Monografiya - Ukraine - Engl Final 1

Volume 3
MODELLING OF THE MECHANISMS TO RESTORE THE

NATIONAL ECONOMY
MODELLING OF THE MECHANISMS TO RESTORE THE
NATIONAL ECONOMY
Collective monograph
Edited by
Olexandr Vlasiuk
Olga Ilyash
Magdalena Osinska
Wieslaw Olszewski
Svitlana Hrynkevych
Volume 3
Bydgoszcz– 2017
REVIEWER:
prof., dr hab. Francishek Gronovski, University of Economy in Bydgoszcz, Poland
EDITORS:
prof. Olexandr Vlasiuk
prof. Olga Ilyash
prof. Magdalena Osinska
prof. Wieslaw Olszewski
prof. Svitlana Hrynkevych
AUTHORS:
Anatolyi Mokiy
Andrii Mykhailov
Artem Labuta
Daria Doroshkevych
Denys Mykhailyk
Dmitriy Antoniuk
Dmytro Vavilkin
Galina Myskiv
Juliia Poliakova
Katerina Antoniuk
Khrystyna Danylkiv
Lev Vlasenko
Liubov Mykhailova
Maryana Kohut
Nadiya Lyubomudrova
Nataliya Koren
Nataliya Marhita
Oksana Sobkevych
Olga Ilyash
Olga Mnykh
Olesya Datsko
Roksolana Voronina
Ruslan Brytskyi
Svitlana Hrynkevych
Tatiana Bludova
Tatiana Galahova
Tetiana Kharchenko
Viktoriia Hrytsenko
Vladyslava Kornilova
Volodymyr Getmanskyy
Yurii Hrysiuk
The authors of articles usually express their own opinion, which does not always comply with the
editorial Board’s opinion. The content of the articles is the responsibility of their authors.
Modelling of the mechanisms to restore the national economy: Сollective monograph / [Edited by:
Oleхandr Vlasiuk, Olga Ilyash, Magdalena Osinska, Wieslaw Olszewski, Svitlana Hrynkevych]. – Vol. 3. –
Bydgoszcz, Poland: University of Economy in Bydgoszcz, Publishing House, 2017. – 318p.
University of Economy Publishing, Bydgoszcz, Garbary str., 2, Bydgoszcz, 85-229

ISBN978-83-65507-14-3
TRANSLATION EDITOR: Olga Siredzhuk

With the support of the NGO “Academic Space”
© 2017Copyright by University of Economy
© 2017 Article writer
MODELLING OF THE MECHANISMS TO RESTORE THE NATIONAL ECONOMY
4
University of Economy in Bydgoszcz, Publishing House
TABLE OF CONTENT
Introduction 9
Part 1.
Assessment of the dynamic spatio-temporal model of the
national economy development
Liubov Mykhailova, Viktoriia Hrytsenko

Assessment of the value of apiculture in space-time measurement for
sustainable agricultural development 13
Nataliya Marhita, Roksolana Voronina

Logistic capacity assessment of Ukrainian regions on the basis of the
integral index of logistic capacity (IILC) of the region 37
Oksana Sobkevych
Trends and conditions of the real sector development of the Ukrainian
economy in the coordinates of strengthening economic security 59
Nataliya Koren
Modernization of fiscal mechanisms for ensuring economic development 81
Part 2.
Economic and mathematical model of economic recovery
Tatiana Bludova, Tatiana Galahova

Economic and mathematical modelling of the area of threshold values of
export-imports flows in regions 101
Andrii Mykhailov, Tetiana Kharchenko

Economic and mathematical modelling of investment-active development
of the agrarian sector of Ukrainian regions in the context of attracting
123
foreign investments
Olga Mnykh, Nadiya Lyubomudrova, Ruslan Brytskyi

Problems of capitalization of the Ukrainianeconomy and modelling of
marketing decisions on the prospects of formation of the enterprise value 145
MODELLING OF THE MECHANISMS TO RESTORE THE NATIONAL ECONOMY 5
Olga Ilyash, Volodymyr Getmanskyy, Vladyslava Kornilova

Approbation of functional dependencies to measure the efficiency of
trade activities of national economic entities 166
Dmitriy Antoniuk, Katerina Antoniuk, Juliia Poliakova

System-dynamic modelling of entrepreneurial activity efficiency in the 186
region
Part 3.
Mechanisms for countering economic challenge
Anatoliy Mokiy, Denys Mykhailyk, Lev Vlasenko, Olesya Datsko

The conceptual framework of methodology for determining
comprehensive national power in the context of positioning of Ukraine in
international relations with the People's Republic of China 200
Yurii Hrysiuk, Artem Labuta

The conceptual basis of integrated structures of the transport enterprises
formation by partnership development 220
Galina Myskiv, Khrystyna Danylkiv

Conceptual bases and strategic directions of the Ukrainian credit market
development 237
Svitlana Hrynkevych, Maryana Kohut

Technology transfer in the system of international economic relations 258
Daria Doroshkevych, Dmytro Vavilkin

Rethinking the role of a traditional project manager in software 279
development
Bibliography
296
Notes 318
6
EDITORS and AUTHORS
1. Anatoliy Mokiy - Doctor of Economics, Professor, Vice-rector,

Zaporizhzhya Institute of Economics and Information Technologies,
Zaporizhzhya, Ukraine
2. Andrii Mykhailov - Ph.D in Economics,Associate Professor,
Management of Foreign Economic Activity and Eurointegration Department,
Sumy National Agrarian University, Sumy, Ukraine
3. Artem Labuta - Ph.D in Economics, Associate Professor of Transport
Law and Logistics Department, National Transport University, Kyiv, Ukraine.
4. Daria Doroshkevych - Doctor of Economics, Head of the Management
and Innovation Department, International University of Finance, Professor of
Management in Publishing and Polygraphy Department, National
TechnicalUniversity of Ukraine “Igor Sikorsky Kyiv Polytechnic Institute”, Kyiv,
Ukraine.
5. Denys Mykhailyk - Ph.D in Economics, Head oftheInternational
Economic Relations Department, Zaporizhzhya Institute of Economics and
Information Technologies, Zaporizhzhya, Ukraine.
6. Dmitriy Antoniuk - Doctor of Economics, Associate Professor, Vice-
president of Zaporizhzhia Chamber of Commerce and Industry,
Zaporizhzhia,Ukraine
7. Dmytro Vavilkin - Postgraduate student in Management and IT,
International University of Finance, Kyiv, Ukraine.
8. Galina Myskiv - Doctor of Economics, Associate Professor, Head of the
Hotel and Restaurant Department, Lviv Institute of Economics and Tourism,
Lviv, Ukraine.
9. Juliia Poliakova - PhD in Economics, Associate Professor, Associate
Professor of International Economic Relations Department, Lviv University of
Trade and Economics, Lviv, Ukraine
10. Katerina Antoniuk - PhD in Economics, Associate Professor of
Marketing andLogistic Department, Zaporizhzhia National Technical University,
Zaporizhzhia, Ukraine
11. Khrystyna Danylkiv - Ph.D in Economics, Associate Professor, Finance,

