Growth prospects of Ukrainian economy against the background of global trends
Economy and Forecasting, 2017, issue 3, 7-30
The spread of globalization processes and active involvement of small economies in them lead to the fact that their economic development depends to a large extent on existing tendencies and future trends of the world economy. Ukraine in the global dimension is a small economy: its share in global GDP is insignificant, moreover, it declined from 0.971% in 1992 to 0.294% in 2016; and in 2018-2022, even under the optimistic scenarios of the IMF, the figure will further decrease and will fluctuate in the range of 0.289-0.292%. A critical analysis of such a scenario of events evokes the question: how close Ukraine's economy is to the limit of its production potential, and which economic policy (within the framework of global factors) will be efficient in ensuring both recovery and acceleration of economic growth. The purpose of the article is to present the main global trends in the development of the world economy and the reasons for their formation, which makes it possible not only to identify those which will influence the prospects of the development of the domestic economy, but also justify the need for a well-balanced application of the instruments of economic policy that could support a positive trend of Ukraine's long-term development. Among the trends with a direct impact on the prospects for the development of global economy, today it is worth highlighting the key one, which has become the reflection of an important structural shift in the dynamics of the world economy. This key trend consists in the fact that, despite the retention of close relationships and dependence of the developing countries on the industrial ones, the output growth rate in the developing countries is higher, while those of the industrial ones are low. Hence the former have become the drivers of global economy. Decomposition of the growth rate of real GDP for the global economy and the two groups of countries (advanced economies, on the one hand, and developing countries and emerging markets on the other hand) into two components - long-term trend and cyclical fluctuations (using the Hodrick-Prescott filter in Eviews 9.0 package) made it possible to show not only the transition from the stage of divergence to convergence of the two groups of countries, which are different both in terms of development and potential, but also emphasize the emergence of a negative trend in the development of the world economy at the current stage. Comparison of the long-term development trend of Ukraine with that of the European Union has shown that, in contrast to the long-term stable development of European countries, the dynamics of the Ukrainian trend has pronounced periods of growth and decline similar to those in the former CIS countries. The cyclical recessions in Ukraine are deeper than in the former CIS countries and the EU, which testifies to the serious old problems in this economy. The analysis of the dynamics of changes in real and potential GDP of Ukraine has confirmed the need, for the assessment of long-term prospects, to consider the changes not only in fundamental and contingency factors, but also those of macroeconomic policy that adjust the performance of the first two. In order to test the hypothesis of the presence of influence of tax burden on the dynamics of the long-term trend, we constructed linear regression models, which statistically significantly confirmed its correctness, and emphasized the importance of tax policy measures towards an investment friendly business climate (as independent variables were used: effective rate of capital taxation in Ukraine and average effective investment tax rate). The distributive-lag model for assessing the impact of money supply on the long-term trend of Ukraine's development has shown that potential GDP responds to a 1% increase in money supply in the current year with its own increase by 0.067% on average. Besides, the positive momentum of this money supply will be noticeable over next 4 years. In general, the annual effect of a money increase is even higher and is on average 0.258%, as there are cumulative effects of previous periods. The constructed VAR model made it possible to confirm the hypothesis of the dependence of Ukraine's GDP gap on cyclical changes in the dynamics of the world economy, market conditions and prices on global markets, terms of trade in goods and services for CIS countries, and empirically prove that domestic monetary policy is effective. Among the factors that determined the global prospects in the past decade and still affect the development of the world and small economies, we highlight the following: 1) decreased trend of labor productivity; 2) aging population; 3) political uncertainty; 4) low interest rates. Among the global trends of the next decade, which will allow a better understanding of the intrinsic driving forces in future development of the world economy, we would like to place emphasis on the key ones, which were mentioned by experts in 2017 at the World Economic Forum: rising income and wealth disparity, changing climate, increasing polarization of societies, rising cyber dependency, ageing population. The inclusion of Ukraine in the system of global interconnections means the need for a permanent response to changes in the development of global economy through reforms of this country's economy based on national interests, and proper assessment of internal mechanisms and institutional conditions, which would make Ukraine's economy more resistant to possible threats, revive the existing potential and provide positive economic growth for a stable development already in the medium term.
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