus state firms and one that is more closely linked to 1992 MFP. The results also imply that MFP gains from privatization are decreasing in pre-privatization MFP. The relatively few cases in which foreign investors take control result in much higher relative MFP, 22-40% on average, compared to domestic private ownership, but the gap is much lower when the foreign source country is “offshore” – an indirect channel for Ukrainian nationals – and it is also lower when the source is Russia. Privatization of 100% ownership has much larger effects than partial privatization of either minority or majority stakes, ownership structures that have largely disappeared since the early 2000s, as Ukraine has sold off remaining shares. Nevertheless, our database contains more than 1000 majority state-owned manufacturing firms as of 2013 that could be considered for privatization in the future.

Keywords: productivity, privatization, selection bias, foreign ownership, Ukraine

JEL Classification: D24, G34, L33, P31

Suggested Citation

Brown, J. David and Earle, John S. and Shpak, Solomiya and Vakhitov, Volodymyr, Is Privatization Working in Ukraine? New Estimates from Comprehensive Manufacturing Firm Data, 1989-2013 (August 7, 2015). Available at SSRN: https://ssrn.com/abstract=2641200 or http://dx.doi.org/10.2139/ssrn.2641200

J. David Brown

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

John S. Earle (Contact Author)

George Mason University - Schar School of Policy and Government ( email )

3351 Fairfax Drive
MS 3B1
Arlington, VA 22201
United States
703-993-8023 (Phone)

HOME PAGE: http://earle.gmu.edu

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Solomiya Shpak

George Mason University - School of Policy, Government, and International Affairs ( email )

Founders Hall
3351 Fairfax Dr.
Arlington, VA 22201
United States

Volodymyr Vakhitov

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

HOME PAGE: http://www.kse.org.ua

Kyiv School of Economics - Kyiv Economics Institute (KEI) ( email )

Kyiv, 04119
Ukraine

HOME PAGE: http://www.kei.org.ua

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