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Agricultural and Resource Economics: International Scientific E-Journal
http://are-journal.com
Vol. 8, No. 3, 2022 81 ISSN 2414-584X
JEL: О10, O18, R11, R13, Q10
Iryna Storonyanska1, Aleksandra Nowakowska2, Liliya Benovska1, Andriy Dub1
1State Institution “Institute of Regional Research named after M. I. Dolishniy
of National Academy of Sciences of Ukraine”
2University of Lodz
1Ukraine
2Poland
IMBALANCES AND RISKS OF THE REGIONAL DEVELOPMENT
OF UKRAINE’S ECONOMY UNDER CONDITIONS OF INSTABILITY
Purpose. The research aims to detect main trends of regional development of Ukraine’s
economy, and substantiate imbalances and risks, which must be taken into account in the formation
of a new model of regional development of Ukraine and improving financial-economic resilience
under conditions of modern turbulence.
Methodology / approach. The general theoretical scientific methods, fundamental principles
of regional economy, which are highlighted in the works of both Ukrainian and foreign scientists on
spatial development. The following research methods were used to perform to fulfill the tasks:
abstract-logical, comparative and correlation analysis, graphic visualization, statistical.
Results. The research puts forward a rage of hypotheses: the regions with higher economic
activity concentration develop faster; the regions oriented on technology-intensive economic
activity types and with high innovation activity level have higher chances for economic growth;
economic growth can result in growing interregional inequalities and imbalances in a long run;
economically powerful regions are more resilient to financial and economic crises. Their
verification shows that the economic development of Ukrainian regions is determined by factors
other than initial economic capacity. Ukrainian regions are hardly developing according to the
recognized global development principles. Their economic success is ensured by orientation on the
agricultural output (usually low-margin) rather than technology-intensive economic activities and
dynamic innovative activity. Interregional comparisons of business environment condition and
economic growth of Ukrainian regions prove that the regions-leaders by economic growth paces
are characterized by the relatively higher quality of entrepreneurial climate. Moreover, recently,
they have been improving their positions in regional doing business rankings. Meanwhile, the
largest group of Ukrainian regions, which still have positive rates of economic development, is the
outsider in terms of both the business climate quality and loss of ranking positions. The most
difficult situation with entrepreneurship environment is in Zaporizhzhia, Poltava, and Kherson
oblasts. Therefore, the regions that used to be oriented on large enterprises of the industrial sector
have not managed to reorient themselves on the support of entrepreneurship and stimulation of
entrepreneurial activity. However, a positive sign is a significant improvement of Zaporizhzhia and
Dnipropetrovsk oblasts positions in the rankings.
Originality / scientific novelty. Based on the studying of regional development trends under
crisis conditions of financial-economic turbulence, the research outlines current risks of regional
economic growth, including the risk of further loss of economic capacity of Ukraine and its regions
to achieve resilient growth, the risk of delayed effect of economic growth slowdown in a short-term
period, the risk of growing economic development imbalances of Ukrainian regions.
Practical value / implications. The value of the study lies in the use of identified trends and
risks in building a new methodology of state regional policy and updating tools to stimulate
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economic development of Ukraine, which will increase the stability of the economy under
conditions of financial and economic turbulence.
Key words: regional development, economic growth, risks, trends, new regional development
model.
Introduction and review of literature. Until recently, the existing model of
regional development in Ukraine, formed under conditions of implementation of
Soviet policy of productive forces’ placement, was characterized by a high
concentration of industrial capacity in some oblasts and gradual increase of their
economic power. These regions produced the main share of GRP, export, and budget
revenues in the country. In contrast to them, traditionally agricultural regions were
considered to be low-competitive under conditions of active development of
technology-intensive production. Moreover, the labor-surplus western regions
became the source of workforce for entire Europe. The lack of timely reforming of
the inherited economic structure of regions and efficient regional policy in new
economic conditions has caused the loss of substantial capacity to improve and
develop the Ukrainian economy and further increase the economic activity
concentration in a range of cities (namely, in the capital) and regions, leading to
growing interregional and intraregional imbalances.
Such territorial distribution of economic capacity in Ukraine, interregional
disintegration of economy, and gradual exclusion of a range of areas from the
country’s economic space have intensified the confrontation between the economic
center and periphery, urban and rural areas, and budget donors and recipients.
