The Sources of Economic Growth in Ukraine after 1998 Currency Crisis and the Country's Prospects

The purpose of this study is to analyze the sources of economic growth in Ukraine, which has been observed from the second half of 1999. In addition, we intend to answer the question what is the sustainability of this growth, i.e. putting in other words, what are the chances and conditions for maintaining growth in the future. Neither question is easy to answer. Analyzing sources of growth and growth sustainability in any transition country is a serious intellectual challenge, for a number of reasons. First, we do not have any comprehensive growth theory in transition economies so far. What is available, it is a couple of more or less empirically verified hypotheses concerning the influence of various macro and microeconomic factors on growth performance. Second, statistical data series in transition economies are still rather short and unstable as a result of various methodological changes in statistics and structural and institutional changes in the economy, which makes serious econometric analysis risky. This argument is particularly relevant to the Ukrainian economy, which entered structural and institutional changes with significant delay compared to other countries, and where the quality of statistics is below regional average. Third, most of transition economies, including the Ukrainian one, are open in terms of trade and financial flows. They have thus become sensitive to some external factors such as growth fluctuations in the world economy as a whole, varying conditions of Ukraine’s major trade partners, changing attitudes of financial investors to emerging markets, etc. We have seen that even countries considered as having strong and sustainable growth potential can seriously suffer from adverse external shocks as it happened in 1998-1999 with the Baltic countries and Poland after the Russian and Ukrainian financial crises.