Friday, November 27, 2009

Ukraine is being lost in transition: should it stay, or should it go?

Ukraine is currently in a very awkward position of moving away from CIS (or rather Russia, Belarus, and Kazakhstan emerging trade bloc), but not getting closer to the EU. My new research paper shows that any integration strategy -- CIS oriented or EU oriented -- would be better than the current status of being lost in transition. Here is the graph that demonstrate actual vs predicted aggregate trade under the EU and CIS integration scenarios:




By distancing itself away from Moscow, Ukraine is losing its current trading partners in traditional goods that it exports. By not integrating with EU it is losing in two different ways: its old trading partners from new EU member-states (trade diversion effect) and is finding it more difficult to attract FDI, create competitive products in manufacturing sector, promote its production in the EU market (losing possibility for expansion of manufactured exports and probably agricultural products).
Here is the graph that shows the gains in exports of Ukraine in 4 large groups of products from chosing EU integration rather than CIS integration:

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