Therefore, the Soviet model of regional development was predictably doomed as
unable to secure economic growth by spreading the economic development impulses
and maintain the integrity of the country’s economic space. It is worth mentioning
that the disadvantages of such a regional development model and risks of lack of
understanding of the importance of the spatial factor of economic growth and role of
regional policy in perspective were addressed by Ukrainian researchers in detail [1–8].
The 2008 financial crisis was the catalyzer for management inefficiency of
regional development, while the occupation of Crimea by Russia and military actions
in some areas of Donetsk and Luhansk oblasts were the main factor of destabilization
of regional development processes causing economic decline due to the loss of
control over some part of the territory and its economic capacity. It is worth
mentioning that weak regional policy in Ukraine, in particular, in terms of impact on
social integrity/cohesion of Ukrainian society, disregard of economic and social
features of these oblasts’ development, lack of adequate domestic policy measures in
response to long-term soft integration of areas bordering Ukraine with the Russian
“influence area”, along with the gaps in external policy towards neighboring
countries, have mapped the preconditions for Russian military aggression.
The large-scale Russian invasion of February 24, 2022 led to the economic,
social and humanitarian crisis in Ukraine, new challenges, risks and problems: at
least 12 million people have left their homes, 3.5 million refugees (who, thanks to
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various EU support programs, have a chance to stay 1.5–3 years or even not to return
to Ukraine), 8 million internally displaced persons [9] (ie loss of human capital and
large-scale redistribution of labor resources within the country), threats to food
security and financial stability of the country, shutdown of small and medium
business and big enterprises in the war zone, destruction critical infrastructure and
housing, the blockade of seaports (as a result, reduction of key export positions), loss
of income and livelihoods of households, etc. significantly complicate the livelihood,
survival and development of all regions and territorial communities, both those in the
rear and those that in the combat zone or frontline territories. Of course, it will be the
most important factor in reforming the model of spatial development in Ukraine in
the war and post-war period.
The purpose of the article – to detect main trends of regional development of
Ukraine’s economy, and substantiate imbalances and risks, which must be taken into
account in the formation of a new model of regional development of Ukraine and
improving financial-economic resilience under conditions of modern turbulence.
Results and discussion. Economic growth is the key quantitative feature of
regional development since it is the only one able to ensure resource growth in the
long run and thus human wellbeing increase. However, evaluation of the
contemporary economic history of Ukraine shows that the Ukrainian economy has
not reached the level of 1991 for the last 30 years. In 2020, Ukrainian GDP was only
about 60 % of the 1990 GDP. During this time, neighboring countries have doubled
and even tripled their GDPs. It is worth mentioning that the Ukrainian economy faced
shock situations at least twice: in 2008 – due to global financial crisis and 2014 – due
to domestic disorganization and external aggression that caused deep decline: the
decline in 2008 was 15.1 % (i.e. the largest in the world) and in 2014–2015 – 15.8 %
in two years (Figure 1) [10].
Figure 1. The dynamics of GDP (PPP) in Ukraine and the share of agriculture,
2007–2020
Source: calculated by the author based on the data of the State Statistics Service of Ukraine.
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The abovementioned economic crises in the Ukrainian economy were
accompanied by pessimistic structural changes in the economy – declining share of
processing industry and growing share of agriculture in the country’s GDP. By the
end of 2020, they amounted to 10.5 % and 9.3 %, respectively. The structural
degradation of the economy caused the loss of its reproduction properties and
determined the downward trend rather than only the crises faced by Ukraine and the
world [11].
At the background of the intense increase of technology-intensive production in
the global economy, Ukraine has turned into the exporter of low-margin goods,
including agricultural, in the last decades. The importance of agriculture in the
Ukrainian economy has been growing in the last 10 years: agriculture plays a key role
in the modern Ukrainian economy, securing 9 % of GDP, 18 % of employment of
economic entities, and 6 % of tax revenues. The share of agriculture in Ukrainian
export exceeds 40 % (Figure 2). The most essential changes in the share of
agriculture in GDP/export were observed in the years of economic crises, which
indicates a relative resilience of the industry to crisis phenomena: agriculture falls
much less than other industries in economic crisis.
Figure 2. Dynamics of Ukrainian export and share of agriculture, 2007–2020
Source: calculated by the author based on the data of the State Statistics Service of Ukraine.
The above-mentioned trends inevitably affected the economies of regions and
have become the preconditions of structural changes and spatial redesigning of
economic activity processes in Ukraine. How progressive is such a transformation,
and does it correspond to global trends in spatial development?