Accounting and Analysis Department of the Institute of Entrepreneurship and
Advanced Technologies,National University “Lviv Polytechnic”, Lviv, Ukraine.
12. Lev Vlasenko - Ph.D in Economics, Associate Professor, International
Economic Relations Department, Zaporizhzhya Institute of Economics and
Information Technologies, Zaporizhzhya, Ukraine.
13. Liubov Mykhailova - Doctor of Economics, Professor, Head of
theManagement of Foreign Economic Activity and EurointegrationDepartment,
Sumy National Agrarian University, Sumy, Ukraine.
14. Magdalena Osinska - Dr.hab.,Professor of Economics, Head of the
Institute of Economics and Management, University of Economics, Bydgoszcz,
Poland.
15. Maryana Kohut - PhD in Economics, Lecturer of International
Economic RelationsDepartment, Lviv National Agrarian University, Lviv,
Ukraine.
16. Nadiya Lyubomudrova - Ph.D in Economics,Associate Professor,
Personnel Management and Administration Department, National University
“Lviv Polytechnic”, Lviv, Ukraine.
17. Nataliya Koren - PhD in Economic Sciences, Senior Scientific
Researcher,Head of the Department of anti-corruption policy, National
Institute for Strategic Studies, Kyiv, Ukraine.
18. Nataliya Marhita - Ph.D in Economics, Associate Professor, Marketing
and Logistics Department,Lviv Polytechnic National University, Lviv, Ukraine.
19. Oksana Sobkevych - Doctor of Economics, Senior Scientific Researcher,
Head of the Department for Security of the Real Sector of Economy, National
Institute for Strategic Studies, Kyiv, Ukraine.
20. Olexandr Vlasiuk - Doctor of Economics, Professor, Corresponding
Member of the NAS of Ukraine, First Deputy Director of the National Institute
for Strategic Studies, Kyiv, Ukraine.
21. Olesya Datsko – Ph.D. in Economics, Associate Professor,
Artmanagement department, Lviv National Academy of Arts, Lviv, Ukraine
22. Olga Ilyash - Doctor of Economics, Professor, Vice-Rector for Research
and International Activity, International University of Finance; Professor of
8
Theoretical and Applied Economics Department, National Technical University

of Ukraine “Igor Sikorsky Kyiv Polytechnic Institute”, Kyiv, Ukraine.
23. Olga Mnykh - Doctor of Economics, Professor,Marketing and Logistics
Department, National University “Lviv Polytechnic”, Lviv, Ukraine.
24. Roksolana Voronina - Ph.D in Economics, Associate Professor,
Marketing and Logistics Department, Lviv Polytechnic National University, Lviv,
Ukraine.
25. Ruslan Brytskyi - Postgraduate student, National Aviation University,
Kyiv, Ukraine.
26. Svitlana Hrynkevych - Doctor of Economics, Professor, Head of the
International Economic Relations Department, Lviv National Agrarian
University, Lviv, Ukraine.
27. Tatiana Bludova - Doctor of Economics, Professor, Advanced
Mathematics Department, Kyiv National Economic University named
after Vadym Hetman, Kyiv, Ukraine.
28. Tatiana Galahova - Ph.D in Economics, Associate Professor,
International Management Department, Faculty of International Economics
and Management, Kyiv National Economic University named after Vadym
Hetman, Kyiv, Ukraine.
29. Tetiana Kharchenko - Ph.D in Economics, Associate Professor,
Management of Foreign Economic Activity and Eurointegration Department,
Sumy National Agrarian university, Sumy, Ukraine.
30. Viktoriia Hrytsenko - Postgraduate student, Sumy National Agrarian
University, Sumy, Ukraine.
31. Vladyslava Kornilova - Ph.D in History, Assosiate Professor, Economics
and Enterpreneurship Department, International University of Finance, Kyiv,
Ukraine.
32. Volodymyr Getmanskyy - Postgraduate student, SoftServe Company,
Lviv, Ukraine.
33. Wieslaw Olszewski - Dr.hab., Professor of Economics, Rector,
University of Economics, Bydgoszcz, Poland.
34. Yurii Hrysiuk - Ph.D in Economics, Associate Professor, Transport Law
and Logistics Department, National Transport University, Kyiv, Ukraine.
Introduction
Globalization, as a vector of promising and, at the same time,

productive multidimensional cooperation and economic reconstruction,
became the uniting idea of human development. The end of XX century
brought about fundamental changes in understanding the essence and
justification of the trends of global development of the national economy.
Despite the differences in approaches and the duration of global disputes, it is
obvious, that Ukraine has experienced changes that contributed to the
formation of a global dynamic spatial-temporal model of economic
development. The restoration of the economy and its transformation are not
only a complex of changes taking place in the economy and other spheres of
society. Global transformations are changes that are reproductive and
dynamic, alter the security system of the state, and require modelling of an
alteration in the qualitative characteristics of processes and the revision of
mechanisms to counter geopolitical challenges
The original characteristics and those that favourably distinguish this
research among others on this problem are the justified application of the
interdisciplinary methodology of setting the problems of forming a dynamic
spatial-temporal model of economic development and the systemicity of their
solution, which is ensured by the use of a holistic, interrelated set of methods
for analysing socio-economic processes and phenomena. The logical sequence
of the presentation of contents and results of the research, the critical
synthesis of foreign experience in the formation of the organisational and
institutional basis and the strategic modelling of the interrelation between
reproductive processes in the economy allowed us to comprehensively
describe the methodological grounds for the national economy restoration.
The monograph consists of three parts. Scientists and practitioners on
the management of rural areas should thoroughly evaluate the role of
beekeeping in the spatial-temporal dimension for sustainable rural
development and ensuring sustainable development of territories due to the
multiplier effect, which is highlighted in the first part of the monograph. The
10
authors’ estimation of the dynamic spatial-temporal model to develop the

