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The "lagging growth" model: economic factors and consequences for Ukraine

S. Korablin

Economy and Forecasting, 2016, issue 2, 71-82

Abstract: It is concluded that Ukraine's economy is dominated by the commodity model, within which it specializes in the production of low value added goods. Because of this Ukraine's economy is highly dependent on the fluctuations of the world prices for this country's export commodities. The author proves that, over the last 20 years, all the three economic, financial and FX crises observed in Ukraine (1998-1999, 2008-2009, and 2014-2015) took place against the background of the decline of the world prices for Ukrainian export items. And, vice versa, the revivals of the global conjuncture for raw materials were associated in Ukraine with economic growth, balanced budget and strong foreign exchange market position. In this article, the world commodity market conjuncture is analyzed through the prices for steel, wheat, sunflower oil and nitrogen fertilizers exported by Ukraine. It is stated that the causes of economic, financial and FX crises can vary significantly depending on the type of economy: commodity or industrial one, small or big one, and having or not a free access to international financial markets. It is concluded that, in small commodity based economies, financial, monetary and FX misbalances are not always the initial point of a crisis. In a number of cases they only play a secondary role in the crisis origination. It is stressed that the phases of economic cycle in Ukraine as well as the stance of its finance, budget and exchange rate of the Hryvnia are to a great extent determined by the commodity nature of national production. Meanwhile the high volatility of the latter could be explained by a long-term technological decline. Ukraine is featuring a lagging growth model according to which national GDP rates are lower than those in the most countries with emerging markets. As a result, Ukraine has been helplessly slipping down towards the commodity based periphery of the global economy although, in formal terms, its GDP dynamics may remain positive. It is underscored that a systematic eradication of the above mentioned drawbacks would involve a technological revival, and the development of the manufacturing sector with its shifting to the production of high value added goods.

Date: 2016
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Handle: RePEc:eip:journl:y:2016:i:2:p:71-82