Modern economic science proves the existence of a range of economic growth
patterns on a regional level, the main of which are the following: the regions with
higher economic activity concentration develop faster; the regions oriented on
technology-intensive economic activity types and with high innovation activity level
have higher chances for economic growth; economic growth can result in growing
interregional inequalities and imbalances in a long run; economically powerful
regions are more resilient to financial and economic crises.
A range of current studies of regional development processes [12–17] address
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the analysis of some of the mentioned aspects, yet, we will try to analyze these
patterns in a more comprehensive manner with regard to securing the economic
growth of Ukraine. Since Gross Regional Product (GRP) is the main resulting
indicator of measuring economic growth on a regional level, we estimate the
dependence between GRP annual average growth paces and GRP per capita in the
initial period (Figure 3).
Figure 3. The dependence between GRP annual average growth paces
(2010–2020) and GRP per capita in 2010*
Note. *Donetsk and Luhansk oblasts were excluded from calculations as their economic
dynamics was mostly stipulated by Russian military aggression.
Source: calculated by the author based on the data of the State Statistics Service of Ukraine.
The results of calculations for 2010–2020 detect a group of Ukrainian regions
demonstrating negative annual average economic growth paces in the analyzed
decade. Unexpectedly, it is a group of most economically powerful regions –
Dnipropetrovsk, Poltava, Kharkiv and Zaporizhzhia oblasts. It is worth mentioning
that as of 2020, these four regions produced about the fourth part of Ukrainian GRP!
Meanwhile, we can speak about a gradual loss of their economic capacity (GRP
annual average growth paces of these regions are below 100 %).
All other Ukrainian regions had growth paces over 100 % at worse initial
conditions (GRP per capita lower than in the mentioned four regions (excluding Kyiv
oblast)). Zhytomyr and Vinnytsia oblasts had the highest growth paces (over 3 %
annually), with GRP per capita in 2010 below the average national rate.
Therefore, the economic development of Ukrainian regions is determined by
factors different from initial economic capacity, while the ten-year trends of regional
economic growth do not verify the thesis about high development paces of
economically more powerful regions.
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The causes of this situation should be clarified when examining the structure of
regions’ economies in Ukraine and the technological effectiveness of output in the
region. Evaluation of structural transformations in regional dimension allows
speaking about spatial features of these processes development.
The reasons for this situation should be clarified when considering the structure
of the regions’ economies in Ukraine and the technological effectiveness of output in
the region. Evaluation of structural transformations in regional dimension allows
speaking about spatial features of these processes development.
Surprisingly, a comparison of the dynamics of GRP annual average growth
paces and the share of high- and medium-tech products in regions’ output in 2010–
2020 indicates the reverse relationship between these indicators (Figure 4).
Therefore, growing economic capacity due to high- and medium-tech output rather
than low-tech one has been the peculiar feature of Ukrainian regions for the last
decade. These processes are clearly reflected in the declining share of the processing
industry in the total Gross Value Added (GVA) of the regions in 2014–2020.
Figure 4. The dynamics of GRP annual average growth paces and the share of
high- and medium-tech products in regional output, 2010–2020
Source: calculated by the author based on the data of the State Statistics Service of Ukraine.
In fact, there is a situation when regions oriented on production and export of
low-tech products, including agricultural, develop faster. Analysis of the dependence
between GRP annual average growth paces and agricultural output in the regions in
2010–2020 allows making the following conclusions (Figure 5):
- all Ukrainian regions without exceptions have increased agricultural output in
the last decade;
- regions leading by GRP growth are the leaders in terms of growth in
agricultural output (Zhytomyr, Vinnytsia, Khmelnytskyi oblasts). Meanwhile, they
simultaneously increase their capacities both in crop and livestock production;
- general dynamics of economic growth in Ukraine is determined by the
development of such regions as Zaporizhzhia, Dnipropetrovsk, Kharkiv, and Poltava
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oblasts (these regions concentrate over the fourth part of GRP produced in Ukraine).
Their negative trend stipulates the negative GRP growth rate in Ukraine overall. GRP
decline in these regions is accompanied by the growth of agricultural output, yet it
does not cover the loss of industrial capacity.
Figure 5. The dependence between GRP annual average growth paces and
agricultural output in the regions in 2012–2020
Source: calculated by the author based on the data of the State Statistics Service of Ukraine.
