Sectoral total factor productivity and its determinants: Firm-level evidence from Kazakhstan

This paper analyzes total factor productivity and domestic competition among firms in Kazakhstan. We show that the total factor productivity in many industries falls significantly from 2009 to 2017. At the same time, 3 to 10 of the largest firms occupy a significant market share in most industries, demonstrating the elements of oligopolistic competition. The lack of market competition and the monopolization of markets prove to be barriers to productivity growth within sectors. We also estimate the impact of various financial indicators and variables such as subsidies, R&D, and transportation costs on firm-level TFP in Kazakhstan. The results demonstrate that increased investments, profits, wages, subsidies, and the presence of employees aged under 30 or with higher education have a significant positive effect on TFP. Moreover, the uneven distribution of subsidies among firms also contributes to the development of a monopoly in the market. Almost the same firms receive subsidies every year, which aggravates the market power of these firms. Statistics show that 5 companies in the market receive up to 80% of subsidies in manufacturing and agriculture.