logistic potential of the economy of a region, characterizes the ability of a
region to optimize the resource structure and effectively use the existing
logistic infrastructure. An integral indicator of logistic potential of Ukrainian
regions shows that Odessa, Dnipropetrovsk and Lviv regions are in the top
three leaders with the largest logistic potential among the regions of Ukraine.
The challenges and threats associated with the long-lasting opposition of
Ukraine to Russia's aggression qualitatively change the nature of the
restoration of the Ukrainian national economy, giving it new opportunities and
generating new risks. Therefore, only a consistent implementation of the
reformist course can strengthen the country's economic security by means of
creating a new model of growth based on the intensification of the resource,
scientific and technical, human potential of the real sector of the economy in
the process of rapprochement between Ukraine and the EU.
The construction of a model for the national economy restoration is
presented in the second part of the scientific research and includes the work
of authors in the direction of developing an economic and mathematical
model of a quantitative analysis of risk and finding the boundaries of foreign
trade flows of Lviv and Zakarpattia oblasts. The presented generalized method
of constructing dispersion ellipses of foreign trade flows of a region is
important for carrying out a comparative assessment of competitiveness and
economic security of the regions. According to the results of the criterion
rating, the presence of interregional imbalances by the state of investment
activity of the agrarian sector in Ukrainian regions was revealed and the
forecast of the gross value added of Ukrainian regions was made, depending
on the volume of the foreign investment resource for 2018-2020. The scientific
achievements of the authors show that at the stage of Ukraine’s preparation
to joining the EU and globalization of Ukrainian business, it is necessary to
expand the spatial and temporal horizons of planning and finding rational
decisions of investors and managers in the system of value-based
management. It is proved that the criterion for measuring efficiency is the
estimation of the static and dynamic effectiveness of trade activity, which
allows taking into account changes in the applied assets (resources), increasing
the margin of enterprises and it shows the merger (integration) of the
diminishing return and economic fluctuations in modern economic macro- and
micro-systems.
The final part of the study is represented by scientific works devoted to
the development of mechanisms for counteracting geopolitical challenges.
Among the main achievements, one can notice the mechanisms to implement
and develop integration and co-operation processes in the transport sector,
particularly, in road transport; devising a nationwide concept for the
development of the credit market of Ukraine under conditions of growing
political and economic challenges and the persistent crisis phenomena of
market entities; methodical and practical recommendations for Ukraine in the
field of promotion and regulation of international technology transfer;
directions to improve IT projects management. An important contribution of
the authors is the forecast of further encouragement of cooperation between
Ukraine and the People's Republic of China. In this context, a model of possible
bilateral or multilateral cooperation between Ukraine and the People's
Republic of China and other world economic and geopolitical leaders is
suggested.
The authors of the monograph believe that the state economic
security, the efficiency of the application of managerial and technological
innovations, the integration of regional economies into the megaregional and
global space depend heavily on the orientation of the vector and the degree of
the national economy development, the complexity and polystructural nature
of its functional load. That is why, the programmed problem-oriented
management of processes of the national economy restoration and meeting
the geopolitical challenges become an objective prerequisite for modelling and
substantiating the effective spatio-temporal and structural policy of the
development of Ukraine.
12
PART 1
ASSESSMENT OF THE DYNAMIC SPATIO-TEMPORAL MODEL OF

THE NATIONAL ECONOMY DEVELOPMENT
Liubov Mykhailova
Viktoriia Hrytsenko
ASSESSMENT OF THE VALUE OF APICULTURE IN SPACE-

TIME MEASUREMENT FOR SUSTAINABLE
AGRICULTURAL DEVELOPMENT
Abstract. The dynamics of the development of apiculture in the world and in Ukraine are
presented. The world trade in beekeeping products as well as the role of Ukraine in itare
described. The threats of the disappearance of bees to sustainable rural development in the
space-time dimension are generalized. The importance of beekeeping for ensuring sustainable
development of the territories due to the multiplier effectis substantiated. The methodical
approach of determining the lost profit (losses) by the economy of Ukraine due to the decrease
in the number of bee families was expounded and approved. Only in 2015, losses resulting from
the reduced number of bees and under-received crops amounted to 10.8% of the gross added
value of agriculture. The system of management of the beekeeping industry under conditions
of administrative-territorial reform and development of self-management is offered.
JEL Classification System: F14, O47, Q17, Q56

Key words: apiculture, beekeeping, gross added value, globalization,
agriculture, space-time measurement, economic growth, sustainable
development, Ukraine.
Introduction. Reforms that have recently occurred in Ukraine are aimed

at ensuring competitive production, including agricultural production, as well
as creating the basis for rural territorial development, improving the standard
of living of the rural population to the level of European standards.
Taking into account the strengthening of Ukraine’s relations with the EU
member states, such reforms should promote the role of self-government of
rural communities, transfer of powers to regulate agro-food markets and
development of their territories. Among all the markets, the beekeeping
14
market is one of the most EU oriented markets; more than 98% of beekeeping
products are produced in the households.
The development of the beekeeping market is certainly associated with
rural areas, since its main product – natural honey – cannot be obtained
without the interaction of bees and biological diversity. Since 2007, when
Ukrainian beekeepers won 4 gold and 4 bronze medals at the prestigious
Apelmondia World Apiculture Congress that was held in Australia, the rapid
popularization of Ukraine in the world as a beekeeping country began, and the
honey market is characterized as the export-oriented one. A strong impetus
was given to its development after Ukraine introduced an in-depth and
comprehensive free trade zone with the EUfrom 1.01.20161.
It is well known that beekeeping in Ukraine has become one of the
most attractive, stable and exporting industries, which contributes to the
formation of the country’s positive balance of payments. So far,this branch
only has strengthened its positions in the domestic and world markets,
including, due to its high quality and compliance with the world standards of
quality and safety of its products. The role of the beekeeping industry is also
important for sustainable rural development, since the success of its operation
is conditioned and supported by a balanced socio-economic and ecological
system and its constituent elements.
There is a high level of competition in the world market of beekeeping
products. With the purpose of integration and adaptation to the conditions of
its functioning and the implementation of effective foreign economic activity,
it is necessary to provide information to the subjects regarding competitors,
volumes, market needs and its conjuncture. As noted by Yatsenko O.2., the
world honey market is among the most globalized food markets. Among the
five countries that were the largest honey producers in the world in 2009–
1
Apimondia (2007). Ukrainian honey is recognized as the best in the world / Available at:
http://apimondia2013.org.ua/press-center/press-relises/135.html at date 01.10.2007 (inUkrainian–
Українськиймедвизнанокращимвсвіті)
2
Yatsenko O. (2011). Market conditions for the global beekeeping market / Formation of a market
economy: collective sciences works / Special issue: Organizational and legal forms of agro-industrial
formations: the state, prospects and influence on the development of rural areas: in 2 parts – 2011. –
Part 1. – P. 435–443.
2013, and produced an average of 1591 thousand tons, are China, Turkey,
Ukraine, Argentina and the United States (Table 1).
The largest producer of honey is currently China and the average
annual production of honey was 438.2 thousand tons, which is almost five
times higher than the annual production of Turkey (88.2 thousand tons) or
Ukraine (71.8 thousand tons). In recent years, such leading countries as the
USA, Russia have lost their positions first, and then Argentina has gradually
decreased in the rating.
Table 1. Honey production in the world, thousand tons

On
average Specific
Country 2009 2010 2011 2012 2013
over 5 weight,%
years
World
1 511,1 1 546,7 1 614,0 1 616,8 1 663,8 1 590,5 100,0
production
China 407,4 409,1 446,1 462,2 466,3 438,2 27,6
Turkey 82,0 81,1 94,2 89,2 94,7 88,2 5,5
Ukraine 74,1 70,9 70,3 70,1 73,7 71,8 4,5
Argentina 62,0 59,0 76,0 80,0 80,0 71,4 4,5
USA 66,4 80,0 67,3 64,5 67,8 69,2 4,4
Total honey
production
691,9 700,2 753,9 766,0 782,5 738,9 46,5
by leading
countries
3
Source: FAOSTAT data
At the same time, China, Turkey, and Ukraine have strengthened their
positions. In China, for the analysed period, honey production increased by 1.1
times or 55.9 thousand tons, in Turkey, respectively, almost 1.2 times or 12.7
thousand tons. In Ukraine, gross production is approximately at the same level
and an average of 71.8 thousand tons. It should be noted that the five leading
3
FAOSTAT (2014). Available at: // http://faostat3.fao.org/home/e /
16
countries account for 46.5% of the world's honey production.This indicator in

comparison with 2002–2007, grew by 4.8 pp4.
The average annual export of honey in the world for the period 2010–
2015 is 563.3 thousand tons (Table 2). Leading countries, among the ten
largest exporters, sell 69.7% of this amount in foreign markets. It should be
pointed out that the quality of honey by the China’s largest exporter is
estimated as low and imported as technical for the needs of the perfume,
cosmetic and confectionery industries because of its lower price.
The data in Table 2 show that the annual export of honey from China
over the past five years is 131.5 thousand tons, which is 2.1 times higher than
the export from Argentina, which exports 62.1 thousand tons. Such countries
as Mexico, Vietnam, India, and Germany sell on foreign markets 33.7; 32.5;
29.6 and 23.8 thousand tons of honeyrespectively, which, as a percentage of
total exports, is 6.0; 5.8; 5.3 and 4.2%, respectively, against 23.3% in China and
11% in Argentina.
Table 2. World export of natural honey, thousand tons

