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For Ukrainian economy, westward tilt has grown since 2005 revolution

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Pavlo Palamarchuk/Reuters
An employee prepares a facility for producing firetrucks, as the factory was relocated from the Chernihiv region to Lviv amid Russia's invasion, in Lviv, Ukraine, June 5, 2022. The Ukrainian economy has been stronger in the northwest (where Lviv is) in recent years than in the eastern provinces that now bear the brunt of the Russian invasion.

Russian President Vladimir Putin got a lot wrong with Ukraine, but he did get one thing right: The nation is increasingly moving away from Russia and toward the West, not only politically but also economically. 

The current Russian war effort is focused on eastern Ukraine, bringing a high toll in human suffering and artillery-powered destruction to an area that long had close economic ties with Russia.

Today, however, Ukraine sells more to Europe. Since 2005, in the aftermath of the Orange Revolution protests that annulled the election of the Moscow-backed presidential candidate, the economy's center of gravity has been moving westward. (See chart 1, below.)

Why We Wrote This

The backdrop for Vladimir Putin’s invasion of Ukraine is partly economic: A people long tethered to Russia have been increasingly looking toward the European Union for business and trade opportunities.

With that switch has come a change in the makeup of Ukraine’s exports, points out a recent report by the Harvard Growth Lab and the Complexity Science Hub Vienna. It used to sell some of its most complex manufactured goods to Russia: cars, aircraft, and so on. Now, it’s increasingly selling agricultural goods and electronics to Germany and other European nations. (See chart 2.)

SOURCE:

Harvard Growth Lab, Complexity Science Hub Vienna, Institute for the Study of War, American Enterprise Institute, 2001 Ukraine Census

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Laurent Belsie and Jacob Turcotte/Staff

This shift has not been easy. Per capita gross domestic product peaked in 2013 and then plummeted with Russia’s 2014 takeover of Crimea.

The economic toll has been especially heavy in the eastern part of the country, which is home to the largest concentrations of ethnic Russians, the industrial area of the Donbas, and eight years of war between the government and Moscow-backed separatists. Generally speaking, the eastern provinces (or oblasts) bordering Russia have experienced the biggest declines in businesses and jobs. The center of the country has been stagnant, and the northwestern oblasts closest to Europe have seen growth since 2011. (See chart 3.) 

The outcome of the war may well determine whether this economic shift continues.

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