Therefore, Ukrainian regions are not developing according to generally
recognized global development principles – their economic success is secured by
orientation on agricultural output (usually low-margin one) rather than high-tech
types of economic activity and intense innovative activity. Does this development
strategy stand a chance of success in the long term?
Speaking about the perspective, the flow of direct investment (equity) in the
economies of regions should be intensified. The following are the trends that have
been dominating in the regions leading by economic development paces (Vinnytsia,
Zhytomyr, Kirovohrad oblasts) in recent years: the positive net inflow of foreign
direct investment (against the backdrop of negative rate in Ukraine as a whole) and
substantial increase in foreign investment in manufacturing, in particular, processing
industry (against the backdrop of lower investment in agriculture) [19]. It is worth
emphasizing that at the current stage, economic growth in these regions has not
transformed into positive social effects: employment and income level remain lower
here than average national rates, same as the parameters’ growth paces.
The dynamics of interregional imbalances by main economic parameters is one
of the criteria for the efficiency of regional development processes. Being a quite
large country by area, Ukraine has always been characterized by significant
interregional imbalances of regional economic capacities. The analysis of
asymmetries shows the increasing interregional differentiation from 2.7 % of annual
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average growth by foreign direct investment (equity) per capita in the analyzed
period to 34.0 % by capital investment per capita.
The economic behavior of Ukrainian regions and their resilience in the 2014–
2015 and 2020 crises will be analyzed in detail as they had a very spatially
heterogeneous impact on regional economic dynamics. The comparison of GRP
growth dynamics in these periods (Figure 6) proves that different regions showed
different dynamics due to the different nature of these crises.
(a)
(b)
Figure 6. Comparison of GRP growth paces in crisis periods: 2014–2015 (a)
and 2020 (b)
Source: calculated by the authors based on the data from http://www.ukrstat.gov.ua.
The 2014–2015 crisis turned out to be the most difficult for regions that border
Russian Federation and those traditionally oriented on Russian Federation in external
trade. Meanwhile, western and central oblasts felt the crisis impact much less. Yet,
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the destructive impact of the crisis has resulted in a significant outflow of labor and
financial capital, physical destruction of production and social infrastructure in some
regions (that border with Russia), and a growing demographic burden in other
Ukrainian regions.
General economic destabilization in Ukraine and the world in 2020, suspension
of operations of some industries and companies, and declining mobility of the
population and businesses caused the GDP decline in Ukraine by 4 %. Economic
growth of regions in 2020 compared to the previous year was characterized by
positive dynamics of retail turnover despite the quarantine restrictions in retail trade
and negative dynamics of real wages, unemployment, industrial and agricultural
output. At the same time, Ukrainian regions demonstrated quite heterogeneous and
sometimes contradictory trends.
The 2020 crisis had completely different origins. The western regions of
Ukraine were the first to face restrictions as the pandemic had reached them first and
the number of patients was growing the fastest in the first-second quarter of 2020.
Yet, it is worth mentioning that Lviv oblast was one of three regions (along with
Sumy and Luhansk) demonstrating positive economic growth paces in 2020.
Interestingly, such leaders by economic and, in particular, industrial capacity as
Dnipropetrovsk and Kharkiv oblasts have turned out to be very vulnerable in
economic crises.
The analysis of economic development trends in Ukrainian regions in
coronavirus crisis shows that the impact of the COVID-19 is territorially
differentiated and its various risks are largely stipulated by objective economic and
spatial features of regional development. Different regions demonstrate differentiated
resilience levels in crises caused by objective and subjective factors. Meanwhile,
there are no reasons to speak about the higher resilience level of economically more
powerful regions.
The creation of a favorable business climate as an unconditional precondition
for ensuring the resilient economic growth of the country and its regions has been
among the priorities in the 30 years of Ukraine’s development as an independent
country. Most of the reforms permanently implemented in the country are directed at
the achievement of this goal. The general dynamics of Ukraine’s position in global
economic rankings
1
shows that the reforms implemented in Ukraine have already
largely resulted in an improved business climate in the country. Yet, the achieved
results haven’t converted into consistent dynamics of economic growth and an
increasing level of Ukraine’s competitiveness in the global economy. Therefore, it is
early to talk about the efficiency of these reforms and the creation of an environment
in Ukraine that would promote to entrepreneurship and investment inflow in the
economy. Main problems in development of entrepreneurial environment include low
level of economic entities’ intellectual property and assets protection, inefficient
1
Doing Business, Economic Freedom Index, The Global Competitiveness Index [19; 20; 21].
