Regions in Transition: Ukraine, 2003

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Chapter in Frank Eckardt, Dieter Hassenpflug (Eds.) (2005) Paths of Urban Transformation. Nr. 5 der Reihe The European City in Transition , Peter Lang Verlag
    Olga Mrinska (2005)  Regions in transition: New Roles in a Global Economy. Case of Ukraine , in Frank Eckardt, Dieter Hassenpflug (Eds.)  Paths of Urban Transformation . Nr. 5der Reihe The European City in Transition , pp157-173, Peter Lang Verlag, Frankfurtam Main REGIONS IN TRANSITION: NEW ROLES IN A GLOBAL ECONOMY.THE CASE OF UKRAINE Olga Mrinska Kyiv National Taras Shevchenko UniversityGeographical Faculty, Department of Social and Economic GeographyDFID Ukraine,  Abstract This paper aims to show the differences in the development of Ukrainianregions: why some regions have managed to find a suitable position in both thenational and international economy and why others are finding it difficult topreserve or strengthen their competitiveness. It will analyse not only developmenttrends in national and regional economies, but also the impact of the demographicsituation and the strength of social capital on the dynamics of regional disparities.Structural changes during the transition to a market economy will be analysed as a factor that influences how different regions develop ‘with different velocities’ and affects their relative competitiveness on national and international markets. Ukraine Regional development Regional disparities CompetitivenessStructural changes Transition economy Introduction Every country in Central and Eastern Europe has experienced differentlevels and types of success over the last fifteen years in their transition to a marketeconomy. This has led to ongoing discussions about the main pre-conditions forsuccess: why does one state quickly attain high international standards, whileanother is left behind, as the map of Europe is being re-drawn? The answers to thisquestion are complex, and it is widely recognised that apart from sound macro-economic and structural policy and changes towards democracy, a country nowneeds many other things in order to become competitive in a modern, globaleconomy, including the right mentality and attitude, an open-minded population,  2 and active public participation in this process. The country’s historical legacy is another factor that can play a positive or negative role.If all this is true at the national level, it is even more obvious at the sub-national level. Whilst this may not be an issue in small European transitioneconomies with more homogenous territorial and demographic patterns, such asthe Baltic States, Slovenia or Slovakia, in bigger countries with a large populationand traditionally diverse territorial regions, development is experienced in different regions ‘with different velocities’. This happens not only because of economic and social reforms, but also the impact of social mobilisation, and wider changes that alter a region’s overall geo -political or geo-economic position. Ukraine provides a good example of this diversified transition to a free market. Ukraine’s pattern of  decline followed by strong economic growth encouraged a situation wherebydevelopment in different regions progressed along very different paths. Thoughback in 1989, Ukraine had one of the highest economic potentials in Europe, it hasbeen ranked as one of the least advanced transition economies in CEE over the lastdecade. However, looking at the dramatic pace of economic development over thepast five years, and the many structural changes which have accompanied thisdevelopment, there are reasons to expect that Ukraine may once again strengthenits position and rebuild this potential.This paper is aimed at showing the diversity in trends of regionaldevelopment in Ukraine: why some regions have managed to find a suitableposition in both the national and international economy and why others are findingit difficult to preserve or strengthen their competitiveness. Economic success isdependent not only on industrial potential, the size of the labour force or thelevel/quality of infrastructure in the region: some of the worst performing regionstoday were formerly among the most industrially powerful territories. Meanwhile,some traditionally peripheral regions with underdeveloped economies and minimalexperience in international economic relations are today among the most