In 2016, after two years of economic downturn, Ukraine's real GDP grew by 2.3%. Some researchers explained the resumed economic growth with an increase in domestic consumer and investment demand. Contrary to these conclusions, the article presents the facts that the growth of the Ukrainian economy began as a result of depreciation under the influence of inflation of the main factors of production, that is, labor, land, and capital.
Reduced cost of their purchase allowed the businessmen, even with reduced output, to receive additional revenues and direct them to increase wages and to finance investment projects. In 2016-2017, the annual growth rate of the Ukrainian economy did not exceed 2.5%.
This limited the government's ability to raise living standards, overcome poverty, and serve and repay the foreign debt. To solve these problems, annual economic growth should exceed 6%. The article provides evidence that cheap domestic production resources are insufficient to speed up Ukraine's economic growth of Ukraine in the future.
In order to initiate such a growth, it is necessary to create a motivational mechanism that would encourage the business to shift from the export of raw materials over their deep processing into new goods and services with greater added value.
The author proposes to create such a mechanism via institutional reforms that would address the three key tasks. They include: redistributing business and state revenues in favor of the households to increase their demand for innovative and/or higher-quality products; increasing the level of non-price competition between the producers of such items; and creating long-term incentives for them to invest in new types of goods and services.
Keywords: economic growth, institutional economic cycle, external debt, devaluation, inflation, economic crisis, economic reforms
1. National Bank of Ukraine (July 2017). Inflation report. Retrieved from
bank.gov.ua/doccatalog/document?id=51889286 [in Ukrainian].
2. Medvedev, A. (2017). Not just trifles. Novoye vremia – New time, 19 (148), 22–25 [in Russian].
3. Pustovojt, O. (2016). The institutional nature of economic cycles. Ukrainian experience. Institute for economics and forecasting, NAS of Ukraine. Kyiv [in Ukrainian].
4. Denison, E.F. (1985). Trends in American economic growth, 1929–1982. Washington, DC: Brookings Institution.
5. Kharazishvili, Yu. On the selection of influence points in the policy of economic growth: an analytical note. The National institute for strategic studies. Retrieved from
www.niss.gov.ua/articles/574/ [in Ukrainian].
6. Betlij, O., Kravchuk, V. (2016). According to forecast, gradual renewal will continue in 2018. Makroekonomichnyj prohnoz Ukrainy – The macroeconomic forecast of Ukraine, 11–12 (110). Retrieved from
www.ier.com.ua/ua/publications/regular_products/forecast?pid=5445 [in Ukrainian].
7. Vynokurov, E., Kulyk, S., Spartak, A., Yurhens, Y. (June 26, 2014). A blind alley in the struggle between the integrations in Europe: a paper (short version). Setevoe izdanie Centra issledovanij i analitiki Fonda istoricheskie perspektivy – A network edition of The Center of Research and Analysis. Historical Perspectives Foundation. Retrieved from
www.perspektivy.info/oykumena/europe/tupik_borby_integracij_v_jevrope_doklad_kratkij_variant_2014-06-26.htm [in Russian].
8. National Bank of Ukraine (2017). Statistics of the Foreign Sector. Retrieved from
bank.gov.ua/control/uk/publish/article?art_id=65613 [in Ukrainian].
9. National Bank of Ukraine (January 2016). Macroeconomic and monetary review. Retrieved from
bank.gov.ua/doccatalog/document?id=26799942 [in Ukrainian].
10. National Bank of Ukraine (September 2015). Inflation report. Retrieved from
bank.gov.ua/doccatalog/document?id=22249640 [in Ukrainian].
11. National Bank of Ukraine (December 2016). Report on financial stability, Vol. 2. Retrieved from
bank.gov.ua/doccatalog/document?id=50604896 [in Ukrainian].
12. State Statistics Service of Ukraine (2016). Consumer price indexes on goods and services (to previous December). Retrieved from
www.ukrstat.gov.ua [in Ukrainian].
13. Illarionov, A. (May 22, 2017). The NBU administration toppled the hryvnia, raised the share of Russian banks, increased the national debt and made it possible for Yanukovych to hide his assets. Hordon – Hordon. Retrieved from
gordonua.com [in Ukrainian].
14. Information of the Ministry of Finances of Ukraine on the execution of the State Budget of Ukraine for 2014 (February 28, 2015). Uriadovyi kurier – Government Courrier. Retrieved from
ukurier.gov.ua/uk/articles/informaciya-ministerstva-finansiv-2014/ [in Ukrainian].
