Services liberalization and productivity of manufacturing firms

Oleksandr Shepotylo and Volodymyr Vakhitov ()

The Economics of Transition, 2015, vol. 23, issue 1, 1-44

Abstract: type="main" xml:id="ecot12061-abs-0001">

Employing a unique database of Ukrainian firms in 2001–07, we use the external push for liberalization in the services sector as a source of exogenous variation to identify the effect of services liberalization on total factor productivity (TFP) of manufacturing firms. The results indicate that a standard deviation increase in services liberalization within a firm is associated with a 9.2 percent increase in TFP. The effect is stronger for firms with high productivity, bringing about a reallocation of resources within an industry. Industry-level results show that the effect of reallocation on industry productivity is almost as strong as the within-firm effect. The dynamic interaction of services liberalization and TFP through the investment channel reinforces the effect. The effect is robust to different estimation methods and to different sub-samples of the data. In particular, it is more pronounced for domestic and small firms.

Date: 2015
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