Presentation delivered by prof. Oleh Havrylyshyn during 135th mBank-CASE Seminar "A quarter century of economic reforms in Ukraine: too late, too slow, too little" (18.12.2014) See more on our website: http://www.case-research.eu/en/node/58765

1. mBank – CASE Seminars
A QUARTER CENTURY
OF ECONOMIC REFORM IN UKRAINE:
TOO LATE, TOO LITTLE, TOO SLOW
18th December 2014

2. OUTLINE
I. INTRODUCTION AND MOTIVATION
II. THE “INPUTS” OF TRANSITION
III. REFORMS, POLICY CHANGES
IV. THE “OUTPUTS” OF TRANSITION:
ECONOMIC AND SOCIAL PERFORMANCE
V. EXPLAINING URAINE’S LAG
VI. CONCLUSIONS
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3. I. INTRODUCTION AND MOTIVATION
WELL-KNOWN FACT THAT UKRAINE LAGGED FAR BEHIND POLAND
AND CEB
1ST AIM OF PAPER: TO DESCRIBE THE LAG, BOTH ON REFORMS (SEC.II)
AND ON PERFORMANCE (SEC.III)
2ND AIM OF PAPER: TO INVESTIGATE CAUSES OF THE LAG (SEC.IV)
WHY REFORMS DEALYED, SLOW?
CORREALTIONS POINTING A THYPOTHEISI THAT DEALY IN EARLY YEARS
BY ITSELF IMPORTANT EXPLANATION OF 25 yr. PERFORMANCE
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4. FIGURE 1
TRANSITION PROGRESS INDEX (TPI) –EBRD
4

5. FIGURE 2
SEQUENCE OF REFORMS
5

6. 6
FIGURE 3
INSTITUTIONAL ENVIRONMENT AMONG
WORST
Business Environment
Latvia
Georgia
Ukraine
Lithuania
Armenia
Azerbaijan
Poland
Moldova
Russia
-200 -150 -100 -50 0 50 100 150 200
Ease of Doing Business 2011 (country ranking)
Index of Economic Freedom 2012 (country ranking)
50100150200
Source: World Bank and Heritage Foundation.
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7. 7
FIGURE 4
CORRUPTPTION RANKING AMONG WORST
0
20
40
60
80
100
120
140
160
U
kraine
Russia
Belarus
K
azakhstan
Serbia
Latvia
Turkey
H
ungary
Poland
Source: Transparency International.2012
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8. FIGURE 5
EXEPTION, DEMOCRACY IN UKRAINE,
ONE OF BEST IN FSU
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9. III. ECONOMIC PERFORMANCE:
FIGURE 6
GDPpc $US
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10. CUMULATIVE FDI PER CAPITA TO 2012
ESTONIA… 11,177
CE.AVER… 5,671
POLAND… 4,334
ROMANIA 3,534
GEORGIA 2,224
FSUREF.AVER 1,878
UKRAINE 1,469
UZBEKISTAN 264
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11. FIGURE 7
HUMAN DEVELOPMENT INDEX
FOR SELECTED COUNTRY GROUPS
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12. …BUT STILL BETTER THAN IN SOVIET
PERIOD
DESPITE LAGGING BEHIND CEB COUNTRIES, UKRAINE
HAS PROGRESSED SIGNIFICANTLY FROM SOVIET TIMES
STANDARD OF LIVING IS HIGHER BY MOST DIRECT MEASURES
OTHER THAN “OFFICIAL’’ GDP COMPARSIONS
(AS IN EBRD REPORTS)
BUT THESE ARE HIGHLY FLAWED, NMP BY FAR OVERESTIMATED REAL
PRODUCTION AND CONSUMPTION
GLOBALISATION HAS GONE VERY FAR FROM AUTARKIC TRADE
OF SOVIET TIMES; EXPORTS TO RUSSIA (25 %),
EU (30%) ABOUT WHAT GRAVITY MODELS PREDICT
UKRAINE AND UKRAINIANS WIDELY RECOGNISED IN WORLD,
AND AS DIFFERENT FROM RUSSIA
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13. UKRAINE REFORM DELAYS AND FAUSTIAN
BARGAIN
RUKH AGREES FORMER COMUNISTS(KRAVCHUK) CAN GOVERN,
DO ECONOMIC POLICIES, LATTER PROMISE TO SUPPORT
INDEPENDENCE
INTEREST OF FORMER COMM. NOT QUICK REFORM, BUT DELAY, GIVE
TIME TO BECOME NEW CAPITALISTS
INDEPENDENCE PROMISE KEPT AT COST OF SLOW REFORMS,
START OF OLIGARCH CLASS, WANTS PRIVATE OWNERSHIP,
BUT NOT COMPETITIVE MARKET
ONLY ONE OF ADAM SMITH’S INVISIBLE HANDS INSUFFICIENT
TO PROMOTE PROSPERITY
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14. OLS REGRESSIONS:
25YRS GDP x TPILIB 1st 4URS
14
0
0,5
1
1,5
2
2,5
3
0 0,5 1 1,5 2 2,5 3 3,5
ΔGDPl
ΔLIBs

15. TOWARDS A REFORM COMMITMENT MODEL
TRANSITION GROWTH LITERATURE LEAVES MANY OPEN QUESTIONS,
DEBATE ON BB-INST CONTINUES
UKRAINE STORY HIGHLIGHT IMPORTANCE OF INCORPORATING DEGREE
OF COMMITMENT TO REFORMS IN SOCIETY, BY LEADERS – CANNOT
ASSUME STANDARD WELFARE THEORY THAT POLITICIANS WORK
FOR PUBLIC GOOD
UKR STORY AND POLISCI LIT GIVES THE HINT: FIND A WAY OF
PROXYING COMITMMENT, USE IV TECHNIQUES, SIMULTANEITY
ONE POSSIBILITY: A GOV THAT MOVES FAST ON STABILIZATION IS
COMMITED TO LIBERALISATION AND TO INSTITUTIONS
A MODEL WITH COMMITMENT NEEDS TO BE DEVELOPED
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16. CONCLUSIONS 1
UKR. REFORM DELAY REFLECTS SELF – INTEREST
OF NON-LUSTRATED FORMER COMMUNIST NOMEKLATURA
 PUBLIC REASONS GIVEN:
WE DON’T KNOW HOW
SHOCK THERAPY WILL BE TOO PAINFUL
POPULATION NOT READY FOR MARKET
NEED TIME TO BUILD INSTITUTIONS
SINCERITY OF ABOVE VERY QUESTIONABLE, ESP. SINCE
INSTITUIONS MOVED EVEN MORE SLOWLY THAN LIBERALISATION
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17. CONCLUSIONS 2
CASUAL EMPIRICISM (VARIOUS CHARTS SHOWN) POINTS VERY
STRONGLY AT CORRELATION BETWEEN EARLY JUMP IN LIBERALISATION
AND LONG-TERM PERFORMANCE
CONFIRMED BY CRUDE OLS REGRESSIONS BUT MUCH TOO WEAK
TO BE CONVINCING
AFTER 25 YEARS HUGE AMOUNT OF DATA SHOULD ALLOW
A MUCH MORE SOPHISTICATED TRANSITION MODEL WITH MANY
VARIABLES-INCLUDING ONE TO CAPTURE POLITICS OF REFORM
COMMITMENT-SIMULTANEITY, AND ADVANCE ECONOMETRIC
TECHNIQUES
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18. DZYNKUE, BARDZO…
&
WISH
UKRAINIANS
SHCHASLYVO !
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