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judicial system in Ukraine, low financial and investment freedom of business, lack of
access to credit resources to launch and conduct the entrepreneurial activity, etc. It
has led to the loss of industrial and energy capacity, low level of infrastructure
development, low labor productivity, and extremely low efficiency of most economic
and political institutes.
To detect regional peculiarities of the quality of the business environment in
Ukraine, we use the results of the research conducted by the Better Regulation
Delivery Office
2
titled Regional Doing Business, which shows the study of doing
business conditions in regions and cities of Ukraine. The Regional Doing Business
rankings
3
are calculated as a total of points the regions get by six components:
starting a business, paying local taxes, registering a land plot, getting electricity,
dealing with construction permits, and e-services
4
. The evaluation was conducted
following the adapted methodology of the World Bank based on the survey of
entrepreneurs from all regions of Ukraine [21].
The analysis of Regional Doing Business – 2020 components (Table 1)
demonstrates the positive changes in all regions of Ukraine by registering a company
(from 64 to 80 points of 100 possible) and registering a land plot and getting
electricity (yet, with regard to the last two components, entrepreneurs in a range of
regions do not see the problems in these domains). The most difficult situation in the
regions is with paying local taxes and e-services. Entrepreneurs in almost every
region marked the functioning of these domains as unsatisfactory. The “Payment of
local taxes” component measures the burden on businesses from local taxes and the
transparency of data on these taxes (information on the websites of local councils).
Entrepreneurs’ rating of this component as unsatisfactory may indicate that local
councils are trying to set maximum local tax rates to fill local budgets, which affects
the local business climate.
It is worth assessing the relationship between the quality of business
environment in Ukrainian regions and GRP growth paces as the resulting indicator of
economic activity. The assessment (Figure 7) allocates four groups of regions:
- high GRP growth paces – high business environment quality (H – H). The
group includes the leaders by growth paces – Zhytomyr, Vinnytsia, Volyn oblasts,
Kyiv, etc. It shows that their development is accompanied by improved local business
climate (or vice versa, favorable business climate secures higher annual average
economic growth paces of these regions). However, there are only 8 such regions! It
is worth mentioning that most of them have improved their positions compared to
2018;
- high GRP growth paces – low business environment quality (H – L). The group
of regions is the most numerous. The positive growth paces in the oblasts of the
2
Better Regulation Delivery Office – an independent expert and analytical center funded by international
donors, in the first place, European Union under the FORBIZ project and EU4Business initiative.
3
Doing Business Regional 2020. https://rdb.brdo.com.ua.
4
A region can score maximum of 100 points by each component. So, the maximum possible number of points is 600.
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group are by no means ensured by an improved entrepreneurial environment.
Moreover, most regions in the group are outsiders by its quality and the loss of
positions in the rankings; Table 1
Rankings of Ukrainian regions by Regional Doing Business–2020
Rankings
Region
Dynamics
2020 to
2018*
Total
points
Starting a
business
Dealing
with
construction
permits
Registering
a land plot
Getting
electricity
Paying
local
taxes
Е-
services
1
Zhytomyr
2
356
79
51
73
75
50
28
2
Chernihiv
4
348
75
74
75
51
41
32
3
Kyiv
1
341
77
64
68
46
39
47
4
Rivne
3
340
76
61
44
66
61
32
5
Ivano-Frankivsk
-4
338
80
55
63
67
32
41
6
Vinnytsia
-4
338
71
64
70
63
41
29
7
Volyn
1
335
75
63
59
71
44
23
8
Lviv
-3
331
73
58
63
60
36
41
9
Dnipropetrovsk
3
330
73
58
68
52
30
49
10
Donetsk
-1
329
76
56
57
61
53
26
11
Sumy
4
328
74
50
79
53
40
32
12
Poltava
1
326
78
47
68
70
40
23
13-
14
Zaporizhzhia
10
325
76
53
64
55
36
41
Ternopil
-2
325
74
46
40
74
45
46
15
Kirovohrad
-5
323
68
54
58
65
49
29
16
Zakarpattia
3
321
79
54
48
64
44
32
17
Cherkasy
0
320
64
64
75
52
42
23
18
Odesa
4
317
77
56
58
51
46
29
19
Chernivtsi
6
316
82
46
77
43
42
26
20-
21
Kyiv
-1
314
68
52
63
54
36
41
Luhansk
3
314
78
44
77
51
32
32
22
Kharkiv
-1
313
68
52
59
54
45
35
23
Kherson
-5
310
72
57
47
57
42
35
24
Khmelnytskyi
-8
304
66
40
48
59
44
47
25
Mykolaiv
-11
303
66
53
58
56
38
32
Source: developed based on Regional Doing Business – 2020, https://rdb.brdo.com.ua.
