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Abstract
Good results depend on good institutions (Boettke and Anderson, 2004). A good system of private property rights is an essential ingredient of good economic development. Whereas a laissez-faire capitalism assumes that a system of private property rights emerges naturally in a market economy that allocates property rights efficiently, the transitional experience of post-socialist countries demonstrates that a government will substitute a centrally planned alternative for such a spontaneously emergent system (McChesney, 1990; Rothbard, 1962). Once charged with control rights, government actors create bad institutions that produce bad economic development in post-socialist countries. Government's control of transition from socialism toward capitalism produced bad institutions and bad economic development in Ukraine. This paper examines the effect of agricultural market reform policy on the economic development of the agricultural sector in Ukraine, the former breadbasket of Europe.
JEL Codes: D23, D24, D61, P26, R15
Keywords: Agriculture; Property rights; Privatization; Land reform; Ukraine
I. Introduction
Ukraine's agriculture was able to provide the old continent with food in the 19th and early 20th centuries (Conquest, 1986). The famous production capacity of Ukraine's agriculture earned Ukraine the acclaimed status of Europe's breadbasket. The former breadbasket is important for the world food supply again because Ukraine is one of four countries, the others being Russia, Kazakhstan, and Argentina, that has a significant production potential to meet the growing global food demand (FAO, 2011). Ukraine can regain the renowned status if post-socialist economic development produces good results. These results depend on good institutions (Krasnozhon, 2013; Boettke and Fink, 2011). Ukraine's agricultural sector, however, has unsustainable growth, sector-wide inefficiencies, and large black market activity. Agricultural market reform that combined agricultural privatization and land reform failed to produce a strong agricultural sector because the government intervened in the emergent market economy and created a set of bad institutions. The government controlled and planned each step of the transition from socialism to "capitalism."
The agricultural sector is subject to constant triangular intervention (Rothbard, 1962, p. 767). The government uses both product and price controls to intervene in the agricultural sector. The government wields control over the sale and rent of agricultural land. The prohibition of farmland sale is absolute (Krasnozhon, 2005). The use of agricultural land is subject to rationing. The rental payment...