The policy of development of the domestic market and EU-Ukraine association agreement: common and contradicting objectives

O. Pustovoit

Economy and Forecasting, 2015, issue 1, 49-63

Abstract: After 2008, Ukraine's domestic market has been growing slowly compared to other countries and exerted hardly any influence on the development of commodity production sector. The reasons are associated with the fact that consumers, because of the low growth of discretionary income, were slow in changing their consumer spending in favor of innovative and better quality products and manufacturers tended to satisfy the scanty demand for such products with imported items. The slowed structural changes in aggregate demand and aggregate supply in the domestic market led to the following negative economic trends: high income differentiation, which in Ukraine is 2-3 times greater than in the developed world, technological backwardness of the commodity production, where the wear rate of fixed assets reached 76,7%, devaluation of the hryvnya, and inflation. The only way for the Ukrainian Government to expand the domestic market, and use its potential to update and modernize the domestic commodity production is increasing the consumers' purchasing power together with encouraging investment in the sector of commodity production. These issues were not solved with the help of the economic benefits which Ukraine received in 2008 after accessing the WTO. EU - Ukraine Association Agreement gives the Ukrainian Government another chance to succeed in implementing the policy of the growth of domestic market providing it is supplemented by protectionist measures focused on import substitution, increasing the productivity of commodity production, and launching new types of high-tech products.

Date: 2015
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