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

2. 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.comwww.ebrd.com Strategies for Central and Eastern Europe. Ed. Kozminski and Yip. 2000 Pomfret, Richard. 1997. Development Economics: pp. 266-276.

3. Map: CEE and Baltic States

4. Map of Ukraine

5. 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

6. 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

7. Table 1: GDP Growth in Transition Economies (% change from previous year) Growth19911992199319941995 Sustained-12.8-18.4-7.81.04.5 For 1-2 yrs.-6.9-15.9-9.7-14.7-6.1 Reversed-17.5-7.83.25.06.3 None-8.3-11.2-12.2-20.9-10.2 Ukraine-11.9-17.0-14.2-22.9-12.2

8. Table 1 continued (source: IMF, EUROSTAT, Derzhkomstat of Ukraine) Growth19961997199819992000 Sustained5.06.0 For 1-2 yrs.-0.13.6 Reversed1.0-6.8 None-8.9-14.1 Ukraine-10.0-3.2-1.9-0.25.8

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

10. 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

11. Reforms and growth: U-shaped relationship Growth Reforms

12. 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

13. Table 2: Structural Reform Index in Transition Economies (source: EBRD) Countries19911992199319941995 CEE0.550.710.770.760.69 CIS0.100.290.360.450.50 Ukraine0.100.230.130.330.53 All transition 0.330.510.570.610.60

14. Table 2 continued Countries19961997199819992000 CEE0.710.73 CIS0.530.54 Ukraine0.560.57 All transition 0.620.64

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

16. 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

17. Table 4: Growth in Agro Sector

18. 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)

19. 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 non- existent 2001 – 436, 000

20. 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

21. 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

22. Table 5: Population Age Groups source: SSCU data (Steshenko 1999) Age group totalurbanrural 198919991989199919891999 0-1421.618.521.917.920.919.7 15-5960.461.463.264.754.954.6 60+18.020.114.917.424.225.7

23. Table 6: Dependency Ratios per 1,000 working age population source: SSCU data (Steshenko) totalurbanRural 198919991989199919891999 Non- working 7917686966691.0171.019 Young412356387327447430 60+379412299342570589

24. Figure 1: Age Pyramid source: Steshenko 1999

25. Figure 2: Fertility Rate source: Steshenko 1999

26. Figure 3: External Migration source: Steshenko 2000

27. 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