Ukraine is a sovereign state in Eastern Europe, bordered by Russia to the

east and northeast; Belarus to the northwest; Poland, Hungary, and Slovakia to the

west; Romania and Moldova to the southwest; and the Black Sea and Sea of Azov
to the south and southeast, respectively. Ukraine is currently in territorial dispute
with Russia over the Crimean Peninsula, which Russia annexed in 2014, but which
Ukraine and most of the international community recognize as Ukrainian.
Including Crimea, Ukraine has an area of 603,628 km2, making it the largest
country entirely within Europe and the  46th largest country in the world. Excluding
Crimea, Ukraine has a population of about 42.5 million, making it the 32nd most
populous country in the world.

Ukraine is a unitary republic under a semi-presidential system with separate

powers: legislative, executive and judicial branches. Its capital and largest city
is Kiev. Taking into account reserves and paramilitary personnel, Ukraine
maintains the second-largest military in Europe after that of Russia. The country is
home to 42.5 million people (excluding Crimea),[4] 77.8 percent of whom
are Ukrainians "by ethnicity", followed by a sizeable minority of Russians (17.3
percent) as well as Georgians, Romanians/Moldovans, Belarusians, Tatars,
Bulgarians and Hungarians. Ukrainian is the official language and its alphabet
is Cyrillic. It is a member of the United Nations since its founding, the Council of
Europe, OSCE, GUAM, and one of the founding states of the Commonwealth of
Independent States (CIS).

All data for this research has been provided by web-site International
Monetary Fund (http://www.imf.org) and web-site State Statistics service of
Ukraine (http://www.ukrstat.gov.ua).

We would like to start our analysis from dynamic of GDP from 2000 to
2016 years (appendix table 1). The dynamic of changes GDP is presented on figure
1. We were more interested in the dynamic of GDP in terms of constant prices and
prices in U.S. dollars, because this data represents clearer picture about the real
situation in Ukraine.
 Ukraine GDP from 2000 to 2016
2500

2000

GDP, constant prices National

1500 currency Billions
GDP, current prices National
currency Billions
GDP, current prices U.S. dollars
1000 Billions

500

0
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
16
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
20

Figure 1. Dynamic of Ukraine GDP 2000-2016

We can see the steady growth of Ukraine GDP from 2000 to 2008 and then
sharp decreasing in 2008-2009 interrelated with the world crisis. From 2010 to
2013 there is slight increasing and in 2014 started new economical crisis in
Ukraine connected with a military conflict with Russia. The GDP in 2016 was
comparable with the level of 2003. Generally, the Ukraine GDP has positive trend
and you can see it on figure 2.
 Ukraine trends of GDP from 2000 to 2016
2500

2000 GDP, constant prices National

currency Billions
Exponential (GDP, constant prices
National currency Billions)
1500 GDP, current prices National
currency Billions
Exponential (GDP, current prices
National currency Billions)
1000 GDP, current prices U.S. dollars
Billions
Exponential (GDP, current prices
U.S. dollars Billions)
500

0
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
16
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
20

Figure 2. Trends of GDP 2000-2016 years

One of the factors that have impact on GDP is inflation. We have showed
the dynamic of this indicator on figure 3.

Ukraine inflation from 2000 to 2016 with trend line

45

35
Inflation, average consumer prices
Percent change
25 Linear (Inflation, average consumer
prices Percent change)

15

0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6
-500 00 00 00 00 00 00 00 00 00 01 01 01 01 01 01 01
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Figure 3. Ukraine inflation rate from 2000 to 2016.

 We can see that the inflation rate along all period has fluttered. The inflation
rate reached a lower point in 2013 (-0.26%) before the last economical crisis and
had the peak in 2015. Inflation ended 2015 at 48.7%, which marked the highest
reading since 1995 (2014: 24.9%). Inflation has remained at historically high
levels since skyrocketing at the onset of the military conflict in Eastern Ukraine.