- low GRP growth paces – high business environment quality (L – H). The
analysis shows that the group includes only 1 oblast – Dnipropetrovsk. In 2020,
Dnipropetrovsk oblast was ranked 9th by the ease of doing business, having improved
its rank by 3 positions. Therefore, the region is gradually creating a favorable
business environment by developing small and medium businesses but currently,
their activity does not allow covering industrial capacity losses;
- low GRP growth paces – low business environment quality (L – L). The group
includes three leaders by economic capacity – Zaporizhzhia, Poltava and Kharkiv
oblasts. Their economies have been characterized by the loss of positions in the last
decade. Meanwhile, low positions by the quality of business environment show that
these regions used to be oriented on large companies of the industrial sector and
haven’t managed to reorient on the support of business and entrepreneurship activity
stimulation. Yet, it is worth emphasizing the positive dynamics of improving the
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quality of the business environment in Zaporizhzhia oblast. It contributed to the rise
in the rankings by 10 positions in 2020.
В – В
В – Н
Н – В
Н – Н
Figure 7. Dependence between GRP growth paces and the quality of business
environment in Ukrainian regions
Source: calculated by the authors based on the data http://www.ukrstat.gov.ua.
The economic theory defines a wide range of indicators of the business
environment efficiency as the key precondition of ensuring economic growth, a
substantial share of which are interrelated. The national expenditures as a percentage
of the country’s GDP constitute one of the most comprehensive indicators that allow
evaluating the share of economy redistributed through the state budget. The higher is
the share, the higher is the level of government intervention in businesses.
Meanwhile, the optimal values of the indicator that secure the best economic growth
are determined for different groups. Taking into account the level of the institutional
environment development in Ukraine, 0.33–0.35 are the values of national
expenditures to the country’s GDP ratio recommended for our country [24]. Although
the level of the indicator has reduced about 50 % of the 2014 GDP to approximately
40 % of 2019 (and increased in the crisis 2020) in recent years in Ukraine, it is still
far from optimal values.
The level of the shadow economy is an equally important indicator of the quality
of the business environment. Shadow economy, including the VAT minimization
schemes, grey import, smuggling, the schemes of non-payment of taxes when
exploiting agricultural lands, etc., significantly distort competition and lead to
shortfalls in the revenues to the state budget of 250–300 billion UAH a year [25].
Moreover, the poor entrepreneurial climate has already caused the monopolization of
entire sectors of the Ukrainian economy, creating threats for economic growth of the
country and its regions. It is possible due to inefficient policy in this direction. The
government has moved away from the problems of economic monopolization and
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evaluation of the impact some monopolies have on the country’s security.
Furthermore, the share of governmental banks that dominate in the banking sector
with a share of over 50 % has been growing lately.
Negative regional development trends in instability caused by the coronavirus
are accompanied by the deteriorating business climate in the regions and unstable
entrepreneurship activity. The main trends affecting economic growth of the regions
include falling economic activity of businesses, intensification of tax avoidance in a
large business, growing institutional turbulence of business climate, growing volumes
of paid personal income tax and single tax under conditions of falling business
income, foreign investment outflow, the decline in official and unofficial
employment, and growing national expenditures to GDP ratio, which shows the
increase in regulatory government intervention in the economy.
