Regional Economic Growth and International Capital Flows

The Case of Ukraine

by Olena Bogdan

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In many countries, poorer regions are growing faster than richer regions, and provinces are converging over time. In other countries, however, regional economic differences have persisted over many years and income gaps are widening. It is important to understand why enduring regional socio-economic disparities exist within countries, what factors drive them, and what can be done to reconcile these differences. Recently, a policy community in Europe, Asia and the United States has become more interested in finding answers to these complex questions.

This research examines divergent economic paths between regions in several countries. Based on the case studies of China, Italy, and the United States, I find that regional economic differences are common, even as countries have unlike history, culture, and socio-economic systems. Regional disparities are primarily attributed to local geography, human and social capital, institutional quality, infrastructure, public policies, and clustering of economic activities. Across all case studies, the most prosperous regions are also those with the largest international capital inflows.

Because prosperous localities amass thriving businesses, next I focus on the role of foreign capital in regional economies. Using Ukraine as a case, I analyze data on its local socio-economic indicators and international capital inflows of various types between 2001 and 2013 and find not only substantial regional differences, but also a systematic, simultaneous, positive relationship between regional economic growth and international capital flows. This nexus is particularly distinct for Ukraine's West where, if compared to other regions, any small increase in international capital, either public or private, would create a more than twice larger positive effect on local economic development. Based on my analysis, I recommend specific steps for Ukraine's regional and overall economic policy.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Background: Ukraine

  • Chapter Three

    Overview of Existing Studies

  • Chapter Four

    Case Studies of Countries with Differential Regional Growth

  • Chapter Five

    Ukraine's Regional Data

  • Chapter Six

    Analysis and Results

  • Chapter Seven

    Conclusion and Policy Implications

  • Appendix A

    Case Studies Maps

  • Appendix B

    Oblast Variations in Socio-Economic Indicators

  • Appendix C

    Detailed Model Estimates

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This document was submitted as a dissertation in September 2017 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Charles Wolf, Jr. (Chair), James Hosek (Chair), F. Stephen Larrabee, and Edward Keating. Svitlana Kobzar of Vesalius College in Brussels, Belgium, was the external reader for the dissertation.

This report is part of the RAND Corporation dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

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