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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. 1999 • Ukrainian Economic Trends: Quarterly Issue, June 2001. UEPLAC • Recent Developments in the Transition Process. EBRD: www.ebrd.com • Strategies for Central and Eastern Europe. Ed. Kozminski and Yip. 2000 • Pomfret, Richard. 1997. Development Economics: pp. 266-276. Map: CEE and Baltic States Map of Ukraine Ukraine at a glance • “frontier land” • 2nd 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 1997 • 2000 – first year of Ukraine’s economy growth GDP Growth in Transition Economies (% change from previous year) Table 1: Growth 1991 1992 1993 1994 1995 Sustained -12.8 -18.4 -7.8 1.0 4.5 For 1-2 yrs. -6.9 -15.9 -9.7 -14.7 -6.1 Reversed -17.5 -7.8 3.2 5.0 6.3 None -8.3 -11.2 -12.2 -20.9 -10.2 Ukraine -11.9 -17.0 -14.2 -22.9 -12.2 Table 1 continued (source: IMF, EUROSTAT, Derzhkomstat of Ukraine) Growth 1996 1997 Sustained 5.0 6.0 For 1-2 yrs. -0.1 3.6 Reversed 1.0 -6.8 None -8.9 -14.1 Ukraine -10.0 -3.2 1998 1999 2000 -1.9 -0.2 5.8 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, wellfunctioning 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 Structural Reform Index in Transition Economies (source: EBRD) Table 2: Countries 1991 1992 1993 1994 1995 CEE 0.55 0.71 0.77 0.76 0.69 CIS 0.10 0.29 0.36 0.45 0.50 Ukraine 0.10 0.23 0.13 0.33 0.53 All 0.33 transition 0.51 0.57 0.61 0.60 Table 2 continued Countries 1996 1997 CEE 0.71 0.73 CIS 0.53 0.54 Ukraine 0.56 0.57 All 0.62 transition 0.64 1998 1999 2000 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 All Share of industry Share of gov. exp. in 1990 GDP (%) in 1997 GDP (%) 44 36 CEE 47 41 CIS 41 30 Ukraine 44 42 Table 4: Growth in Agro Sector real GDP (1990=100) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 92.61 76.00 46.90 42.48 40.89 41.30 39.95 39.25 40.50 agricultural number of GDP privatized (1990=100) enterprises 100.00 81.35 77.44 30 80.27 3585 66.48 11552 65.09 28272 48.00 48118 43.81 57009 39.30 62349 36.18 67998 38.27 73349 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. • 1999 – 51,000 persons obtained land plots in private ownership • 2001 – collective enterprises nonexistent • 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 total group 1989 1999 1989 1999 1989 1999 0-14 21.6 18.5 21.9 17.9 20.9 19.7 15-59 60.4 61.4 63.2 64.7 54.9 54.6 60+ 20.1 14.9 17.4 24.2 25.7 18.0 urban rural Table 6: Dependency Ratios per 1,000 working age population source: SSCU data (Steshenko) total urban Rural 1989 1999 1989 1999 1989 1999 Non791 working Young 412 768 696 669 1.017 1.019 356 387 327 447 430 60+ 412 299 342 570 589 379 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