The unemployment rate is a measure of the prevalence of unemployment

and it is calculated as a percentage by dividing the number of unemployed
individuals by all individuals currently in the labor force. Figure 4 represents
dynamic of this index.

Unemployment rate from 2000 to 2016, %

14

12

10

8 Unemployment rate Percent of

total labor force
Linear (Unemployment rate
6 Percent of total labor force)

0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
20 20 2 0 2 0 2 0 20 20 2 0 2 0 2 0 20 20 2 0 2 0 2 0 20 2 0

Figure 4. Unemployment rate 2000-2016 in Ukraine

Ukraine unemployment rate has had negative correlation with dynamic of

changes of GDP, in years of increasing GDP the unemployment rate has been
declined. Generally, the rate of unemployment in Ukraine has not been changed
dramatically and has been fluctuated about 8-9%, this level for post-soviet
countries is significant enough.
 One of the important indexes that connected with unemployment rate is
population of the country. We analyzed it using figure 5.

Ukraine population from 2000 to 2016, million people

50

48

46
Population Persons Millions
44 Linear (Population Persons
Millions)

42

40

38
00 001 002 003 004 005 0 06 007 0 08 0 09 0 10 0 11 0 12 0 13 0 14 0 15 016
20 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Figure 5. Ukraine population from 2000 to 2016

We can see that the population in Ukraine has been had negative tendency
throughout the analyzed period, the final decrease was 12.7% from 2000 to 2016.

The next blog of indexes that we analyzed was about government finance:
general government revenue and total expenditure, gross and net government debt.
For have more precise picture we did our analysis in percentage of GDP. The
changes of government revenue and expenditure you can see on figure 6.
 General government revenue and total expenditure 2000-
2016
60

50

40 General government revenue

General government total
30 expenditure

20

10

0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
20

20
20

20

20
20

20
20

20
20

20
20

20
20

20
20

20
Figure 6. The changes of government revenue and expenditure in Ukraine
from 2000 to 2016.

On the average the government expenditure exceeded the government

revenue on 3.2%. This tendency absolutely common all over the world, there is
short list of countries in which the expenditure equals the revenue, one of counties
– Germany.

The difference between revenue and expenditure generates government

debts. Figure 7 represents dynamic of changes of general government gross and net
debts.
 Government net and gross debts 2000-2016
100

90

80

70

60

50
General government
40 net debt

30
General government
20 gross debt

10

0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
20
20
20

20
20

20
20

20
20
20
20
20

20
20
20

20
20

Figure 7. Government gross and net debts in Ukraine 2000-2016

From this figure we can see that generally Ukraine has not had a sufficient
otherness between gross and net debts, this difference has been amounted to 2%, in
other words country’s financial assets covered just 2% of debt.

Saving and investment are two crucial elements of macro-

economics. Investment is one kind of catalysts for growth in aggregate wealth; it is
the most important, consistent and controllable way to grow an economy. For
understand the economic situation in country the analysis of this indexes is
necessary. The figure 8 represents level of gross national savings and total
investments in Ukraine.
 Total investment and cross savings 2000-2016
35

30

25

20 Total investment Percent of GDP

Gross national savings Percent of
% of GDP

GDP
15

10

0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
2 0 20 2 0 20 2 0 20 2 0 20 20 2 0 20 2 0 20 2 0 20 2 0 20

Figure 8. Total investment and cross savings 2000-2016 in Ukraine

The capital investment by type of industrial production economic activity

you can see on figure 9. We collected data from 2010 to 2016 and created this
figure based on average level of investments on every industry through analyse
period.

