Foreign Trade Effects on Regional Growth in Ukraine

The effects of foreign trade in general and foreign output in particular upon regional growth in Ukraine are estimated with the dynamic Arellano-Bond estimator. An annual dataset of the 2002–2017 period is used. It has been found that regional growth in Ukraine benefits from gross domestic product (GDP) growth in the Eurozone and Russia, while foreign output effects are negative in the case of Central and Eastern European countries (the Czech Republic, Hungary, Poland, Romania, Slovakia). As expected, higher investments in physical capital positively influence both regional output and exports, while contributing to a decrease in imports. Both regional exports and imports bring about a higher rate of regional growth, being related to foreign output in the same fashion as regional output. Although both exports and imports are factors behind a higher rate of regional growth, the reverse causality seems to be rather weak. Regional foreign trade is negatively correlated with the distance from the Western border of Ukraine. If account for both current and lagged effects is taken, there appears a weak expansionary effect of the exchange rate depreciation on regional growth, with a decrease in exports and higher imports as well. ... mehrEconomic conditions of the Ukraine’s Eastern regions are inferior to regional growth and foreign trade. Somewhat counterintuitively, the crisis developments of 2009 are found to be at least neutral with respect to regional growth, with a clear stimulating effect on exports and imports.