THE ROLE OF STATE REGULATION IN THE DEVELOPMENT OF UKRAINE’S IT SECTOR: OPTIMIZATION STRATEGIES AND POLICY RECOMMENDATIONS

Анотація

The research is about the role of state regulation in development of Ukraine’s IT sector, and about optimization strategies and policy recommendations. The study explains the problem of inconsistent regulatory impacts on the IT sector growth which is worsened by bureaucratic barriers, compliance costs and instability of policies. The research employs panel data drawn from 2020 to 2024 in order to determine the effect of tax incentives, financial assistance, compliance costs, regulatory quality, digital infrastructure and educational investment on IT sector growth and efficiency. The paper utilizes results from the fixed effects, random effects, and generalized method of moments econometric models and results are robust with respect to sensitivity analysis using diagnostic tests, to explore the link between state regulation and IT sector performance. This suggests that improved tax incentives and financial support creates better environment for IT sector growth, while reduced compliance costs and better quality of regulation helps achieve better operational efficiencies. Furthermore, investments in digital infrastructure as well as education enhance innovation and productivity. It is shown that the growth of the IT sector was influenced by moving tax incentives from 2,5 billion UAH in 2020 to 4,5 billion UAH in 2024, which led to an increase in the annual growth rate from 7,2% to 11,2%. Financial support also grew from 1,2 billion UAH up to 2,3 billion UAH, thus supporting the startup innovation and expansion. Moreover, lower compliance costs, decreased from 4,5% to 3,6%, increased operational efficiency, and the Regulation Quality Index rose from 3,2 to 4,3 and helped create a more business friendly environment. Further enabling innovation capacity and productivity was digital infrastructure and IT education simply growing from 0,8 billion UAH to 1,2 billion UAH. It also discusses how stable policy enables long term strategic planning from an investor’s perspective and how it builds investor confidence. Based on the implications of this research, policy recommendations are formulated on three evidence-based dimensions: optimizing tax incentives, increasing financial support, and reducing compliance costs; while on the other hand investing in digital infrastructure and IT education. The paper concludes that Ukraine's IT sector has a sustainable growth and global competitiveness, however, such a rate is possible provided there is a stable policy environment and strategic state regulations. This study also contributes to academic discourse on state regulation in digital economy through widening the scope of applied research and suggests further practical approaches for the industry stakeholders and state policy makers.

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