Testing Differences in Efficiency of Regions within a Country : The Case of Ukraine

In this paper we synthesize and adopt the recently developed methods in efficiency analysis to the case of comparison of regions within a country. We take Ukrainian regions as a subject of investigation, yet the same toolkit can be applied to test disputable differences in productivity for many other countries where such questions can be of national concern (e.g., Belgium, Great Britain, Spain, etc.). Contrary to common perception of economists focusing on Ukraine, we find no significant differences in distributions and aggregate efficiencies between the agricultural and industrial regions, neither between western (mostly Ukrainian speaking) and eastern (mostly Russian speaking) regions of Ukraine. However, we find strong support for a rapidly increasing gap between the capital (Kyiv) and all the regions since 2001. Using truncated regression analysis with bootstrap we also find robust evidence that the inefficiency of regions is positively related to alcohol and tobacco consumption, the amount of foreign direct investment and inversely related to criminality in the region. On the other hand, we also find strong evidence that amount of capital in the region and its wealth is positively associated with efficiency level of this region