Assessing economic reform: insights from intra-industry trade flows

Measured against its central European neighbors, Ukraine has experienced a less than successful path to the reform and integration of its economy since independence. Corruption has continued at an elevated level and annual output growth has been uneven and anemic. Given its geographic position on the edge of the former Soviet Union and the persistence of domestic political schisms, such feeble results might be expected. This paper examines the development of Ukraine’s intra-industry trade links with EU partners, in light of its established ties to Russia, as a measure and predictor of the strength of its reform efforts. Its progress is measured against that of its immediate western neighbor: Slovakia. The use of intra-industry trade, as an indicator of both demand and supply side constraints, might reveal the degree to which Ukrainian and Slovak economic considerations have compelled the adoption of reforms. A key economic consideration is the preference for reform and enhanced integration with the EU versus the protection of incumbent interests and links with traditional trading partners. An exploration of developments in Slovak and Ukraine intra-industry trade provides an indication of which factor currently dominates.