Average for 2010–
2015
№ Country 2010 2011 2012 2013 2014 2015 Amount, Specific
thousand weight,
tons %
World
493,9 498,6 539,2 580,5 616,1 651,5 563,3 100,0
exports
1 China 119,0 110,9 114,8 131,0 145,9 167,4 131,5 23,3
2 Argentina 59,0 71,1 77,7 66,7 54,6 43,5 62,1 11,0
3 Mexico 29,4 26,9 33,1 34,0 38,3 40,6 33,7 6,0
4 Vietnam 22,5 28,0 21,2 34,6 48,6 39,8 32,5 5,8
5 India 26,8 29,9 26,0 29,7 24,9 40,5 29,6 5,3
6 Germany 21,9 22,5 23,8 25,5 25,6 23,4 23,8 4,2
4
Cvitković D. (2009). EconomicaspectsofbeekeepingproductioninCroatia / D. Cvitković, Z. Grgić, Ž.
Matašin [etal.] // Veterinarskiarhiv.– 2009. –Vol. 79, No. 4.–P. 397–408.
7 Ukraine 7,5 11,4 15,8 25,5 37,6 37,9 22,6 4,0

8 Spain 21,4 20,2 20,3 20,3 24,6 21,9 21,5 3,8
9 Brazil 19,6 22,9 16,9 16,2 24,5 21,7 20,3 3,6
10 Hungary 12,9 11,8 13,7 18,3 17,4 16,2 15,0 2,7
Other 153,8 143,1 175,9 178,7 174,2 198,6 170,7 30,3
5
Source: data from the USDA Foreign Agricultural Service’s Global Agricultural Trade System
Ukraine is also approaching the leading positions, with the volume of

honey exports that for the period from 2010 to 2015increased by 5.1 times
and amounted to 37.9 thousand tons in 2015, which allowed Ukraine to take
the sixth position in the world and the first among the countries of Europe. On
average, for six years, the volume of honey exports in Ukraine was 4% of the
world figure.
The tendency of China towards getting the leading positions, according
to Yatsenko O.N.6, isdue to the large area of China, its leading role in the
production of fruit, which directly determines the development of the
beekeeping industry as a related area of agriculture, as well as cheap
labour.Germany, which is losing the leading positions of the exporting country,
is also the leader (ranking second) in the rating of importers of natural honey
with the volume of 89.5 thousand tons, or 16.5% of the world average volume
of honey imports in 2010–2015 (Table 3).
5
FAS (2017).Global Agricultural Trade System (GATS) // Available at:
https://apps.fas.usda.gov/gats/default.aspx
6
Yatsenko O. (2011). Market conditions for the global beekeeping market / Formation of a market
economy: collective sciences works / Special issue: Organizational and legal forms of agro-industrial
formations: the state, prospects and influence on the development of rural areas: in 2 parts –2011. – Part
1. – P. 435–443.
18
Table 3. World imports of natural honey, thousand tons

Average for 2010–
2015
№ Country 2010 2011 2012 2013 2014 2015 Amount, Specific
thousand weight,
tons %
World
465,6 483,6 498,1 574,5 603,1 639,7 544,1 100,0
exports
1 USA 90,2 122,9 116,4 140,9 148,4 156,3 129,2 23,7
2 Germany 88,7 81,4 87,6 94,7 90,6 94,3 89,5 16,5
3 Japan 43,4 38,1 36,9 40,3 35,3 36,2 38,3 7,0
United
4 33,9 37,4 35,6 41,2 37,3 42,8 38,0 7,0
Kingdom
5 France 26,1 28,2 26,3 31,2 36,9 32,8 30,3 5,6
6 Belgium 23,1 19,4 23,5 27,4 30,3 32,4 26,0 4,8
7 Italy 16,7 15,6 16,8 19,2 22,6 27,9 19,8 3,6
8 Spain 11,7 13,0 13,5 17,0 19,8 24,2 16,5 3,0
9 Poland 11,3 11,1 11,7 18,7 18,1 18,3 14,9 2,7
Saudi
10 9,0 11,1 10,5 14,0 18,1 11,7 12,4 2,3
Arabia
Other 111,6 105,4 119,4 130,0 145,5 163,0 129,1 23,7
7
Source: data from the USDA Foreign Agricultural Service’s Global Agricultural Trade System
The data in Table 3 show that in the first place among importers is the
United States with a volume of 129.2 thousand tons, which is 23.7% of the
world imports. The demand for imported honey in the US is constantly
growing because of the problems with a sharp decline in populations of bees.
Germany and the United States are the largest importers of Ukrainian honey.
Analysing the change in the volume of honey exports (Figure 1), we see
that Ukraine has a clear tendency to increase it. For 2000–2006 its volumes
7
FAS (2017). – Global Agricultural Trade System (GATS) Available at: //
increased by 42 times (by the quantitative indicator). At the same time, the
world economic crisis of 2007–2008 led to a fall in exports, and since 2009
there has been a tendency to increase itagain. In general, for the period from
2008 to 2016, the volume of honey exports from Ukraine increased by 17.5
times (in tons).
These dynamics of exports of Ukrainian honey (Figure 1) in recent years
indicate its rapid growth, despite the fact that the duty-free quota for import
of honey in the EU until 2017 amounted to only 5,000 tons.
Figure 1. Dynamics of Ukrainian exports of natural honey
8
Source: data of the State Fiscal Service of Ukraine
Ukrainian companies, paying 17% duty, sell the remaining quantities of

honey in the EU. Only on January 1, 2017, the European Parliament supported
the increase of the tariff quota on Ukrainian honey up to 8,000 tons. The
export of honey from Ukraine for 2016 amounted to 56988 tons, which is
58.2% more than the export volume of honey of the previous year. The main
buyers of Ukrainian honey were and are Germany, Poland, the USA, but the
links with Russia are lost completely. From then on, no ton of honey was
delivered there (Table 4).
8
State fiscal service of Ukraine (2017). Total volume of import and export by commodity items by codes
UKTZED Available at: // http://sfs.gov.ua/ms/f11
20
Traditionally, Chinese suppliers have been the leader in supplying

