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Economic growth in Ukraine: problems and revival prospects

O. Pustovoit

Economy and Forecasting, 2017, issue 4, 71-92

Abstract: In 2016, after two years of economic downturn, Ukraine's real GDP grew by 2.3%. Some researchers explained the resumed economic growth with an increase in domestic consumer and investment demand. Contrary to these conclusions, the article presents the facts that the growth of the Ukrainian economy began as a result of depreciation under the influence of inflation of the main factors of production, that is, labor, land, and capital. Reduced cost of their purchase allowed the businessmen, even with reduced output, to receive additional revenues and direct them to increase wages and to finance investment projects. In 2016-2017, the annual growth rate of the Ukrainian economy did not exceed 2.5%. This limited the government's ability to raise living standards, overcome poverty, and serve and repay the foreign debt. To solve these problems, annual economic growth should exceed 6%. The article provides evidence that cheap domestic production resources are insufficient to speed up Ukraine's economic growth of Ukraine in the future. In order to initiate such a growth, it is necessary to create a motivational mechanism that would encourage the business to shift from the export of raw materials over their deep processing into new goods and services with greater added value. The author proposes to create such a mechanism via institutional reforms that would address the three key tasks. They include: redistributing business and state revenues in favor of the households to increase their demand for innovative and/or higher-quality products; increasing the level of non-price competition between the producers of such items; and creating long-term incentives for them to invest in new types of goods and services.

Date: 2017
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Handle: RePEc:eip:journl:y:2017:i:4:p:71-92