well-placed regions in the country, and in Eastern Europe more widely. This relativeadvantage is the result of a change in the type of production (from large-scaleproduction to individually tailored products, from supply-driven to demand-drivenoutput), quality of production, strong human capital, and, most importantly, due to the eastward movement of the EU’s borders. Regional disparities in Ukraine  –  the economic context Ukraine’s quick economic growth over the last five years has significantly accelerated regional differences. This is due both to external factors, such as therapid development of a global innovative economy and fluctuations in internationalmarkets, and to internal factors such as the considerable gap between different regions’ capacity. For example, in 2003, the difference between maximum and  3 minimum levels of FDI attraction to Ukrainian regions was at a factor of 43. Athird of Ukrainian regions each attracted less than 1% of national FDI, while onecity  –  Kyiv  –  managed to attract more than 35%. Regional disparities began toincrease noticeably from 1999, when the national economy entered a period of strong growth (the GDP growth rate constituted 9.2% in 2001, 5.2% in 2002, 9.4%in 2003, and 12.5% in the first 8 months of 2004  –    SSC ). With sustained rapideconomic growth forecast for the next few years, it can be predicted that regionaldisproportions will continue to deepen and that social stratification will increase. Graph 1 Dynamics of some macroeconomic indices -15-10-5051015201997 1998 1999 2000 2001 2002 2003    % GDP Industrial outputAgriculture output Personal income   Source: State Statistics Committee, ICPS, 2004 Ukraine is a very diversified state in ter ms of regions’ natural resource endowment and economic potential, while human capital is distributed quiteevenly. Historical factors have also left a complicated socio-economic patchwork across the country, with different parts of the country demonstrating significantdifferences in national identity, in their general attitudes and mentality, and notleast in their aspirations and preferences in foreign policy. There is a widely recognised approach to regionalisation whereby Ukraine’s 25 oblasts are divide dinto 8 macro-economic regions with significant similarities in economic structureand social portrait ( Table 1 ).  4 Some relative economic indices of Ukrainian regions (in %)Table 1 Macro-region/ OblastTerritory2002Popula-tion2003GVA2002Ind.Output2002Agr.Output2002FDI2003Export2003Ukraine 100 100 100 100 100 100 100Donetsky 8,8 15,1 16,6 28,3 8,4 7,4 27,4 Donetsk 4,4 9,9 12,4 20,6 5,8 6,5 21,5Lugansk 4,4 5,2 4,2 7,7 2,6 0,9 5,9 Carpathian 9,3 12,8 9,0 5,3 11,4 9,0 7,2 Zakarpatska 2,1 2,6 1,6 0,6 2,2 2,7 1,8Ivano-Frankivsk 2,3 2,9 2,2 1,6 2,6 1,4 3,0Lviv 3,6 5,4 4,2 2,7 4,6 4,6 2,1Chernivtsi 1,3 1,9 1,0 0,4 2,0 0,3 0,3 Southern 18,8 15,1 12,9 7,7 15,0 11,3 9,1 ARC 4,5 5,0 3,7 1,8 3,1 3,8 1,6Mykolayv 4,1 2,6 2,3 2,4 3,3 1,1 2,4Odessa 5,5 5,1 5,3 2,6 5,3 5,4 4,5Kherson 4,7 2,4 1,6 0,9 3,3 1,0 0,6 Podilsky 10,1 9,0 5,8 3,7 13,0 2,1 2,4 Vinnytsa 4,4 3,7 2,6 1,8 5,7 1,0 1,4Ternopil 2,3 2,4 1,3 0,6 3,0 0,4 0,3Khmelnitsky 3,4 2,9 1,9 1,3 4,3 0,7 0,7 Polisky 16,9 10,1 6,8 5,0 13,1 4,4 2,6 Volynska 3,3 2,2 1,5 0,8 3,0 1,3 0,9Zhytomyr 5,0 2,9 1,7 1,1 3,3 1,2 0,9Rivne 3,3 2,4 1,7 1,2 3,0 0,8 0,7Chernigiv 5,3 2,6 1,9 1,9 3,8 1,1 1,1 Prydniprovsky 13,9 13,7 14,7 24,7 14,1 16,5 23,5 Dnipropetrovsk 5,3 7,4 8,8 15,7 6,0 9,0 15,6Zaporizhzhia 4,5 4,0 4,2 8,1 3,8 6,6 7,5Kirovograd 4,1 2,3 1,7 0,9 4,3 0,9 0,4 Eastern 13,9 12,1 11,7 13,1 14,4 8,7 8,3 Poltava 4,8 3,4 3,8 4,9 5,0 2,6 4,4Sumy 3,9 2,7 2,1 2,3 3,4 2,1 1,5Kharkiv 5,2 6,0 5,8 5,9 6,0 4,0 2,4 Central 8,3 12,1 22,5 10,5 10,6 40,6 15,1 Kyiv 4,8 9,2 20,6 8,8 6,0 39,1 13,8Cherkasy 3,5 2,9 1,9 1,7 4,6 1,5 1,3 Source: State Statistics Committee (2003); Monitoring of Socio-Economic Development of Ukrainian Regions, the Ministry of Economy and European Integration (2002), own calculations The Donetsky and Prydniprovsky regions are traditional industrial centres of Ukraine with a highly developed heavy industrial sector. The share of industrialoutput in these two regions constitutes 53% of all production, and they nowprovide more than half of national exports and a third of value added. This couldbe explained by the disproportionate structure of national exports, with products
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