Exports from Ukraine to the European Union
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EXPORTS FROM UKRAINE TO THE EUROPEAN UNION: MACRO-, MICRO- AND POLITICAL ECONOMY DETERMINANTS by EVGHENIA SLEPTSOVA A thesis submitted to the University of Birmingham for the degree of DOCTOR OF PHILOSOPHY Centre for Russian and East European Studies School of Social Sciences The University of Birmingham November 2010 University of Birmingham Research Archive e-theses repository This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder. ABSTRACT This thesis deals with the exporting performance of Ukraine. Focusing on the reorientation of merchandise exports, both in terms of geography – from East to West – and in terms of commodity composition, it explores the multi-level determinants of the observed picture. While until 2003-2004 reorientation from East to West appeared to be a steady trend, in 2005 this trend reversed and CIS re-emerged as a leading destination market for Ukraine’s exports. The commodity composition in trade with the EU has also hardly improved, and was more positive in trade with the CIS. Marginal improvements were observed on a more disaggregated level. These findings were confirmed in the macro-level analysis – Ukraine tends to under-trade with the external trade blocs – EU-15 and the then CEFTA, and over-trade with the internal trade bloc of CIS. On a micro-level, the analysis has not revealed that trade with the EU has been associated with firm-level industrial upgrading, although FDI does increase the likelihood to export to the EU. Trade with the CIS has been associated with higher commodity diversification, which in turn is known to be associated with higher growth potential. On the level of policy lobbying, on the other hand, business elites have shown an increasing interest in the Western vector of integration. ii This thesis is dedicated to my parents, Tamara and Viktor for their endless love and support iii ACKNOWLEDGMENTS I am indebted to many people for their invaluable help and support during my work on this thesis, and one page would not suffice to list them all, but some people I will always remember as an integral part of this challenging process. First of all, I thank my supervisors, Julian Cooper and Kataryna Wolczuk, for constant guidance, and support, both academic and moral, for their understanding, encouragement and flexibility. Also the staff of the Institute for Economic Research and Policy Consulting in Kiev, Ukraine, for hosting me during two field trips in 2006 and 2007, and for being an amazing team to work with. I am especially grateful to Ihor Burakovsky and Veronika Movchan for their useful critical comments to my work, numerous useful contacts, and to Veronika for continual support throughout all these years. Tomek Mickiewicz played an important role in inspiring my interest and passion to study the economic transformation in Eastern Europe during my MA course, and I am very thankful to him for his support during the PhD. I owe a huge amount to my colleagues at John Howell and Co., especially John Howell himself, Paul Domjan and Nick Dove, for their everyday moral and professional support, encouragement and understanding, and for an extended leave of absence, which made the completion of the PhD possible. I also would not have done it without my dearest friends and fellow PhD students, Alexandra and Kathryn, for always being with me, in the moments of happiness, excitement, intellectual crisis or frustration alike. I am grateful to David Brown and Vladimir Vakhitov for sharing with me the otherwise unavailable firm-level data, collected with the support of the European Commission project on the Economic and Social Consequences of Industrial Restructuring in Russia and Ukraine. This thesis would also not have been possible without the generous support from the Dorothy Hodgkin Postgraduate Award, and I am deeply thankful to the co-funders of the scheme – Economic and Social Research Council and British Petroleum, and to the University of Birmingham for nominating me. Fieldwork research in Ukraine in the summer of 2007 was also made possible by a UACES scholarship. Last, but by no means the least, all my love and gratitude to my parents, for the support which only parents can give. iv Contents CHAPTER 1. INTRODUCTION 1 1.1. Research context 1 1.2. Institutional background to Ukraine’s economic relations with the CIS and the EU 4 1.2.1. Ukraine-CIS 4 1.2.2. Ukraine-EU 6 1.3. Review of the relevant literature 12 1.4. Approach in this thesis 15 1.5. Methodology 16 CHAPTER 2. CONCEPTUAL FRAMEWORK 21 2.1. Introduction 21 2.2. Theoretical background 22 2.2.1. Why focus on exports? 