The main industries for investments in Ukrain

Human capital Agriculture,
11% forestry and
Information fishing
and 9%
communication
5%
Transportation
and storage
9% Industry
39%
Wholesale and
retail trade
10%

Construction
17%

Figure 9. The main industries for investments 2010-2016 in Ukraine

 100%
8% 6%
10% 13% 12% 10% 12%
90% 4% 5%
5% 4%
6% 5% 4% 4% 6%
80% 6% 4% 4% 7% 9% 5%
7%
70% 11% 11% 11% 10% 10% 6% 8% Human capital
7% 8% Real estate activities
60% 10% 9% 9%
Financial and insurance activities
16% 17%
16% 13% Information and communication
50%
17% 14% 16% Transportation and storage
40% Wholesale and retail trade
Construction
30% 33% Industry
41% 41% 34% Agriculture, forestry and fishing
20% 32% 35% 34%

10%
14%
6% 6% 6% 7% 8% 11%
0%
2010 2011 2012 2013 2014 2015 2016

Figure 10. The structure of investments in Ukraine 2010-2016

From this data we can conclude that the main changes in investment
structure which had place in Ukraine from 2010 to 2016 were connected with the
double increasing of investments in agriculture sector and decreasing in wholesale,
transportation and storage. The investments in the human capital on average
reached 10%, but in 2014 (year of economic crisis in Ukraine) inflow for that
sector to bottomed out until 6%.

Last indexes for analysis are export and import in Ukraine. On web-site
International Monetary Fund there are only data about a percent of change
export/import in Ukraine, but this data wasn’t sufficient for our research as we
wanted to examine the volume of these indexes not in national currency, but in
dollars for obtain real value for international market. For this purpose, we have
used the data about the volume of export/import from State Statistics service of
Ukraine and implied purchasing-power-parity conversation rate from web-site
International Monetary Fund. Figure 11 represents movements of the volume of
export/import in Ukraine from 2005 to 2016 in national currency and figure 12 in
dollars.
 Export/import, mil. hryvna
1400000

1200000

1000000

export, mil. hryvna

800000
import, mil. hryvna

600000

400000

200000

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 11. Ukraine trade in national currency from 2005-2016

Export/import, mil. dollar

250000

230000

210000

190000

170000 export, mil dollar

millions dollar

import, mil dollar

150000

130000

110000

90000

70000

50000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 12. Ukraine trade in dollars from 2005-2016

These two graphs showed us difference between trends of trade in terms of

the national currency and dollars. Figure 11 demonstrates an increasing tendency
of the trade year to year, however real situation was not like this. Here is important
to know that from 2008 started the devaluation of national currency (hryvna) and
from 2008 to 2017 the exchange rate of hryvna/dollar USA had been changed from
5.1 hryvna per dollar until 27.2, felt by more than five times. Also essential
tendency is the excess of imports over exports on average 9% per year.

In conclusion, we would like to say that in just three years, between 2013
and 2016, GDP in Ukraine has been dramatically reduced to more than half its
amount (from 179.57 to 83.55 billion dollar). This very severe decrease is mainly
due to the civil war in the eastern part of the country, which is causing many of its
inhabitants to be internally displaced, and life in general to become increasingly
difficult for Ukrainians - not just because of the war, but because the country’s
economy is in desperate trouble: the inflation rate has risen to almost 50 percent in
2015, the second highest rate around the world behind Venezuela,
and unemployment in 2016 was over 9 percent. 

The industrial Donbass region located to the east of the country has also
been devastated. Russia, Ukraine’s most important import and export partner until
recently, most likely no longer plays this role, having caused a great shift in the
country’s base economy. Ukraine’s national debt in relation to GDP is also
unsustainable, having increased by over 50 percent in the last three years (from
40.65% in 2013 to 92.8% in 2016). Default or restructuring of its debt was
inevitable, and eventually restructuring took place in August 2015. While the
economy was recovered somewhat in 2016, its stability depend on the improving
the competitiveness of the country in order to create an environment in which the
economy can operate and recover.

