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№ 2022/3

War economy

PUSTOVOIT Oleh Valentynovych¹

¹Institute for Economics and Forecasting, NAS of Ukraine

UKRAINE’S POST-WAR ECONOMY: INTERNATIONAL AID AND GROWTH POLICY

Economy and forecasting 2022; 3:45-64

https://doi.org/10.15407/econforecast2022.03.045

ABSTRACT ▼

The full-scale war unleashed in 2022 by the Russian Federation against Ukraine is accompanied by massive destruction of infrastructure and industrial facilities. Their rapid recovery is impossible without international assistance. However, it is known from history that the use of such aid did not always lead to accelerated post-war recovery of countries whose markets and economies are developing. Knowledge of such facts urged Western scientists to search for a mechanism of aid's impact on economic growth. Researches that began in the 1960s did not shed light on this mechanism. However, they did show that aid speeded up economic growth and recovery in countries that conducted better fiscal, monetary, and trade policies and succeeded in establishing the rule of law.
In the article, a slightly different scientific approach is substantiated. It assumes that when the country implements not only a better fiscal, monetary, foreign trade, institutional, but also structural economic policy, the impact of international aid on postwar economic growth can significantly increase. The proposed approach gives grounds for the statement that the limited amount of aid in Ukraine should not be dissipated on the reconstruction of all industrial facilities destroyed and damaged by the war, but it is advisable to concentrate it on the restoration of enterprises that are able to start production and sale of increased technological complexity products on international markets within a short period. The advantages of such use of the aid are shown by calculation. It shows that directing international aid at expanding exports of high technological complexity items would create in Ukraine favorable conditions for increasing the post-war annual growth rates of commodity production to 10% and reduce the period of recovery of this indicator to the 2021 level from 12 to 6 years.
At the same time, arguments are given that the proposed use of aid is only a means of shortening the terms of the economy's exit from the crisis and its transition to a state of accelerated growth. It will be possible to turn this state into a long-term economic trend only if an effective mechanism is introduced for encouraging the companies’ innovative activities and attracting foreign investments in industries producing items of increased technological complexity. Modeling possible scenarios of the post-war recovery of Ukraine's economy somewhat expands the scientific understanding of the mechanism of aid's effect on a country’s economic growth. In particular, it is supplemented by the idea that in the post-war period, international aid plays the role of a driver of high rates of a country’s economic growth to the extent that it contributes to economic restructuring of the production from military to civil mode transforming it from technologically simple to more technologically complex.

Keywords:post-war economy, international aid, commodity production, economic policy, export, import, unit value, products of increased technological complexity

JEL: H 56, F 35, O 20

Article in English (pp. 45 - 64)

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№ 2022/3

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