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Productivity and factor misallocation in Ukraine: the role of state ownership

This study explores firm dynamics and the efficiency of factor allocation in manufacturing and business service sectors of Ukraine. The period under study was one of rapid growth at the economy level, while the main sectors have undergone considerable churn and reallocation. The findings are based on an analysis of firm-level data and display dramatically different pictures for the two main sectors. In business services large establishments that are mostly state-owned use an important portion of production factors inefficiently. Firms need to be very productive to enter the market and, on average, exiting firms are more productive than incumbents in business services. In contrast, in manufacturing industries the market selection mechanism is effective, the state-owned firms are as productive as private establishments and factor allocation is more efficient.