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

Comparative Economic Studies

49 Pages Posted: 9 Aug 2015 Last revised: 14 Jul 2018

See all articles by J. David Brown

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: April 1, 2018

Abstract

We provide new estimates of the productivity impact of privatization in Ukraine using long panel data on all initially state-owned manufacturing firms. The large size and length of the data permit us to track the privatization process, to estimate impacts within industry-year cells and with controls for firm fixed effects and trends, and to examine the heterogeneity of effects along several dimensions. We estimate that majority privatization raises multi-factor productivity (MFP) 4-10%, with the impact increasing over time to about 16-18% six years after privatization. The estimates exceed those reported in previous research using earlier data for Ukraine, and they lie in the general range of estimates for Central Europe. We find an increasing effect with calendar time, but decreasing with privatization year. The data are inconsistent with some notions of “sequencing” whereby the best firms are privatized earliest. MFP gains from privatization are estimated to decrease in pre-privatization MFP. Privatization tends to raise firm survival and provides a reallocation boost to aggregate productivity through a stronger survival-productivity linkage. The relatively few cases of foreign takeovers are associated with much higher impacts, 17-33%, 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, as of 2013, the data contain more than 1000 majority state-owned firms in the manufacturing sector alone 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 (April 1, 2018). Comparative Economic Studies. 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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