15. National Bank of Ukraine (April 11, 2015). Annual report 2014. Retrieved from
bank.gov.ua/doccatalog/document?id=17568764 [in Ukrainian].
16. During the year, Ukrainians have withdrawn from the banks almost one third of their deposits (December 30, 2014). UNIAN – UNIAN. Retrieved from
economics.unian.ua/finance/1028036-za-rik-ukrajintsi-zabrali-z-bankiv-mayje-tretinu-depozitiv.html [in Ukrainian].
17. The National Bank will promulgate information about refinance credits granted to the banks with terms over 30 days (January 27, 2015). Retrieved from
www.bank.gov.ua/control/uk/publish/article?art_id=14075359 [in Ukrainian].
18. Information of the Ministry of Finances of Ukraine on the execution of the State Budget of Ukraine for 2015 (March 2, 2016). Uriadovyi kurier – Government Courier. Retrieved from
ukurier.gov.ua/uk/articles/informaciya-ministerstva-finansiv-ukrayini-08/ [in Ukrainian].
19. State Statistics Service of Ukraine (2016). Monthly retail turnover. Retrieved from
www.ukrstat.gov.ua [in Ukrainian].
20. State Statistics Service of Ukraine (2016). Index of industrial output in Ukraine in 2010–2017. Retrieved from
www.ukrstat.gov.ua [in Ukrainian].
21. State Statistics Service of Ukraine (2016). Net profits (losses) of the enterprises by economic activities. Retrieved from
www.ukrstat.gov.ua [in Ukrainian].
22. Riapolov, K. (March 19, 2015). For Ukrainians, it is now more profitable to buy land for construction than new houses. S'ohodni – Today. Retrieved from
ukr.segodnya.ua/economics/realty/ukraincam-vygodnee-pokupat-zemlyu-pod-zastroyku-chem-gotovye-doma-600963.html [in Ukrainian].
23. National Bank of Ukraine (2016). Ukraine's short term debt components by residual maturity. Retrieved from
bank.gov.ua/doccatalog/document?id=36693548 [in Ukrainian].
24. National Bank of Ukraine (2016). Dynamics of the payment balance of Ukraine: analytical representation. Retrieved from
bank.gov.ua/doccatalog/document?id=19208301 [in Ukrainian].
25. Bohdan, T. (2016). External debt burden and challenges for Ukraine's monetary policy. Ekonomika Ukrainy – Economy of Ukraine, 7, 21–32 [in Ukrainian].
26. The Medium Term Plan of the Government's priority measures until 2020 approved by the corresponding order of the Cabinet of Ministers of 2 April 2017 No 275-p. Retrieved from
zakon2.rada.gov.ua/laws/show/275-2017-%D1%80 [in Ukrainian].
27. Dobbs, R., Lund, S., Woetzel, J., Mutafchieva, M. (February 2015). Debt and (not much) deleveraging. McKinsey Global Institute. Retrieved from
www.mckinsey.com/global-themes/employment-and-growth/debt-and-not-much-deleveraging
28. Restructuring in Ukraine's economy: dynamics, contradictions and influence on economic development: a scientific paper (2015). Institute for economics and forecasting of NAS of Ukraine. Kyiv [in Ukrainian].
29. Eurostat (2017). Labour cost levels by NACE Rev. 2 activity. Retrieved 8.06.2017 from
appsso.eurostat.ec.europa.eu/nui/show.do?dataset=lc_lci_lev&lang=en
30. The head of the NACBU has estimated Ukraine's corruption market at 85 bln Hrn (April 24, 2017). LIGA.net – LIGA.net. Retrieved from
biz.liga.net/ekonomika/all/novosti/3653361-glava-nabu-otsenil-korruptsionnyy-rynok-ukrainy-v-85-mlrd-grn.htm [in Ukrainian].
31. Tohtarova, V. (2010). Income differentiation of the population taking into account the shadow sector. Ekonomichnyj analiz – Economic analysis, 7, 166–175 [in Russian].
32. OECD (2016). F OECD actbook 2015–2016: Economic, Environmental and Social Statistics. Retrieved from
www.sipotra.it/wp-content/uploads/2016/10/16.8.3.pdf
33. A big drug producer has doubled its profits (May10, 2017). delo.ua. Retrieved from
delo.ua/business/krupnyj-proizvoditel-lekarstv-narastil-pribyl-v-2-raza-330755/ [in Russian].