Resource misallocation and manufacturing productivity: The case of Ukraine

Applying Hsieh and Klenow (2009) methodology, and using the dataset of 47,497 unique establishments over the period of 2002-2010, I investigate the effects of resource misallocation on the productivity of Ukrainian manufacturing. Empirical results show that there is a significant resource misallocation in Ukrainian manufacturing. If it were the case that all market distortions were eliminated, manufacturing productivity could triple, whereas if Ukraine was as distorted as the US or EU, it could be twice more productive than it is now. The results also show that most enterprises should downsize their level of production and that the major reallocations of resources occur among the most and the least productive enterprises.