You are Suffocating Me! Firm-Level Evidence on Crowding Out
16 Pages Posted: 2 Jun 2019
Date Written: April 2019
Literature on whether government spending crowds out or crowds in the private sector is large, but still without an unambiguous conclusion. Using firm-level data from Ukraine, this paper provides a granular empirical investigation to disentangle the impact of state-owned enterprises (SOEs) on private firm investment in Ukraine-a large transition economy. Controlling for firm characteristics and systematic differences across sectors, the results indicate that the SOE concentration in a given sector has a statistically significant negative effect on private fixed capital formation, and that the impact of SOEs is stronger in those industries in which SOEs have a more dominant presence. These findings imply that private firms operating in sectors with a high level of SOE concentration invest systematically less than businesses that are not competing directly with SOEs.
Keywords: Economic growth, Private investments, Capital formation, Foreign investment, Public investments, Fixed investment, state-owned enterprises, crowding-out effect, firm-level analysis, SOEs, private fixed investment, given sector, market concentration, SOE
JEL Classification: E22, E62, F12, F14, E01, L31, G3, O4
Suggested Citation: Suggested Citation