1. Policy liberalization and rms' performance
O. Shepotylo1
1Department of Economics
University of Bradford
40th EERC Research Workshop
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 1 / 17
2. Introduction
After this talk you will learn
how productivity responds to policy liberalization
how non-tari measures inuence quality
how wages are linked to market power and productivity
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 2 / 17
3. Modeling approach
Consider industry
Firms dier in productivity
Competition is imperfect
Monopolistic Competition
Each year
rms expand and contract market share
some rms shut down
and some rms enter
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 3 / 17
4. Trade policy, quality and productivity. Channels
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 4 / 17
5. Does policy liberalization increase growth?
Theoretical and empirical results show that liberalization is benecial
for the strongest, most productive rms
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 5 / 17
6. Does policy liberalization increase growth?
Theoretical and empirical results show that liberalization is benecial
for the strongest, most productive rms
It is also known as Matthew eect:
For unto every one that hath shall be given, and he shall
have abundance: but from him that hath not shall be taken
even that which he hath. Matthew 25:29, King James
Version.
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 5 / 17
7. Does policy liberalization increase growth?
Theoretical and empirical results show that liberalization is benecial
for the strongest, most productive rms
It is also known as Matthew eect:
For unto every one that hath shall be given, and he shall
have abundance: but from him that hath not shall be taken
even that which he hath. Matthew 25:29, King James
Version.
But, it is benecial for the whole economy!
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 5 / 17
8. Did WTO accession help Ukraine?
Ukraine joined WTO on May 16th 2008
Small reduction in taris
Large changes in services sectors!
Results
Shift from manufacturing to services
Increase in productivity in manufacturing
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 6 / 17
10. Foreign Direct Investment (FDI) in services
Shepotylo and Vakhitov (2015)
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 8 / 17
11. Gains in productivity
Shepotylo and Vakhitov (2015) More productive rms gained more as a
result of services liberalization
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 9 / 17
12. Services liberalization in Ukraine
Services liberalization and productivity (Ukraine; Shepotylo and
Vakhitov, 2015)
An increase in services liberalization index by a standard deviation leads
to a 9.2 percent increase in productivity among manufacturing rms
Matthew eect: More productive rms beneted more - leads to
ecient reallocation of resources
Eect is stronger for domestic and small rms.
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 10 / 17
13. NTM and quality
Study of rms in food industry in Ukraine 2001-2010 (Movchan, Shepotylo
and Vakhitov, 2015)
NTM (restrictions on technology) in the nal good sector:
some rms to upgrade their quality:
purchase better inputs
upgrade capital
improve human capital quality
NTM in the intermediate goods sector
Firms with lower quality inputs switch to better ones or shut down
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 11 / 17
14. NTM and rm performance
More stringent health regulations
force rms to purchase ingredients of better quality and play a role of
a positive demand shifter
NTMs are likely to increase costs and change composition of inputs
from the upstream industries
which have a positive eect on exports of more productive rms
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 12 / 17
15. Results
More NTM on inputs has overall negative eect on quantity
imported, neutral for import prices
But: with NTM, rms buy more expensive ingredients and capital
equipment, but cheaper packaging
Quality eect: More stringent NTM regulations for rm's inputs
increase output prices
Conditional on the level of NTM protection, less productive rms are
more likely to exit
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 13 / 17
16. Policy liberalization and wages
Shepotylo, Vakhitov, and Uschev 2015
Build a model that links wages and market power
Show that labor market bargaining power crucially depends on inverse
demand elasticity
Test the predictions of the model at rm level
Demonstrate that
market power and productivity are important determinants of wages
Firms with more market power pay lower wages
Firms with higher productivity pay higher wages
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 14 / 17
17. Barganing power and rm size
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 15 / 17
20. Shepotylo, O. and Vakhitov, V. (2015). Services liberalization and
productivity of manufacturing rms. Economics of Transition,
23(1):144.
O. Shepotylo (Department of Economics University of Bradford )Liberalization and rms EERC, Kyiv 2016 17 / 17