honey to the German market, but recently, because of the poor quality and
long delivery time, the Germans increasingly expressa preference for Ukrainian
products, and therefore Ukraine is in the third place among the importers of
Germany9.
In the Polish market, Ukraine has been holding a leading position among other
importers in the last five consecutive years according to the data of the European
Commission10.
Table4.The geographical structure and export volumes of Ukrainian honey,

tons, %
Amount Specific
№ Country 2011 2012 2013 2014 2015 over 5 weight,
years %
1 Germany 3845 5783 9748 11472 11826 42674 36,4
2 Poland 930 2211 4485 6976 5610 20212 17,2
3 USA 239 1022 2594 7807 7641 19303 16,5
4 Russia 3423 2290 471 19 0 6203 5,3
5 Turkey 208 515 1034 1397 1742 4896 4,2
6 Spain * * 358 1563 1377 3298 2,8
7 France 82 * 148 1783 1033 3046 2,6
8 Lithuania 21 82 416 608 1308 2435 2,1
Czech
9 308 96 115 374 1069 1962 1,7
Republic
10 Other 817 1340 2305 4337 4407 13206 11,3
11 Total 9873 13339 21674 36336 36013 117235 100,0
* No data available
11
Source:authors’ own calculations on the basis of the State Fiscal Service of Ukraine data
16.5% of Ukrainian natural honey was deliveredin the US market. At the same
time, Ukraine is the sixth country among the main suppliers of honey to this country.
9
European Commission  (2017). Trade : Export Helpdesk : Statistics // Available
at:http://www.exporthelp.europa.eu/thdapp/display.htm?page=st%2fst_Statistics.html&docType=main
&languageId=en
10
The same
11
UKTZED // Available at:http://sfs.gov.ua/ms/f11
It should be noted that the import of honey in the US is increasing due to the
fact that own production has a tendency to decrease. Domestic honey provides only a
third of the consumption volumes, more than 70% of the US honey is imported, and
this figure only increases with time. The United States introduced anti-dumping
sanctionson cheap Chinese honey. In the American honey market, Ukraine is
competing with supplies from Argentina, Brazil, Vietnam, India and Canada. According
to Table 4, we see that Ukraine began to supply more honey to Turkey, Spain, France,
Lithuania and the Czech Republic.
The leading importers such as Germany, Poland and the USA account for 70.1%
of all exported honey. Mostly, Ukrainian honey is sold to member countries of the
European Union; their share is 71.9% of honey exported abroad. In 2016, there were 38
countries in the list of importers of Ukrainian honey intotal.
It should be noted that in the world market prices for honey, including,
Ukrainian honey,are falling. The largest amount of honey was sold at a price of $ 2,300
to $ 2,600 / ton. In order to increase the price level, it is necessary to solve a number of
problems related to the conformity of quality of Ukrainian honey to world standards
and deliveries of non-raw materials and finished products in individual branded
packaging.
The second reason, which influences the decline in the price for Ukrainian
honey, is the increase in the number of exporters, that is, an increase in the supply of
Ukrainian honey on the world market. According to the register of export capacities of
the State Service of Ukraine on food safety and consumer protection, as of July 1, 2016,
the number of registered exporters of beekeeping products was 55 subjects, although
in 2015 there were 45 of them.
Ukraine is one of few countries that provide themselves with honey on
their own. However, recently there has been a gradual increase in the volume
of its import (Table 5).
22
Table 5.Volumes of imports of natural honey to Ukraine

Growth over
Indicators 2011 2012 2013 2014 2015 2016 6 years,
times
Cost,
thousand 16 236 89 248 98 309 19,3
dollars. USA
Weight, t 2 23 22 53 17 118 59,0
12
Source:authors’ own calculations on the basis of the State Fiscal Service of Ukraine data
Along with the increase in the volume of honey exports to Europe, Ukraine
began to export beeswax. The volumes of wax export are reflected in Table 6.
Until 2015, Ukraine did not export wax abroad at all and only after the
implementation of the Association Agreement with the EU, it gradually began
to increase its exports. The largest buyer of wax is Poland, which is 85.7% of
the total volume of wax exports from Ukraine.
Table6.Volumes of export and import of wax in Ukraine

Import Export
Balance,
Year Cost, Cost, thousand US
thousand Weight, t thousand Weight, t dollars
US dollars US dollars
2011 66 17 0 0 -66
2012 45 6 0 0 -45
2013 42 14 0 0 -42
2014 37 3 0 0 -37
2015 104 18 677 118 573
2016 73 14 1253 224 1180
0 - No export exported
13
Source:authors’ own calculations on the basis ofthe State Fiscal Service of Ukraine data
12
13
Of course, the volume of production and export of honey and wax is

directly influenced by the number of bee colonies (Table 7). India hasthe
largest number of beekeeping families in the world: 11,350 million families,
which is 14.4% of their total number in the world.
Table 7.The number of bee colonies in the world, thousand families

On
Specific
average
Country 2009 2010 2011 2012 2013 weight,
over 5
%
years
World
76187,9 78077,5 78565,8 80370,9 80910,1 78822,4 100,0
quantity
India 10600,0 11500,0 11500,0 11550,0 11600,0 11350,0 14,4
China 8827,2 8897,7 8953,9 8987,2 9020,0 8937,2 11,3
Ethiopia 3049,3 3250,1 4993,8 5207,3 5250,0 4350,1 5,5
Iran 3500,0 3500,0 3400,0 3250,0 3200,0 3370,0 4,3
Turkey 3400,0 3250,0 3200,0 2975,6 3047,2 3174,6 4,0
Russia 2975,6 3047,2 3049,3 3250,1 3500,0 3164,5 4,0
The total
number of
beekeeping 32352,1 33445,1 35097,0 35220,2 35617,2 34346,3 43,6
families of
the leaders
14
Source: authors’ own calculations on the basis ofthe FAOSTAT of Ukraine data
Their number in the world is gradually increasing, and in 2013

amounted to 78.8 million families. Next in the ranking are China (8.9 million
families or 11.3%) and Ethiopia (4.4 million families or 5.5%). 4% accounts for
countries that have a little more than 3 million bee colonies – Iran, Turkey and
Russia. At the same time, India, China, Ethiopia and Russia show a steady
increase in the number of bee colonies.
For 2009–2013 the total number of beekeeping families in the world increased
by 4.7 million or 6.2%.
14
FAOSTAT The number of bee colonies in the world // Available at:http://faostat3.fao.org/home/e /
24
In Ukraine in recent years, there has been a tendency to reduce the number of
bee colonies, and the country is not among the leaders. Thus, if in 1991 there were
3,515 million beekeeping families, then until 2004 their number decreased to 2,758
million . In 2007, their number reached 3,456 million , which was equal to the level of
1991, after which there was a trend towards a decreaseagain.
On January 1, 2016, there were 2,590 million beekeeping families in all
Ukrainian economies according to statistical data (Figure 2). It is worth noting that since
2012, Ukraine has entered the European market of bee’s trade. Thus, according to the
European Commission, in 2016, bees were exported to Poland in the amount of 7,477
euros, while at the same time they were imported from other countries in the amount
of 54,358 euros15.
Figure 2. Dynamics of the number of bee colonies in Ukraine as of the beginning of the
year, thousands of families
4000,0
3515,1
3369,0 3421,9
3500,0
3150,5
3432,52856,5 2907,8 3456,1 2890,9 2985,8
3000,0 2757,7 3250,3
2590,0
2980,4 2921,5 2935,5
2500,0 2849,3 2810,5
2699,6
2000,0
1500,0
1991 1996 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
16
Source:authors’ own calculations on the basis of the State statistical service of Ukraine
Data on export-import of beekeeping in Ukraine are presented in Table 8. This

situation with the importation into Ukraine of bees of non-ionized breeds “Buckfast”,
“Karnika”, “Italiana” and others contradicts the legislation of Ukraine on pedigree
zoning of bees and adversely affects the genetic properties of Ukrainian bee breeds.
15
European Commission (2017). Trade : Export Helpdesk : Statistics // Available at:
http://www.exporthelp.europa.eu/thdapp/display.htm?page=st%2fst_Statistics.html&docType=main&la
nguageId=en
16
State statistical service of Ukraine (2016).LivestockofUkrainefor 2015 / State statistical service of
Ukraine. 2016. –P.211
Table 8.Indicators of trade of bees’ families of Ukraine with the European