Conclusions. The conclusions give the ground to speak about the development
of a new regional development model in Ukraine, which is defined by the following
trends and risks:
- regional transformation of Ukrainian economy: regions traditionally
concentrating the industrial capacity and producing more than a third part of the
country’s GRP have turned out to be on the sidelines of competition – Donetsk and
Luhansk oblasts due to the loss of a substantial share of their territories in the course
of Russian military aggression and Dnipropetrovsk (-10 %), Kharkiv (-4 %), and
Zaporizhzhia (-3 %) oblasts due to the gradual loss of industrial competitiveness and
inability to develop the favorable business environment. Meanwhile, the new leaders
have emerged (by the economic capacity growth paces) – Zhytomyr (+35% in the last
decade), Vinnytsia (+32%), Kirovohrad (+21%), and Ternopil (+23%) oblasts, which
are growing due to agricultural development. It generates the risk of growing
misbalances in the economic development of Ukrainian regions and requires the
development of new approaches to their regulation;
- interregional comparisons of the business environment condition and economic
growth of Ukrainian regions show that the regions leading by economic growth paces
are characterized by the comparatively higher quality of business climate. Moreover,
they have lately improved their positions in regional doing business rankings.
Meanwhile, the most numerous group of Ukrainian regions managing to keep the
positive growth paces are the outsiders by both the business climate quality and the
loss of ranking positions. The most complicated is the situation with industrial
regions like Zaporizhzhia, Poltava and Kharkiv oblasts. Therefore, the regions that
used to be oriented on large enterprises of the industrial sector have not managed to
reorient themselves on the support of entrepreneurship and stimulation of business
activity. Zaporizhzhia and Dnipropetrovsk oblasts have substantially improved their
positions in the rankings;
- the 2020 economic crisis caused by the expansion of the coronavirus
pandemics became another blow (after the 2008–2009 and 2014–2015 crises) for
Ukraine’s economic system, which has been demonstrating the clear orientation on
deindustrialization, production and export of the low-margin agricultural output, and
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loss of technological and innovative capacity in the last decade. Ukrainian regions are
hardly developing according to the recognized global development principles. Their
economic success is ensured by orientation on the agricultural output (usually with
low value added) rather than technology-intensive economic activities and dynamic
innovative activity. These conditions are supplemented by a delay in the
implementation of radical reforms (namely, regarding the of intellectual property and
assets protection, inefficient judicial system in Ukraine, growing level of financial
and investment freedom of business and access to credit resources to launch and
conduct the entrepreneurial activity, etc.) directed at the development of a qualitative
institutional environment for business make the risk of further loss of economic
capacity to achieve sustainable growth by Ukraine and its regions increasingly
relevant.
The creation of a new model of economic development in Ukraine, based on
endogenous development mechanisms and territorial capital, may be the answer to
these trends and challenges. The pillars of this approach are creativity and
entrepreneurship, intellectual and relational capital, territorial ties and identity. The
crux is to harness the wealth and diversity of unique factors that are the basis for
building a regional environment of innovation and entrepreneurship and territorially
embedded smart specializations. A key challenge in this approach is to awaken the
‘dormant’ potential inherent in local and regional communities and create new
economic value [26]. In endogenous development, external financial resources and
the development of ‘hard’ (technical) infrastructure are important, but at the same
time insufficient to unlock the dynamics of sustainable economic development. The
success factor is the use of intangible resources and the mobilization of synergy
mechanisms in regional development processes.
The diagnosed trends and threats call for a new regional policy model and
updated set of tools to provide the economic development of Ukrainian regions to
improve financial-economic resilience under conditions of modern turbulence. This
model should be based on strong self-governance and financial self-reliance and a
bottom-up and community-based approach. It should be based on regional
partnership and co-management, on the one hand, and the co-responsibility of self-
governing communities for the development of their own region, on the other.
The first step in this direction was taken with the territorial-administrative
reform of the country in 2020. It reinvigorated thinking about regional ‘small
homelands’ and gave impetus to the creation of new development capacities of
Ukrainian regions. This bottom-up model of development and regional policy-
making appears to be a promising approach for Ukraine, tested in the regional
economic transformation of the Central and Eastern European countries – Member
States of the European Union.
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Citation:
Стиль – ДСТУ:
Storonyanska I., Nowakowska A., Benovska L., Dub A. Imbalances and risks of
the regional development of Ukraine’s economy under conditions of instability.
Agricultural and Resource Economics. 2022. Vol. 8. No. 3. Pp. 81–97.
https://doi.org/10.51599/are.2022.08.03.05.
Style – APA:
Storonyanska, I., Nowakowska, A., Benovska, L., & Dub, A. (2022).
Imbalances and risks of the regional development of Ukraine’s economy under
conditions of instability. Agricultural and Resource Economics, 8(3), 81–97.
https://doi.org/10.51599/are.2022.08.03.05.
