Trade openness, regional economic growth, and crises in transition countries: The case of Ukraine
Trade openness, regional economic growth, and crises in transition countries: The case of Ukraine

Summary/Abstract: Objective: The article aims to explore the impact of trade openness on the economic development of Ukrainian regions in different conditions, with a particular focus on the global financial crisis (2007-2009) and the 'hybrid' stage of the war (2014-2021). Research Design & Methods: We analysed the influence of trade openness on economic development, considering exchange rate fluctuation and foreign direct investment (FDI). Based on 21 input variables, we created the composite index of economic development using principal component analysis. To verify the hypothesis about the impact of determinants on economic development, we employed this index as a dependent variable in autoregressive dynamic panel models with error correction terms. We used trade openness, exchange rate, and foreign investment as explanatory factors. The article presents the examination of the effects of the mentioned variables across several regional categories, including coastal vs. non-coastal regions, regions with different levels of urbanisation and trade openness, and regions affected by military occupation. Findings: The findings reveal that trade openness has a significant positive impact on regional development, with its highest influence in the pre-war period. Economic growth of coastal regions is more sensitive to trade openness and FDI, compared to non-coastal regions. Moreover, regions with a higher level of trade openness experience stronger positive effects of FDI. We identified the increased impact of trade openness and FDI on the economic development of coastal regions during the 2007-2009 crisis. On the other hand, their influence decreases in non-coastal regions, compared to pre-crisis years. Furthermore, FDI has a positive effect on economic performance, particularly in non-occupied regions. Implications & Recommendations: The article's results are important to better understand the interaction between trade openness and the economic development of Ukrainian regions, especially during the crisis and war periods. The findings indicate that higher trade openness should be achieved to ensure the economic stability of the country's regions. That is why it is necessary to develop a strategy for the expansion and diversification of Ukrainian exports. The received results could help improve target programs that aim to promote the economic development of the country's regions. The findings could also serve trade-oriented businesses to understand regional processes in more detail and to enhance decision-making under war conditions. Contribution & Value Added: The novelty of the article is threefold: (i) practical analysis of Ukraine that can serve as a benchmark in future research for comparative analysis between this country and other economies; (ii) comparison of the impact of trade openness on economic development of regions under crisis and non-crisis conditions; and (iii) the use of several classifications of the country's regions (i.e., the proximity to the war zone, the sea access, and the urbanisation level) to identify peculiarities of the above-mentioned impact during the 'hybrid' stage of the war.

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