MA Thesis

How Important Is the Factor of the Trade War With Russia in Change of Ukrainian Export Trade Flows?



Published in:

Kyiv School of Economics


factor of the trade war
export trade flows

The events of the spring of 2014 were perhaps the biggest geopolitical shock in the history of our country’s independence. The annexation of Crimea, the deployment of full-scale hostilities in the East, and the methods of hybrid warfare by the Russian Federation made further economic cooperation and interaction in general impossible from the point of view of common sense. But is it really so? Figure 1 and Table 1 compare the volumes and dynamics of trade between Ukraine and the Russian Federation in 2011, 2014 and 2020, as well as the top 5 commodity groups. We see that, despite mutual trade and transit restrictions, trade between the countries did not stop, although the volumes before the trade conflict differed significantly. Trade with Russia accounted for almost a quarter of Ukraine's total foreign trade turnover in 2011. But in less than ten years, the volume of trade with the aggressor country has decreased by three times. As for the product structure of trade between Ukraine and Russian Federation, we can see that it consists almost of the same top-5 commodities over the years. Ferrous metals and products from them, nuclear reactors, boilers, machines remained among mostly exported to Russia, while mineral fuels, oil and its products, nuclear reactors, machines and ferrous metals again were the most imported commodities. The main reason for Ukraine’s dependence on foreign trade relations with Russia can be considered the historical situation, as a result of which the neighboring state was the main buyer of most of the goods that were produced on the territory of our country.2011 seemed to be the beginning of a long-term trade cooperation between Ukraine and Russia, which signed the Free Trade Area Treaty and began trading as members of the Commonwealth of Independent States (CIS). However, the signing by Ukraine against the background of the aforementioned revolutionary events of the Free Trade Agreement with the European Union and its entry into force in 2016 led to the suspension by Russia of the Free Trade Agreement with Ukraine. This led to a number of import restrictions on the part of both countries. These events also directly or indirectly affected Ukraine's trade with some countries of the former Soviet Union. However, despite the rapid negative dynamics of recent years, the following question arises: was the trade war after the critical year of 2014 the real reason for the geographical changes of the Ukrainian exports structure in those sectors, the lion’s share of production of which depended on demand from the Russian Federation. Using the gravity model, we want to examine export’s volume changes in each of sections according to HS Nomenclature 2017 edition and to determine, whether the impact of trade with Russia is significant in particular industries or not.