[12] They have a proportionally lower rate of industrial expansion compared to cities of regional significance, however, they allow for favorable conditions for the creation of social, cultural, household, communal areas to meet the needs of its urban residents and the surrounding district countryside.

[11] The lives of approximately 22 million inhabitants (both urban and rural) are tied in with the socio-economic activities of small cities, which plays an important role in the development of suburbs and the Ukrainian economy.

It organizes small cities into seven economic categories:[7][11] The Constitution of Ukraine and the 1997 law "On the Local Self-Governance in Ukraine" defines cities as independent units of administrative-territorial structures, which manage their own local self-government, economic, and financial activities.

[15][18] The 1981 decree stipulates that populated places are designated as cities of district significance if they have important regional industry, communal utilities, and networks of social, cultural, and business enterprises.

Cities of district significance receive their funding through the rural raion state administrations they are subordinate to, amidst other sources of local revenue, as determined by the Budget Code of Ukraine.

[23] Every city of district significance in Cherkasy, Khmelnytskyi, Mykolaiv, Rivne, Zhytomytr, and Zakarpattia oblasts are also administrative centers of their respective raions.

For the same category of cities in the Autonomous Republic of Crimea, the subject of a territorial dispute between Russia and Ukraine, the term for this type of urban populated place is a city of district subordination[citation needed] (Ukrainian: місто районного підпорядкування[citation needed], misto raionnoho pidporiadkuvannia).

Cities of district significance and similarly named categories date back to the forms of local government and administrative divisions of Soviet Union.

In countries of the former Soviet Union, these types of cities are subject to similar characteristics and economic categories as those that are located in Ukraine.