The Productivity Effects of Privatization in Ukraine: Estimates from Comprehensive Manufacturing Firm Panel

This paper estimates the effect of domestic and foreign privatization on multifactor productivity (MFP) using long panel data for nearly the universe of initially state-owned manufacturing firms in Ukraine. The longitudinal dimension of the data is used to measure and control for pre-privatization selection bias and to estimate long-run impacts. The data imply steadily increasing MFP as a result of domestic privatization, reaching about 25 percent relative to state-owned firms after six years. Until recently, Ukraine has had relatively few cases of privatization to foreign investors, and estimates of the MFP impact are more sensitive to controls for selection bias, but the results suggest foreign privatization produces a productivity advantage of about 40 percent in 2004–2005. *Heriot-Watt University, Upjohn Institute for Employment Research and Central European University (CEU). This paper contains new estimates for Ukraine, but it draws extensively on the methods and exposition in Brown, Earle, and Telegdy (2006). We thank Almos Telegdy for collaboration on related research and Natalia Akhmina, Tatiana Andreyeva, Serhiy Biletsky, Larisa Leshchenko, Ivan Maryanchyk, Alexander Scherbakov, and especially Vladimir Vakhitov for help with collecting and cleaning the Ukrainian data. This research was supported by the National Council for Eurasian and East European Research and was carried out in cooperation with OECD, which provided support for research assistance, and EROC (Economic Research and Outreach Center at the Kyiv School of Economics), which provided support for data collection. All errors are our own.