Remaking the State from Below: Local Government Formation in Ukraine

Abstract

Does consolidating local governments while expanding their autonomy improve gover- nance and development? I study Ukraine’s 2015-2020 reform, which allowed small local coun- cils to voluntarily amalgamate into newly created hromadas with greater fiscal and administra- tive authority. Councils that were wealthier, more Ukrainian-speaking and more similar to their neighbors were more likely to merge. Exploiting the staggered rollout of the reform, I show that amalgamation improved procurement performance, increased local economic activity, and strengthened civic national identity. The share of highly competitive tenders and the average number of bidders per tender rose, and local public expenditures expanded and shifted toward social sectors. Nightlights per capita increased by about 7%, consistent with higher economic activity. Survey evidence further shows that residents of rural areas, who were most exposed to the reform, were more likely to identify solely as Ukrainian. The gains were particularly pronounced for smaller hromadas and for peripheral local councils within merged units. These findings suggest that consolidating jurisdictions while devolving authority can enhance state effectiveness, stimulate local development and shape civic identity.