Services liberalization and productivity of manufacturing firms
firms
ukraine
services-trade
firm-level
The Economics of Transition, 2015. With Volodymyr Vakhitov.
Using a unique panel of Ukrainian firms from 2001 to 2007, we exploit an external push for services-sector liberalization as a source of exogenous variation to identify its effect on the total factor productivity of manufacturing firms that use those services as inputs. A one-standard-deviation increase in services liberalization raises firm TFP by 9.2%, an effect that is stronger for already-productive firms — driving a reallocation of resources within the industry — and reinforced dynamically through the investment channel; the effect is more pronounced for small, domestic firms.
Show abstract
Using a unique panel of Ukrainian firms from 2001 to 2007, we exploit an external push for services-sector liberalization as a source of exogenous variation to identify its effect on the total factor productivity of manufacturing firms that use those services as inputs. A one-standard-deviation increase in services liberalization raises firm TFP by 9.2%, an effect that is stronger for already-productive firms — driving a reallocation of resources within the industry — and reinforced dynamically through the investment channel; the effect is more pronounced for small, domestic firms.
Liberalizing services sectors — telecoms, transport, finance — raises the productivity of the manufacturing firms that use those services as inputs, not just the productivity of the liberalized sector itself. Using Ukrainian firm-level panel data, we trace this indirect productivity channel and show it is large enough to matter for the sequencing of liberalization reforms.
Published in: The Economics of Transition, 23(1), 1–44