Financial constraints in economic transition: Empirical evidence from Ukrainian large farms

This paper addresses the question of financial constraints in Ukrainian agriculture intransition. The main objective is to reveal the evidence of the both phenomena, soft budgetconstraints and credit rationing, investigating investment behaviour of large farms in Ukraine.Our empirical analysis is based on unbalanced panel data containing 529 agriculturalenterprises from three Ukrainian regions between 2001 and 2005. Estimates of the Eulerinvestment 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 theUkrainian large farms being in an unconstrained financial regime. The farms belong to thisregime if they receive credits after being unprofitable in two consecutive years. The otherfarms defined a priori as being in an constrained financial regime face evidence of creditrationing. With regard to the empirical results, we derive macroeconomic implications offinancial constraints in the agriculture of Ukraine.