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The Uneasy Path to Becoming a ‘Normal Country’: Effect of Transition on People and Firms in Ukraine

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Marriott Philadelphia Downtown, Grand Ballroom Salon D
Hosted By: Association for Comparative Economic Studies
  • Chair: Irina Murtazashvili, Drexel University

Political Connections and Economic Outcomes: Oligarchs and the Orange Revolution

John S. Earle
,
George Mason University
Scott Gehlbach
,
University of Wisconsin
Anton Shirikov
,
University of Wisconsin
Solomiya Shpak
,
George Mason University

Abstract

What is the effect of political connections on firm behavior? We explore this question with an empirical study of contemporary Ukraine, a country whose weak legal and political institutions mirror those in much of the rest of the world. Exploiting firm-level panel data on various aspects of firm behavior, as well as new data on oligarch ownership and affiliation, we compare the performance of connected and unconnected enterprises before and after the Orange Revolution of 2004. Our work provides some of the first estimates of the impact of political connections on real, as opposed to monetary, outcomes. We further explore the particular channels through which political connections affect enterprise behavior, and we estimate the magnitude of spillovers to other firms in the same sectors.

Political Uncertainty, FDI, and Trade in Intermediate Goods: Evidence From Ukrainian Firms

Oleksandr Shepotylo
,
University of Bradford
Jan Stuckatz
,
London School of Economics and Political Science

Abstract

In this paper, we explore the effects of uncertainty on firm performance and introduce a new method to measure uncertainty using quantitative text analysis. We extend a theoretical model with heterogeneous firms and sunk investments to derive hypotheses about the impact of trade policy uncertainty (TPU) on firm-specific investment and firm's decision to trade intermediate goods. We look at Ukraine’s trade relations with EU and Russia to measure TPU and to test our predictions. Ukrainian firms faced considerable uncertainty with regards to two mutually exclusive trade policies: the conclusion of a free trade agreement with the European Union (EU FTA) or a customs union with Russia (RU CU). Using firm-product level data of Ukrainian manufacturing firms between 2003 and 2013, we find a substantive increase in firm-level FDI inflows and imported intermediate goods from EU countries and a decrease in FDI from the Customs Union, once uncertainty with regards to the EU FTA is reduced. Moreover, more protected goods respond stronger to a reduction in TPU. The novel measure of uncertainty can be easily applied to other cases where governments face multiple mutually exclusive policy options.

Keywords: trade policy, uncertainty, intensive margin, intermediate inputs, FDI, machine learning

JEL Classification: C55, D81, F12, F14

Agriculture, Exports, and Railways in Central and Eastern Europe

Russell Pittman
,
U.S. Department of Justice

Abstract

In Ukraine and other CEE countries, the agricultural sector relies on the railways to carry their output to market. In some countries water transport can provide a substitute (Ukraine and Romania), while in all countries motor transport can do so to some degree; however, the latter especially is not suitable for heavy loads traveling long distances, and a result has been serious deterioration of road infrastructure. After a review of the literature on modal choice in agricultural transport, this paper will examine the state of the railways in Ukraine, Poland, Romania, and the Czech and Slovak Republics, focusing on both their effectiveness in serving the agricultural sector and the state of the reform debate and process as policy makers seek to extract their national railways from the moribund monopoly state that they have typically occupied.

Does Past Unemployment Experience Explain the Transition Happiness Gap?

Irina Murtazashvili
,
Drexel University
Olena Nizalova
,
University of Kent

Abstract

Profound economic and political changes of 1990s had detrimental social ef-
fects in all domains of life in post-socialist countries, including diminishing life
expectancy and growing unhappiness. Despite economic improvements in the
second decade of transition, research documented that happiness lagged behind.
We test whether past unemployment experience can explain this transition hap-
piness gap in the context of Ukraine, a country with a painful delayed transition
from a planned to a market economy. We analyze unique longitudinal data for
a period from 2003 to 2012. Current unemployment has a large e ect on sub-
jective wellbeing, and is roughly 50% larger for men as for women. The e ect of
past unemployment is signi cant, but small in magnitude compared to the ef-
fect of current unemployment. However, it does correspond to about 35% of the
`'transition happiness gap" found by [1] for 2010 suggesting that the experience
of past unemployment can be considered as a potential explanation.
Discussant(s)
Richard Ericson
,
East Carolina University
Russell Pittman
,
U.S. Department of Justice
John S. Earle
,
George Mason University
Olena Nizalova
,
University of Kent
Oleksandr Shepotylo
,
University of Kent
JEL Classifications
  • P3 - Socialist Institutions and Their Transitions
  • O5 - Economywide Country Studies