Effect Of Public Subsidies On Productivity Of Crop Producing Farms In Ukraine – A Farm-level Difference-in-differences Analysis

The paper investigates the effect of two types of public support measures, production-related subsidies and value added tax (VAT) reimbursements, on productivity of crop production in Ukraine. The analysis is carried out by means of production function difference-in-differences (fixed effects regression) approach using data provided by the State Statistic Service of Ukraine (SSSU) for the time period of 2008-2013. The public support effect is analyzed from different perspectives considering (i) potential differences related to two farm structural characteristics - holding membership and size, and (ii) time-variability. The results indicate that the relationships between both subsidies and VAT reimbursements and farm productivity statistically significantly vary across time periods and farm types. For nonholding farms in general, an increase in the volume of subsidies is found to statistically significantly increase farm productivity. However, entering subsidization is found to have a negative relation to farm productivity. The latter result may imply uncontrolled-for policy selection of farms in greater need for public support. The level of VATreimbursements is also found to be statistically significantly and positively related to farm productivity; this result is driven by VAT-reimbursements’ productivity impact mainly in the earlier years of the analyzed period. For holding companies, public support effects on farm productivity are found not statistically significant in models on pooled data (over time or only inconsistently statistically significant in some years.