- Kyiv School of Economics
- Private: Calendar
- Research seminar on effect of subsidies on farmers’ exit decision
Description
If we look at the agricultural sector of Ukraine, the number of farms that exit farming is immense, throughout 2007-2014 around 10% of farms exited farming.
However, once we are talking about actual numbers – a variation of the number of firms operating on the market is almost absent, for the observed period the average year-to-year change in the number of firms is much less than one percent (to be concrete – 0.14%).
Why does it happen? Theory suggests, that non-efficient firms that exit farming release resources that could be used by other companies, including newly created ones, it leads to optimal reallocation of resources and increases in overall sector productivity. However, numerous factors may affect the exit decisions, and while some of them, such as world prices, are exogenous, another, such as government intervention is determined by the relevant authority and could have a significant indirect effect on the overall sectoral productivity.