Crony Capitalism in Ukraine: Relationship between Political Connectedness and Firms'Performance

19 Pages Posted: 28 Aug 2018

See all articles by Oleksii Balabushko

Oleksii Balabushko

World Bank

Oleksandra Betliy

Institute for Economic Research and Policy Consulting

Veronika Movchan

Institute for Economic Research and Policy Consulting

Ruslan Piontkivsky

World Bank

Mykola Ryzhenkov

University of Mannheim

Date Written: June 12, 2018

Abstract

This study combines firm-level data and data on politically exposed people to explore correlation between firms' political connectedness and their economic performance in Ukraine. First, it estimates the share of politically connected firms in Ukraine's economy. Second, the study looks at how different the performance of politically connected firms is from that of their nonconnected peers. The analysis finds that 2 percent of firms are politically connected, but they control over 20 percent of the total turnover and over 25 percent of the assets of all Ukrainian companies. Over the past two decades, politically connected firms used various channels to access economic rents: public procurement, subsidized loans, transfers from the budget, trade regulations that restrict imports, privileged access to state assets through privatizations, and beneficial tax regimes. There is a strong negative correlation between political connection and productivity. Politically connected firms are larger and employ more people, but they are less productive and grow slower in turnover and job creation. This may likely account for lower economic growth and less competitive economy.

Keywords: Transport Services, International Trade and Trade Rules, Food Security, Energy and Environment, Energy Demand, Energy and Mining, Plastics & Rubber Industry, Common Carriers Industry, Business Cycles and Stabilization Policies, Pulp & Paper Industry, General Manufacturing, Construction Industry, Textiles, Apparel & Leather Industry, Food & Beverage Industry

Suggested Citation

Balabushko, Oleksii and Betliy, Oleksandra and Movchan, Veronika and Piontkivsky, Ruslan and Ryzhenkov, Mykola, Crony Capitalism in Ukraine: Relationship between Political Connectedness and Firms'Performance (June 12, 2018). World Bank Policy Research Working Paper No. 8471. Available at SSRN: https://ssrn.com/abstract=3238305

Oleksii Balabushko (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Oleksandra Betliy

Institute for Economic Research and Policy Consulting ( email )

Reytarska 8/5-A
01034 Kyiv
Ukraine

Veronika Movchan

Institute for Economic Research and Policy Consulting ( email )

Reytarska 8/5-A
01034 Kyiv
Ukraine

Ruslan Piontkivsky

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Mykola Ryzhenkov

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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