Union
Indicators Export to EU, euro Import from EU, euro
Year 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Holland * * * * 11046 2 200 23958 13499 4366
Poland 6652 8815 7256 * 7477 ** ** ** ** **
Slovakia * * * * * ** ** ** ** 49992
Total 6652 8815 7256 * 7477 1146 2 200 23958 13499 54358
17
Source:authors’ own calculations on the basis of the European Commission statistics
* No export data available
**No import data available
This reduces their natural productivity, can cause diseases of bees, which until
then did not occur in Ukraine18.
In general, in Ukraine there is a tendency towards a fall in the
production of honey with a significant upward trend in its exports. In the near
future, as we see, the volumes of produced honey will restrain the growth of
its exports.
In the world, as A. Ponomarev notes19,referring to the forecast of the
consulting company Global Industry Analyst, Inc. (GIA), by 2022 the global
production of marketable honey will increase to 2.4 million tons, or by 1.5
times. The following factors will contribute to this: increasing the world
interest in honey as a valuable natural product; the increasing use of honey in
medicine; spreading the use of honey as a means to combat obesity as an
alternative to sugar and artificial sweeteners; the growing demand for honey
from the cosmetic industry; the increasing use of honey by the food industry
as an ingredient in popular food products and beverages. Moreover,
adulteration of honey and a high level of death of honeybees will remain the
17
European Commission (2017). Trade : Export Helpdesk : Statistics // Available at:
http://www.exporthelp.europa.eu/thdapp/display.htm?page=st%2fst_Statistics.html&docType=main&la
nguageId=en
18
Order of Ministry of agriculture (2000).On Approval of Regulatory Acts on the Development of
Beekeeping, approved by the Order of the Ministry of Agrarian Policy № 184/82 approved at 20.09.2000
Available at:http://zakon2.rada.gov.ua/laws/show/z0736-00
19
Ponomarev A. (2017). Prospects of the global honey market / A.Ponomarev //Available
at:http://www.apiworld.ru/1491300042.html
26
most global threats to the global bee industry. This situation confirms a
decrease in the production capacity of honey with a constant increase in
demand for it in European countries. Why bees disappear, it isunknown. The
phenomenon of sudden disappearance of beeswas called Colony Collapse
Disorder by experts from the UnitedStates (“Violations that cause death of a
bee swarm”)20, but there are a number of theories:
1. Ticks, in particular Varroa mite (Varroadestructor)21, which came
from Asia to Europe. One can combat the tick by using insecticides, but honey
after such treatment is not subject to sale because of the possibility of
containing poison.
2. 14 types of virusesweredetected in honeybees: American foulbrood,
European foulbrood, as well as the Israeli acute paralysis virus (IAPV)22 .
3. Herbicides and pesticides thatare used by modern agriculture
caneither immediately kill bees or make them vulnerable to mites. In
Berdychiv raion of Zhytomyr oblast, two-thirds of the bees died in a few days
in the summer of 2012; this situation is associated with beekeepers spraying
pesticides in the fields 23.
4. It is assumed that the cause of mass death of bees can be radio
signals of cellular networks. This conclusion was recently reached by scientists
from the University of Koblenz-Landau, Germany.
5. The spread of monocultures in agriculture destroys the habitat of
pollinating insects. Spanish scientists from the University of Cordoba blame
malnutrition, or rather, the monotonous food of bees, forced to pollinate large
uniform fields, for the collapse of the colonies.
20
Latest Penn State College Of Agricultural Sciences News (2007).HONEY BEE DIE-OFF ALARMS
BEEKEEPERS, CROP GROWERS AND RESEARCHERS//Available
at:http://web.archive.org/web/20070703050700/http://www.aginfo.psu.edu:80/News/07Jan/HoneyBee
s.htm
21
Anderson, D. L. & Trueman, J. W. H. (2015). Varroa jacobsoni (Acari: Varroidae) is more than one
species. Exp. App. Acarol. 24, 165-189 // Available
at:https://www.researchgate.net/publication/283318630_Anderson_and_Trueman_2000
22
Cherkasova (1989).Beekeeping, ed. Cherkasova AI. – K.: Harvest, 1989
23
TSN (2012).Bees mysteriouslydie in Zhytomyrregion// Available at:https://ru.tsn.ua/ukrayina/na-
zhitomirschine-zagadochno-umirayut-pchely.html (inUkrainian–
НаЖитомирщинезагадочноумираютпчелы)
6. American scientists believe that the stress caused by the

deterioration of the ecological situation on the planet, and GMOs weaken the
immunity of bees and make them vulnerable to adverse environmental
factors.
The consequences of the complete disappearance of bees will be
catastrophic for the economy of the whole world, as well as for ensuring
sustainable development.
Sustainable development is a general concept that calls for a balance
between meeting contemporary human needs and protecting the interests of
future generations, including their needs for a safe and healthy environment24.
The Brundtland Commission report defines sustainable development as
“development that meets the needs of the present generation without
compromising the ability of future generations to meet their own needs”25.
Using this approach, we will characterize the conditions for conducting
beekeeping, which make up the potential of rural development: the human,
labour, and entrepreneurial potential of beekeepers, who are traditionally
engaged in this business; natural biological potential: lands, forest plantations,
honey plants, high-performance bees, etc.; the present possibility of exporting
honey and increasing its competitiveness.It is well known that due to the
multipliereffect, the development of this industry will contribute to the
effective development of crop production, livestock raising, raising the yield of
agricultural crops, and the quality of animal feed. Thus, there is an increase in
the resource base for processing industries and, as a result, an increase in
value added, an improvement in the living conditions of not only beekeepers
but also the entire population of the territorial community.
The development of beekeeping supports the biological diversity of
honey plants (buckwheat, clover, alfalfa, etc.); helps to increase the green
mass of the earth, provides other living organisms with plant food, replenishes
the atmosphere with oxygen, and thus improves the state of the natural
24
Hryniv L. (2001). Ecologically balanced economy: theory problems: monograph. / L. Hriniv. –Lviv: LNU
them. I. Franco, 2001
25
Butlin J. (1989). Our common future.By world commission on environment and development. (London,
oxford university press, 1987, pp.383 £5.95.) / J. Butlin // Journal of International Development.– 1989. –
Vol. 1, No. 2. – P. 284–287.
28
environment, and develops ecotourism. In addition, beekeeping promotes the

education of love for nature and the environment, because it requires people
who are engaged in this activity, a philosophical view of life, accuracy in the
performance of work, diligence (Figure 3).
Figure 3. The influence of beekeeping on sustainable rural development
Sustainable development of beekeeping
Economy Population Environment

