The Evolution of Ukrainian Economy: New Trade Theory Evidence

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 and intra-industry trade flows 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.