Nevertheless, the last forecast of «The world bank» pointed out the positive
growth tendency in Ukraine (figure 13).
Figure 13. Ukraine economic update

The main reasons for it are:

1. Decisive agriculture reforms in the face of unprecedented shocks in

2014 and 2015 helped stabilize confidence and agriculture harvest leading to
stronger growth of 4.8 percent.
2. Other sectors experienced a pickup from low levels in 2016, with
growth of 3.6 percent in manufacturing, 16.3 percent in construction, 4 percent in
domestic trade, and 3 percent in transport. Fixed investment rebounded strongly by
20 percent from a low base, including manufacturing equipment and imported
capital goods, pointing toward strengthening investor confidence. 
3. In 2016, real household incomes are estimated to have benefited from
stabilization in consumer prices and the modest resumption of economic growth.
Inflation slowed to 12.4 percent in 2016 from 43.3 percent at end-2015 due to
exchange rate stabilization and prudent monetary policy, while real wages
increased 11.6 percent in December 2016.
4. The key tax revenues performed better than planned due to the pickup
in economic activity in 2016. Revenues from value-added tax (VAT), personal
income tax (PIT), and corporate income tax (CIT) increased by 7.6, 13.1, and 25.7
percent, respectively, in real terms.

The outlook for economic growth remains modest due to significant external
and internal headwinds, but renewed reform momentum could support higher
growth going forward. Significant headwinds remain in accelerating reforms in a
complex political environment. In addition, the conflict in the east of Ukraine has
escalated since end-January 2017.
TRADE BALANCE FOR UKARINE TO ITALY (1995-2016)

Exports (Trade in USD: 38.5B)

Imports (Trade in USD: 26.1B)

This graphic gives us a complete overview of the flows of imports and

exports between Ukraine and Italy during the period 1995-2015. If we take a look
to the exports from Ukraine to Italy, we note that there has been a continuous
growth from 1995 to 2008. Starting from 1995 with 736M of exported goods up to
3.39B in 2008. In 2009 the world economic crisis caused a dramatically decrease
of exports equal to -1,98, in this year the amount is only 1.41B. In the following
two years there has been a great recovery up to reach 3.49B in 2011 (higher than in
2008). We can also observe that in 2012 there has been another crucial drop of
exports, but during the period 2013-2014 the flows have remained quite stable. In
2015 it seems that another decline of exports to Italy took place. About imports of
Italian goods, we can observe a similar trend as exports, the only difference is that
the amount is lower than exports. Indeed, imports in 1995 amount to 350M and in
2008 they arrive at the peak point of 2.88B (even lower than exports). Important is
to underline that during the economic crises the number of exports and imports
corresponds (1.41B). In 2015 the amount of imports is equal to 1.01B.
EXPORTED GOODS TO ITALY DIVIDED BY INDUSTRIES (1995-2015)

Metals

Mineral Products

Animal Hides

Vegetables products

Chemical products

From this figure it emerges that the manufacturing sector is that one in
which there are more exports to Italy, in particular for metals. Between 1995 and
2008 there has been a dynamic growth in terms of exports: ranging from 296M in
1995 and 2.06B in 2008. The peak of exports is reached in 2011 with a total of
2.23B. After this year there has been a decrease of metal exports, but it still
remains the sector in which there are more exports to Italy. The second relevant
industry is the mineral products that have had a positive trend since 2008, after the
crises, the demand for these products has grown again until 2011 when it was
overcome by vegetables products. The peak in mineral products’ demand was in
2005 with an amount of $606M. Another relevant sector for exports to Italy is the
Animal Hides, that has maintained the third position since the first months of 2010,
when exports in vegetables products become higher than animal hides industry.
From 2010 we can note a particular interest in the vegetables products, in 2015 the
amount of exports is $361M, when in 1995 it was only $30.7M. For Chemical
products we can observe a small growth in 2012 with an amount of $201M.
(exceeding the mineral products exports $196M).

