You Are Suffocating Me! Firm-Level Evidence on Crowding Out

IMF Working Papers, April 24, 2019

Source details

Literature on whether government spending crowds out or crowds in the private sector is large, but still without an unambiguous conclusion.
Using firm-level data from Ukraine, this paper provides a granular empirical investigation to disentangle the impact of state-owned enterprises (SOEs) on private firm investment in Ukraine—a large transition economy.
Controlling for firm characteristics and systematic differences across sectors, the results indicate that the SOE concentration in a given sector has a statistically significant negative effect on private fixed capital formation.
The impact of SOEs is stronger in those industries in which SOEs have a more dominant presence.
These findings imply that private firms operating in sectors with a high level of SOE concentration invest systematically less than businesses that are not competing directly with SOEs.

SOE concentration in a sector has a "statistically significant negative effect" on private fixed capital formation.
The negative impact of SOEs is larger in industries where SOEs have a more dominant presence.
The paper is 15 pages in length.
Publication date: April 24, 2019.
Series and identifiers: Working Paper No. 2019/080; Issue: 080; Volume: 2019; DOI: https://doi.org/10.5089/9781498311090.001; ISBN: 9781498311090; ISSN: 1018-5941; Stock No: WPIEA2019080.

Firm-level empirical investigation using data from Ukraine.
Controls include firm characteristics and systematic differences across sectors.
Focus on private fixed capital formation as the investment outcome of interest.
Analysis investigates variation in SOE concentration across sectors and differential impacts where SOEs are more dominant.

High SOE concentration in a sector is associated with lower private sector investment in that sector, suggesting crowding out at the firm level.
The sectoral dominance of SOEs matters: policy measures addressing private investment constraints may need to be tailored to sectors with high SOE presence.
Findings inform debates on public enterprise roles and private investment dynamics in transition economies.

IMF Working Paper — Serhan Cevik. "You Are Suffocating Me! Firm-Level Evidence on Crowding Out", April 24, 2019 (Working Paper No. 2019/080).