The Evolution of Ukrainian Economy: New Trade Theory Evidence

Konchyn, Vadym (2006): 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 trade relations 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. In view of the optimization of their reciprocal demand, advanced industrial countries would try to pull the Ukrainian economy towards European economic area in order to realize their trade and investment interests. FDIs turned Ukraine into an increasingly export-oriented economy due to homogenous products. At the same time, the influence of FDIs on Ukrainian imports of differentiated goods tends to decrease significantly. This means that there still is no effect of increasing complementarity between imports and FDIs, which – under condition of transition – is responsible for structural market changes, saturation of domestic market with differentiated products and as a result for development of intra-industry trade.

• Item Type: MPRA Paper
• Language: English
• Keywords: New Trade Theory; Multinational Corporations; Intra-industry Trade; Internal Increasing Returns to Scale; Trade Structures Homogeneity; Potential Reciprocal Demand; Cross-Border Mergers & Acquisitions; Foreign Direct Investment; Investment and Trade Openness; Single Economic Area; European Union
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P27 - Performance and Prospects; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation

References

Anderson, J. and J. Neary (1996) “A New Approach to Evaluating Trade Policy”, Review of Economic Studies, vol. 63(1), no. 214, pp. 107-125.

Aquino, A. (1978) “Intra-Industry Trade and Inter-Industry Specialization as Concurrent Sources of International Trade in Manufactures”, Weltwirtschaftliches Archiv, vol. 114, pp. 275-296.

Balassa, B. (1986) “Intra-Industry Specialization: A Cross-Country Analysis”, European Economic Review, vol. 30, pp. 27-42.

Bardhan, P. (1995) “The Contributions of Endogenous Growth Theory to the Analysis of Development Problems: An Assessment”, in Behrman, J. and Srinivasan T. N. (eds.), Handbook of Development Economics, Elsevier Science, Amsterdam.

Bergstrand, J. (1989) “The Generalized Gravity Equation, Monopolistic Competition and the Factor-Proportions Theory of International Trade”, Review of Economics and Statistics, vol. 71, pp. 143-153.

Bergstrand, J. (1983) “Measurement and Determinants of Intra-Industry International Trade”, in P.K.M. Tharakan, ed., Intra-Industry Trade: Empirical and Methodological Aspects, North- Holland, Amsterdam.

Bhattacharjea, A. (1995) “Strategic Tariffs and Endogenous Market Structures: Trade and Industrial Policies under Imperfect Competition”, Journal of Development Economics, vol. 47, no. 2, pp. 287-312.

Brainard, S. and D. Martimort (1997) “Strategic Trade Policy with Incompletely Informed Policymakers”, Journal of International Economics, vol. 42, no. 1-2, pp. 33-66.

Brainard, S. (1993) “A Simple Theory of Multinational Corporations and Trade with a Trade-off between Proximity and Concentration”, NBER Working Paper, no 4269.

Brander, J. and B. Spencer (1985) “Export Subsidies and International Market Share Rivalry”, Journal of International Economics, vol. 16, pp. 83–100.

Brander, J. (1995) “Strategic Trade Policy”, in G. Grossman and K. Rogoff (eds.), Handbook of International Economics, Vol. III, North-Holland: Amsterdam, pp. 1395-1455.

Brenton, P., Di Mauro, F. and Lucke, M. (1999) “Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe”, Empirica, (26), pp.95-121.

Carrillo, C. and Li, C.A. (2002) “Trade Blocks and the Gravity Model: Evidence from Latin American Countries”, University of Essex, Discussion Paper.

Coe, D. et al (1995) “North-South R&D Spillovers”, CEPR Discussion Paper, no 1133, Centre for Economic Policy Research, London.

Eaton, J. and G. Grossman (1986) “Optimal Trade and Industrial Policy under Oligopoly”, Quarterly Journal of Economics, 101, pp. 603-607.

Eaton, J. and S. Kortum (2002) “Technology, Geography and Trade”, Econometrica, vol. 70, no. 5 (Sept., 2002), pp. 1741-1779.

Ekholm, K. (1997) “Factor Endowments and the Pattern of Affiliate Production by Multinational Enterprises”, CREDIT Working Paper no. 97/19, University of Nottingham.

Evenett, S. and W. Keller (1998) “On the Theories Explaining the Success of the Gravity Equation”, NBER Working Paper, No. 6529.

Falvey, R. (1981) “Commercial Policy and Intra-Industry Trade”, Journal of International Economics, vol. 11, pp. 495-511.

Feenstra, R., J. Markusen and A. Rose (2001) “Using the Gravity Equation to Differentiate Among Alternative Theories of Trade”, Canadian Journal of Economics, vol. 1, May, pp. 430-447.

Fontagné, L. and Freudenberg, M. (1997) “Intra-Industry Trade: Methodological Issues Reconsidered”, CEPII, document de travel, No. 97-01.