22 2.2.2. Exports of what? 23 2.2.3. South-North or South-South? 26 2.3. Empirical framework 32 2.3.1. Dependent variable: Exports to the EU versus exports to the CIS 34 2.3.2. Macro-level determinants 35 2.3.3. Micro- (firm-) level determinants 36 2.3.4. Role of business elites in the EU-Ukraine trade policy-making 37 CHAPTER 3. POLITICAL ECONOMY OF UKRAINIAN TRADE LIBERALISATION AND EVOLUTION OF TRADE PATTERNS 39 3.1. Introduction 39 3.2. Trade liberalisation and the evolving geographic composition of exports 40 3.2.1. The dissolution of the USSR and adjusting to a market economy 40 3.2.2. 2000s - Delayed reforms and recovery of exports and growth 49 3.2.3. Orange Revolution and its aftermath 52 3.3. Commodity composition of trade 54 3.3.1. General commodity composition 54 3.3.2. Commodity composition by destination markets 60 3.3.2.1. Top markets and products 63 3.3.2.2. Commodity diversification by destination markets 65 3.3.2.3. Sectoral dimension 67 3.3.2.4. What happened in 2005? 69 3.4. Conclusion 75 CHAPTER 4. FACTOR CONTENT AND THE REVEALED COMPARATIVE ADVANTAGE OF UKRAINIAN EXPORTS 77 4.1. Introduction 77 4.2. Factor content of exports to the EU-27 and Russia 77 4.3. Revealed comparative advantage 84 v 4.4. Conclusion 93 CHAPTER 5. MACRO-LEVEL DETERMINANTS OF UKRAINIAN EXPORTS IN 1996-2004: STEEL MATTERS 96 5.1. Introduction 96 5.2. Background information 97 5.3. Theoretical approach and the model 103 5.4. The data 109 5.5. Discussion of the results 110 5.6. Conclusion 117 CHAPTER 6. MICRO-LEVEL DETERMINANTS OF THE UKRAINIAN EXPORTS: FIRM-LEVEL EVIDENCE FOR 2000-2006 123 6.1. Introduction 123 6.2. Literature review 125 6.2.1. Internationalisation 125 6.2.2. Destination-specific internationalisation 129 6.3. Empirical analysis: general hypotheses 130 6.4. Empirical analysis: Internationalisation of Ukrainian enterprises 132 6.4.1. Data description and stylised facts about exporters 132 6.4.2. Model description 134 6.4.3. Results 135 6.5. Empirical analysis: Trade reorientation model 137 6.5.1. Data description 137 6.5.2. Model description 138 6.5.3. Results 140 6.5.4. Trade reorientation model: Findings and conclusions 150 6.6. Conclusion 152 CHAPTER 7. THE ROLE OF BUSINESS ELITES IN THE EU-UKRAINE TRADE POLICY-MAKING: POLITICAL ECONOMY FRAMEWORK 154 7.1. Introduction 154 7.2. Business mobilisation and trade policy-making: theoretical approach 156 7.2.1. Identifying the stakes: economic factors 156 7.2.2. Costs of mobilising: collective action costs and political institutions 159 7.3. Trade liberalisation in Ukraine and the conceptual framework of business mobilisation 162 7.4. Trade policy and lobbying in Ukraine: Economic dimension 166 7.4.1. Asymmetrical and incomplete information 166 7.4.2. Economic factors 167 7.4.3. Potential losers and winners of trade liberalisation 170 7.4.4. Economic factors and mobilisation with regard to WTO accession 173 7.4.5. Economic factors and mobilisation with regard to the EU-Ukraine trade 176 7.4.6. Structural economic factors as a ‘push’ factor for mobilisation 178 vi 7.5. Trade policy and lobbying in Ukraine: Collective action costs and political institutions 184 7.5.1. Nature of the policy question and collective action costs 184 7.5.2. Formal and informal institutions and business-government relations 186 7.5.3. Mobilisation with regard to the EU integration 189 7.6. Conclusion 192 CHAPTER 8. CONCLUDING REMARKS AND AVENUES FOR FURTHER RESEARCH 194 8.1. Findings of the empirical analysis 194 8.2. Interpretation of the findings within a wider conceptual framework 200 8.3. Reservations about the analysis and avenues for further research 203 vii List of Figures Figure 1. Conceptual framework of the thesis 33 Figure 2. Evolution of Ukrainian trade and GDP growth, 1990-2008 44 Figure 3. Geographic distribution of Ukrainian imports and exports, % of total 45 Figure 4. Steel trade of Newly Independent States 1985-2005, million tonnes 47 Figure 5. Relationship between the evolution of Ukrainian exports, GDP growth and global steel prices 49 Figure 6. Evolution of steel and non-steel exports, 1996-2008, US$ billion 50 Figure 7. Share of steel and non-steel exports in total Ukraine’s exports, 1996-2008, % 51 Figure 8. Geographic distribution of Ukrainian exports by regions, % of total exports 54 Figure 9. Resource-intensive versus other sectors in Ukrainian exports, 1996-2008, % of total 55 Figure 10.