Financial constraints in economic transition: Empirical evidence from Ukrainian large farms
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This paper addresses the question of financial constraints in Ukrainian agriculture in
transition. The main objective is to reveal the evidence of the both phenomena, soft budget
constraints and credit rationing, investigating investment behaviour of large farms in Ukraine.
Our empirical analysis is based on unbalanced panel data containing 529 agricultural
enterprises from three Ukrainian regions between 2001 and 2005. Estimates of the Euler
investment equation for several sub-samples reveal a dissimilar level of financial constraints.
We confirm the presence of the soft financial environment (soft budget constraints) for the
Ukrainian large farms being in an unconstrained financial regime. The farms belong to this
regime if they receive credits after being unprofitable in two consecutive years. The other
farms defined a priori as being in an constrained financial regime face evidence of credit
rationing. With regard to the empirical results, we derive macroeconomic implications of
financial constraints in the agriculture of Ukraine.