Fritsch, M., Th.Wein, H-J. Ewers (2003) “Marktversagen und Wirtschaftspolitik”, Verlag Franz Vahlen, München, 5.Auflage.

Fuerst, T. and K. Kim (1997) “Two Part Trade Policy under Imperfect Competition”, Review of International Economics, vol. 5, no. 1, pp. 63-71

Grossman, G. and E. Helpman (1991) “Innovation and Growth in the Global Economy”, MIT Press, Cambridge.

Helpman, E. and P. Krugman (1985) “Market Structure and Foreign Trade”, MIT, Press, Cambrige.

Helpman, E. (1998) “The Size of Regions”, in D. Pines, E. Sadka, and I.Zilcha (eds.), Topics in Public Economics: Theoretical and Applied Analysis. (Cambrige: Cambrige University Press).

Hirschman, A. (1958) “The Strategy of Economic Development”, new Haven: Yale University Press.

Ionascu, D. and K. Šigić ( 2001) “Strategic Trade Policy and Mode of Competition: Symmetric. versus Asymmetric Information”, CERGE-EI, Working Paper, no. 174.

Kandogan, Y. (2003) “Intra-industry Trade of Transition Countries: Trends and Determinants”, The William Davidson Institute, University of Michigan Business School, Working Paper, no. 566, May 2003.

Klüver, A. und G. Rübel (1998) “Räumliche Industriekonzentration und die komparativen Vorteile von Ländern - eine empirische Studie der Europäischen Union”, Die Gruppe der volkswirtschaftlichen Professoren der Wirtschaftswissenschaftlichen Fakultät der Universität, Disskussionsbeitrag, Passau, Nr. V-5-98, Passau 1998.

Konchyn V. (2005). “Alternatyvni shlyahy rozvytku mizhnarodnoyi tovarnoyi spetsializatsiyi Ukrainy v contexti yiyi yevropeyskoyi integratsiyi”, in: Zbirnyk naukovyh prats “Svitohospodarski priorytety Ukrainy”, Institut Economicy NAN Ukrainy, Kiev, 2005.

Krugman, P. (1979) “Increasing Returns, Monopolistic Competition, and International Trade”, Journal of International Economics, November 1979, vol. 9, No. 4, pp. 469-479.

Krugman, P. (1985) “Increasing Returns and the Theory of International Trade”, NBER Working Paper, no. 1752, November.

Krugman, P. (1991) “Increasing Returns and Economic Geography”, Journal of Political Economy, University of Chicago Press, vol. 99(3), pp. 483-499.

Krugman, P. and A. Venables (1993) “Integration, Specialization and Adjustment”, CEPR Discussion Papers no. 886.

Leahy, D. and J. Neary (1997) “Public policy towards R&D in oligopolistic industries”, American Economic Review, no. 87, pp. 642-662.

Lee, N. (1992). “Market Structure and Trade in Developing Countries”, in: Helleiner (ed).

Lucas, R. (1988) “On the Mechanics of Economic Development”, Journal of Monetary Economics, no. 22, pp. 3-42.

Markusen, J. (1984) “Multinationals, Multi-plant Economies, and the Gains from Trade”, Journal of International Economics, 16, 3-4, pp. 205-226.

Markusen J. (1998) “Multinational firms, location and trade”, World Economy 21, pp. 737 – 756.

Markusen, J. and A. Venables (1998), "Multinational Firms and the New Trade Theory", Journal of International Economics, 46, 2, pp. 183-203.

Markusen, J. and K. Maskus (1999) “Multinational Firms: Reconciling Theory and Evidence”, National Bureau of Economic Research Working Paper, no. 7163.

Midelfart Knarvik, K-H et al. (2000) “Comparative Advantage and Economic Geography: Estimating the Location of Production in the EU”, CEPR Discussion paper , no. 2618.

Muchielli, J. and B. Burgenmeier (1991) “Multinationals and Europe 1992: Strategies for the future”, London, Routledge, 1991

Myrdal, G. (1957) “Economic Theory and Under-developed Regions”, London, Duckworth, 1957.

Rauch J. (1999) “Networks versus Markets in International Trade”, Journal of International Economics, vol. 48, pp. 7-35.

Redding, S. and A. Venables (2000) “Economic Geography and International Inequality”, CEPR Discussion Paper no. 2568.

Ricci, L. (1996) “Geography and Comparative Advantage”, Sonderforschungsbereich 178 “Internationalisierung der Wirtschaft. Diskussionsbeiträge, Konstanz, Serie II- Nr.321, Oktober.

Ricci, L. (1997) “A Ricardian Model of New Trade and Location Theory”, Journal of Economic Integration, vol. 12 (March), pp. 47–61.

Ruttan, V. (1998) “The new growth theory and development economics: A survey”, Journal of development studies, vol. 35, no. 2, pp. 1-26.

Pissarides, C. (1997) “Learning by Trading and the Returns to Human Capital in Developing Countries”, The World Bank Economic Review, Vol. 11, No. 1, P. 17-21.