• building up a resource base for • improving the • conservation of
processing enterprises living conditions biological diversity
• increase in value added of the population • increasing the
• increase of yield and quality of • preservation of surface of the green
agricultural crops indigenous mass of the earth
• improving the quality of feed for cultural traditions and providing
animals and, accordingly, the • fostering love for plantfood to other
quality of livestock products nature living organisms
• promoting food security and poverty • promotion of • oxygen
alleviation rural employment replenishment
• prevention of unjustified expenses • promoting • promoting the
in the future people’s health restoration of
• support the development of green natural soil fertility
tourism
• ensuring the rural population with a
constant income from the activities
carried out
• long-term development assistsnce
• opportunities for energy
independence
Sustainable rural
development
Source:compiled by the authors on the basis of the research
The conducted researches give grounds to assert that for a long time in
the development of strategies for sustainable development of territories and
administrative and territorial units, they do not take into account the natural
ways of realizing the potentials of the region, including paying no attention to
the losses incurred by the rural economy of the region and the country as a
whole because of the loss of bee colonies.
In domestic literature known to us, we did not find a methodology that

would help assess the lost economic effect of the loss of bees by beekeepers
because of bees’ death.
At the same time, American researchers have been trying to determine
the value that bees bring to society for a long time26.
Khristenko O. points out the importance of full-fledged pollination of
the main entomophilous cultures with bee colonies27. Thus, the minimum
need for beekeeping in these purposes in 2011 was provided overall in Ukraine
only by 56.6% in the pollination of buckwheat and sunflower, which bloom in
the same period. Since then, the number of bee colonies is decreasing, and the
area of sunflower crops is increasing.
Only in some cases, agricultural producers offer payment for
pollination28, but there is no systematic approach. Therefore, given the
importance of the proven role of beekeeping for the development of rural
economy and sustainable rural development, we will outline our own
methodological approach to quantifying the direct losses from the
disappearance of bees on a certain territory.
In this case, we will distinguish between direct and indirect losses. To
the indirect or those that are difficult to calculate, we attribute:
− losses due to the quality of the crop;
− expenses on medicines that people could not buy, consuming high-
quality products (natural, environmentally friendly), including beekeeping
products that contribute to the enhancement of human health; as well as state
expenditures on the health care system;
− losses resulting from the impossibility of improving technologies in
beekeeping, an increase in production volumes, and, as a result, a decrease in
the purchasing power of the population, which is the owner of bees.
26
GillR. A. (1991). TheValue ofHoneybeePollinationtoSociety / R. A. Gill // Apiacta.– 1991.–No.4.
27
Khristenko O. (2004). Bees are an indispensable link in the field of agricultural production / O.A.
Khristenko // Bulletin of Agrarian Science of the Black Sea Region. – 2004 –Vol. 2,P. 301–304.
28
Zhuchenko D. (2014). Prerequisites for the establishment of a regional cooperative association of
beekeepers / D. B. Zhuchenko // Effective economy. – 2014. – No. 2 // Available
at:http://www.economy.nayka.com.ua/?op=1&z=2750
30
To direct losses we attribute the cost of lost bee families; the cost of
lost production of beekeeping because of the loss of bees and the cost of less
harvest of entomophilous crops. Calculations for determining the estimated
losses / lost revenue will be made according to the following formula:
= б б +∑ б бі пі +∑ б + С, (1)
Where W – loss of the region’s economy from the disappearance (decrease) in

the number of beekeeping families, UAH;
б –number of dead bees, families;
б –market value of one family in the period of their death, UAH;
бі – productivity of 1 family in the i-th kind of product, kg;
пі – market price of the i-th kind of beekeeping products in dynamics, UAH /
kg;
– area of the j-th species of entomophilous cultures pollinated by 1 colony,
ha;
– yield of the j-th type of agricultural crops, kg / ha;
– coefficient of lost crop due to lack of pollination by bees29;
– market price of 1 kg of under-received harvest, UAH / kg;
C –additional costs for the restoration of the number of bee families.
Using statistical data of the State Statistics Committee of Ukraine, we

determined by this method the losses that the Ukrainian economy has
experienced throughout 2010–2015 (Table 9).
The data presented indicate a significant loss of bee colonies figures in
the country. Hence, in 2015, for the Ukrainian economy, the losses due tothe
decreased number of bees and under-harvested crops, according to our
methodology, constitute 10.8% of the gross added value of agriculture, and
are the highest for the last 6 years.
29
UAAS Instituteofbeekeeping named afterP.І. Prokopovich (2004). Recommendations for the use of bee
families for pollination of entomophilic cultures – Kyiv: 2004. – 12 p.
Table 9. Calculation of losses / benefits from changes in the number of bee

colonies in Ukraine (on honey production, compared to the previous year)
Loss of the economy of agriculture,
pollination over losses (benefits) of

families compared to the previous
Honey production of 1 bee family,
during pollination by bees, million
Specific weight of losses / gains in

Loss / benefit of additional crop
Gross added value, million UAH
Excess of losses (benefits) from

Change in the number of bee
Loss / benefit of beekeeping,
the gross added value of
beekeeping, times
year, families
agriculture,%
million UAH
million UAH
UAH
Year
kg
2010 -99500 22,50 -142,4 -2406,8 -2549,2 82948 -3,07 16,9

2011 -229000 24,07 -332,9 -7592,7 -7925,6 109961 -7,21 22,8
2012 -30600 24,26 -50,7 -985,5 -1036,2 113245 -0,92 19,4
2013 +44600 25,11 +79,3 1643,9 1723,2 132354 1,30 20,7
2014 +50300 22,28 +91,3 2079,3 2170,7 161145 1,35 22,8
2015 -286200 23,56 -786,9 -24750,6 -25537,5 236003 -10,82 31,5
30
Source: calculated by the authors according to the State Statistics Committee of Ukraine
The volume of poor sunflower and buckwheat harvest in the same year
exceeded by 30 times the amount of the cost of under-received honey and lost
families.
It should be mentioned that this approach does not take into account
the full accounting of all losses, since it is very difficult to estimate what
additional income could be obtained from the secondary use of the sunflower
and buckwheat harvest during processing, due to the lost productivity of cows
through feeding low-quality feeds.
To reduce losses in the economy of the regions and the country, it is
important to prevent a further decrease in the number of bees, promote the
development of beekeeping and increase its competitiveness.
M.F.Kropivko notes that the competitive production of consumer
goods (including honey) that occurs in rural areas should be large-scale, that is,
30
State statistical service of Ukraine (2016).Livestock of Ukraine for 2015 / State Statistics Service, 2016 –
P.211;
32
production, which is capable of forming and supplying a large enough

