Is Privatization Working in Ukraine?

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 multifactor productivity (MFP) 4–10%, with the impact increasing over time to about 16–18% 6 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.