Why is Ukraine Where It Is Now? Lecture on Economies in Transition Econ 355 Lecturer: Galina Didukh

Relevant Literature Ukraine at the Crossroads. Ed. By Siedenberg and Hoffman Ukrainian Economic Trends: Quarterly Issue, June UEPLAC Recent Developments in the Transition Process. EBRD: Strategies for Central and Eastern Europe. Ed. Kozminski and Yip Pomfret, Richard Development Economics: pp

Map: CEE and Baltic States

Map of Ukraine

Ukraine at a glance “frontier land” 2 nd largest landmass: 604,000 sq km Population of 50 mln 68% - urban Well-educated highly skilled labor force “bread basket” of SU Aug 1991 – declared independence 1994 – Kuchma starts economic reforms 1999 and 2001 – reelection and reshuffling of cabinet

Growth in Countries in Transition On average started to grow in 1996 CEE (Central and Easter Europe) in 1994 CIS (Commonwealth of Independent States) in – first year of Ukraine’s economy growth

Table 1: GDP Growth in Transition Economies (% change from previous year) Growth Sustained For 1-2 yrs Reversed None Ukraine

Table 1 continued (source: IMF, EUROSTAT, Derzhkomstat of Ukraine) Growth Sustained For 1-2 yrs Reversed None Ukraine

What Determines Growth (in Economies in Transition) Starting point: economic conditions, institutional characteristics, political histories Investment + productivity growth Efficiency improvements!!! Price stability Structural reforms

What determines growth (continued) Structural reforms: - privatization and price liberalization, well- functioning factor and product markets Institutional infrastructure: legal framework, transparent administrative policies limited government intervention

Reforms and growth: U-shaped relationship Growth Reforms

What has gone wrong in Ukraine? Inflation? Initial conditions (overindustrialisation)?? Large costs of reallocation of ethnic groups? Insufficient structural reforms!!! - institutional development: lack of property rights security

Table 2: Structural Reform Index in Transition Economies (source: EBRD) Countries CEE CIS Ukraine All transition

Table 2 continued Countries CEE CIS Ukraine All transition

What has gone wrong? (continued) Institutional development: - unpredictability of laws and policies, arbitrary application of rules - high level of government interference

Table 3: Relative Size of Industry and Government (IMF) Transition countries Share of industry in 1990 GDP (%) Share of gov. exp. in 1997 GDP (%) All4436 CEE4741 CIS4130 Ukraine4442

Table 4: Growth in Agro Sector

Agriculture (continued) Slow adjustment to market conditions 1992 – Land code introduced right to lease land 1998 – Law on Land Leasing 2001 – no right to freely dispose of land shares 6.6 mn holders of certificates 4.2 ha average size of land interest Privileges in leasing for CAE (collective agro enterprises)

Agriculture in Ukraine: belated structural reforms 1999 – collective enterprises constitute 64% of all agro ent – 51,000 persons obtained land plots in private ownership 2001 – collective enterprises non- existent 2001 – 436, 000

Agricultural reforms (shortcomings & future directions) Eliminate legal ambiguity in regard to land ownership Establish market principles for setting prices Provide free market turnover of land certificates

Demographic challenge Depopulation Emigration 1993 – 52.2 mn population 1999 – 50.1 mn 2.1 mn decline: 83.6% natural decrease, 16.4% net migration Aging of population

Table 5: Population Age Groups source: SSCU data (Steshenko 1999) Age group totalurbanrural

Table 6: Dependency Ratios per 1,000 working age population source: SSCU data (Steshenko) totalurbanRural Non- working Young

Figure 1: Age Pyramid source: Steshenko 1999

Figure 2: Fertility Rate source: Steshenko 1999

Figure 3: External Migration source: Steshenko 2000

European Integration 2000 – President of Ukraine approved the Program for Integration into EU 13 applications from CEE countries, Cyprus, Malta and Turkey for EU membership The Union is expected to enlarge from Europe-15 to Europe-27 starting from 2002