IMPORTED GOODS FROM ITALY DIVIDED BY INDUSTRIES (1995-

2015)

Machines

Textiles

Chemical products

Mineral products

Metals

Plastic and Rubbers

In terms of imports from Italy, as we see from the graphic, the main sector is
certainly the machines. In 2008 it has reached the maximum peak of $1.05B.
Instead, in 2009 there has been a drastically break down, so that the amount was
only $433M due to the economic crises. During 2010 there has been a small
recovery of exports in the Italian market and at the beginning of the 2011 it was
equal to $674M. For the following years datas on exports have remained constant,
but in 2013 a new decrease begun and still exists nowadays. Others important
industries for imports are the textile and Chemical products. The last one has
overcome the textile sector in terms of imports during the year 2011. We can
observe from the figure that from 2013 imports in both sectors are declining. It’s
interesting to underline the short peak of the mineral products sector during 2007.
(At the beginning of the 2008 the amount of imports was equal to $229M and at
the ends of the year only $3.45M). Others relevant imported goods belong to the
metals and plastic and rubbers’s industry.

THE MOST EXPORTED PRODUCT TO ITALY

Based on the data collected by the OEC site, we can conclude saying that the
most exported product to Italy is the semi- finished iron which belongs to the
manufacturing sector, with his peak at the beginning of 2008 equal to $1.48B.

THE MOST IMPORTED PRODUCT FROM ITALY

Even though the OEC site, we’ve observed that Ukrainians imports are
mostly washing and bottling machines from Italy, which are part of the machines
industry. At the end of 2007 the amount of imports for this product was equal to
$87.7M.
 TALKING ABOUT MODELS

Trying to figure out the most important points of this work we have done,
we can notice some interesting things and, more in detail, we can make a
comparison and underline some common points with the models we have studied
during the course.

We can easily see how the most exported product from Ukraine to Italy are
raw materials (especially iron), while machineries are Ukraine’s most imported
products, still speaking about relationships with our country. We are now going to
draw some conclusions starting from this point.

Taking into account the Richardian model, and focusing for this reason on
relative prices of goods, we may see Italy as a country which doesn’t have a lot of
natural resources, especially raw materials, and therefore it is characterized by a
higher relative price regarding to this field, compared to Ukraine, which has the
exactly opposite situation. On the contrary, Italy has got a comparative advantage
regarding machinaries production (and we could understand, from it, that cost of
labour in Italy is higher than the capital one and it is more efficient in producing
capital intensive goods than it is Ukraine, which, by its side, is more efficient in
producine labour intensive ones). For this reason, according to the abovemntioned
Richardian theory, these country should specialize themselves in producing those
goods in which they have a comparative advantage: indeed, the “international trade
price”, as we know, will be for sure higher than the autarkic one, and both nations
will find profitable to export precisely those goods (and to import the ones in
which they don’t have this advantage): as long as every country can consume
beyond her production possibility frontier, international trade will lead to a
welfare increasing.

In addition, recalling in our minds the Heckscher-Ohlin-Samuelson (H-O-S)

model, which states that “a country exports the good that is produced with an
intensive use of the country’s realtively abundant factor of production”, and
comparing this assumption to the data we found, we could conclude that Italy can
be considered as a capital abundant- country, and this is the reason why it exports
capital-abundant goods like, in our case, machinaries. On the other side, Ukraine,
being a labour-abundant country, and therefore it exports labour-intensive goods,
which in our study are represented by raw materials.

Moreover, giving attention to agriculture in Ukraine, we can observe a

strong increasing in exportation of vegetable products to Italy which starts in 2010.
Trying to give an explanation to this phenomenon, we can recall the Rybczynski’s
theorem: “At constant marginal rate of technical substitution in production (W/r,
Py/Px and K/L), an increase in the quantity of one factor leads to an absolute
expansion in production of the good that uses that factor more intensively and to an
absolute contraction in the production of the good which uses that factor less
intensively”. We can also notice a constant increasing in the quote of investments
in this field made by Ukraine (that start from 6% in 2010 and arrive at 14% in
2016), and we could suppose it as due to an increasing in the quantity of one
factor, according to this theorem.