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The Evolution of Ukrainian Economy: New Trade Theory Evidence

Vadym Konchyn ()

MPRA Paper from University Library of Munich, Germany

Abstract: As the experience of European transition countries shows, the opening-up of their economic systems for international competition and FDIs, deepening economic liberalization and integration, and on this basis, the realization of real convergence within the integration block lead to the increased role of New Trade Theory in explaining their international economic relations. The processes of Ukraine's economic liberalization and approximation of its level of economic development to that of the EU-members should stipulate for transition of Ukrainian economy onto the dimension which explains industrial and trade relations through the prism of the New Trade Theory postulates coupled with Traditional Trade Theory principles. This article explores the position of Ukraine in the intra-industry trade with its main trade partners and problems of measuring the homogeneity degree of Ukraine’s trade structure and the trade structures of its trade partners as well as its potential reciprocal demand within the regional EU and SEA integration blocks. The empirical analysis reveals that inasmuch as consumer preferences in Ukraine differ from those of its two SEA-partners (Russia and Kazakhstan), their disposition to intensify intra-regional trade relations with Ukraine in the future would be reduced. The SEA countries would rather prefer to expand their integrated export potential (for example, by forming big oligopolistic financial and industrial groups in the mining, metallurgy, heavy engineering, aircraft and space industries on the basis of intra-regional mergers and acquisitions, thus enjoying external economies of scale) and satisfy their individual importing wishes on the markets of third countries in compliance with the postulates of the Traditional Trade Theory. Nevertheless, it is believed that intra-industry trade of Ukraine would develop optimally under deepening of its industrial and trade relations with advanced industrial countries, which have objectively reached the highest level of international specialization and product differentiation. In view of the optimization of their reciprocal demand, advanced industrial countries would try to pull the Ukrainian economy towards European economic area in order to realize their trade and investment interests. FDIs turned Ukraine into an increasingly export-oriented economy due to homogenous products. At the same time, the influence of FDIs on Ukrainian imports of differentiated goods tends to decrease significantly. This means that there still is no effect of increasing complementarity between imports and FDIs, which – under condition of transition – is responsible for structural market changes, saturation of domestic market with differentiated products and as a result for development of intra-industry trade.

Keywords: New Trade Theory; Multinational Corporations; Intra-industry Trade; Internal Increasing Returns to Scale; Trade Structures Homogeneity; Potential Reciprocal Demand; Cross-Border Mergers & Acquisitions; Foreign Direct Investment; Investment and Trade Openness; Single Economic Area; European Union (search for similar items in EconPapers)
JEL-codes: F12 F14 F15 P27 (search for similar items in EconPapers)
Date: 2006-10-26, Revised 2006-09-07
New Economics Papers: this item is included in nep-cis, nep-int and nep-tra
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https://mpra.ub.uni-muenchen.de/588/1/MPRA_paper_588.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/34328/1/MPRA_paper_34328.pdf revised version (application/pdf)

Related works:
Journal Article: Evolution of Ukrainian Economy: New Trade Theory Evidence (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:588

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