(wholesale) quantity of goods to the market. With this kind of production,
there is a “growing scale effect”31.
At present, agroholdings are rapidly developing in Ukraine, in which we
see both positive and negative points. The disadvantages are as follows: they
do not contribute to sustainable rural development due to many factors;they
operate and use resources on the territory of one community, but actually are
registered in another; they do not have any interest in interacting with the
population; there is a low socially responsible culture of doing business.
Although, the cooperation in the countryside, including beekeeping, is
undeveloped, it could assist in the development of the united communities,
creating jobs and filling the budget of the community, where they operate.
We believe that in the future the effectiveness of beekeeping will be
largely conditioned by the development of various forms of cooperation:
productive, consumer, multifunctional, and their integration. At the same
time, the mechanism of the beekeeping management system should be
changed in the context of powerdecentralization.
We propose a system for managing the beekeeping industry, which
involves three levels - the community, regional, interregional ones and
specifies the list of their main functions (Table 10).
It is important to manage the development of beekeeping because in
this way one can correctly determine the number of beekeepers who work in
the region, the number of families of bees they contain, by fully registering
them. Improving the process of registering beekeepers and updating data in
such a register can contribute to an increase in the social responsibility of
society and its individual members for the results of their work. On the basis of
such data, it will be possible to clearly define the veterinary and sanitary state
of the apiaries, control the quality of products, and facilitate the marketing of
beekeeping products.
31
Kropivko M. (2014). Organization and planning of complex development of agro-industrial production
and rural territories in the conditions of decentralization of power authorities / MF Kropivko // Economy
of agroindustrial complex. – 2014. – No. 7. – P. 109–121.
Table 10. The management system of apiculture in conditions of sustainable

rural development
Levels of Performed functions
management
Level of territorial - interaction with economic entities to regulate the
community processing of crops entomophilous crops and prevent
loss of bees
- marketing of beekeeping products
- provision with means of production
- quality control of bee products
- introduction of advanced technologies for intensive
integrated beekeeping
- organization of training of sandstones
- organization of veterinary and sanitary
-hygienic measures
- primary processing of products, storage
- lending and insurance of apiaries
Regional (uniting the - processing of bee products, production of
efforts of several aphyphotopreparations
territorial - provision of apiaries with fixed assets and materials
communities) - selling the surplus of bee products outside the region,
the country
- organisation of pedigree beekeeping
- selling aphyphotopreparations and organisation of
their mass application in the regions
- creation of a purposeful marketing campaign to
promote honey and other beekeeping products and
advertise them as socially significant products of
organic origin with medicinal properties and protection
of bees
Interregional (state) - organisation and financing of the development of new
technologies for integrated beekeeping, as well as their
34
introduction through regional and district

administrations on farms
- coordination of interregional flows of apiphytic
products
- development and introduction of advanced
technologies for mass application of
aphyphotopreparations
- production of progressive types of packaging for
beekeeping products
It is important to carry out explanatory work, support initiatives to

create cooperatives and train beekeepers in advanced methods and
technologies of beekeeping. To improve the state of the industry, it is worth
using the proposed mechanism byZhuchenko D.32 for the calculation of
pollination of entomophilous agricultural crops and fruit and berry
plantationsby bees.
Combining co-operatives into large associations will allow the creation
of commodity batches of honey for export, its processing and the creation of
apyfit products for own consumption. The management of such processes will
be at the regional level. In the territory of several communities, there may be a
breeding apiary that will provide cooperatives with high-quality breeding
material.
At the regional and national level, a purposeful marketing campaign
should be created to promote honey and other beekeeping products,
advertise them as socially significant products of organic origin with medical
properties, and protect bees as an essential environmental component of the
development of society and the economy.
At the highest state level, one should carry out coordination of work on
organization and financing of the development of new technologies for
32
Zhuchenko D. (2014). Prerequisites for the establishment of a regional cooperative association of
beekeepers / D. B. Zhuchenko // Effective economy. – 2014. – No. 2 // Available
at:http://www.economy.nayka.com.ua/?op=1&z=2750
integrated beekeeping, as well as their implementation through regional and

district management on farms; coordination of inter-regional flows of apyfit
products; development and introduction of progressive technologies of mass
application of aphyphotopreparations for improving the health of the
population; production of progressive types of packaging for beekeeping
products.
Bees can play a major role in increasing the yield of crops not only by
pollination. Hence, in the USA a new principle of delivery of plant protection
products to the fields has already been patented. Bee Vectoring Technologies
company offers to treat entomophilous plants (peaches, almonds, apple trees,
watermelons and sunflowers) by biological agents of disease control by means
of their delivery by bees. The press service of the company reports that the
increase in yields in the fields of sunflower in 2016 when testing this method
of plant protection was 31%. At the same time, no additional funds were spent
on the processing of agricultural crops33.
Conclusions. Therefore, we believe that for the development of the
honey market and pollination market in the region, a beekeeping development
programme is needed that will take into account its own characteristics and
will be adaptively adjusted, based on changing market conditions. The creation
of the programme for the development of beekeeping should be carried out in
close cooperation among representatives of households and cooperatives with
executive and legislative authorities of the region, research and training
institutes.
It is assumed that the following activities should be implemented in the
process of programme formation: an industry development strategy will be
adopted and the functional responsibilities between the participants will be
distributed; specialists of scientific research institutions will jointly solve
problems on the formation of a unified information system and procedures for
the preparation of constituent and internal documents; supporting the
creation of new beekeeping farms serving cooperatives; conducting seminars
33
BVT (2017).A bee friendly dispenser system// Bee vectoring technology. Hive & bees in an inoculum
dispenser system // Available at:http://www.beevt.com/solution/hive-bees-bee-vectoring-technology/
36
for beekeepers on the organisation and management of production, carrying

out zootechnical and veterinary activities; providing consulting support for
producers, analysis and monitoring of the development of the industry; help in
the development of business plans; formulating a unified state policy on the
development of beekeeping; public associations of beekeepers and
agricultural beekeeping cooperatives serving beekeepers will defend the
interests of business, continue to take part in the development of various
regulatory and legal acts that promote the development of the industry; farms
containing bees will unite material and financial resources for the formation of
agricultural serving or multifunctional cooperatives, manage them, take direct
part in the activities of cooperatives.
Nataliya Marhita
Lviv Polytechnic National University, Lviv, Ukraine
Roksolana Voronina
LOGISTIC CAPACITY ASSESSMENT

OF UKRAINIAN REGIONS ON THE BASIS
OF THE INTEGRAL INDEX OF LOGISTIC CAPACITY (IILC)
OF THE REGION
Abstract. The methodological approaches for the regional logistic capacity assessments are
analysed in the study, and the integral index of logistic capacity (IILC) of regions is calculated.
Different interpretations of the “regional logistic capacity” concept are analysed. The regional
logistic capacity features the region’s ability to optimize the resource structure and efficiently
use the existing logistic infrastructure to optimize the material flows within the scope of
regional and national support in order to obtain a positive economic effect for the region.
The analysis of integrated logistic performance index (LPI) for Ukraine and its close neighbours
showed that in 2016 Ukraine’s position in the global LPI ranking worsenedto 80 positions
among 160 countries with estimated 2.74 points.
The logistic capacity of Ukrainian regions was calculated on the basis of its components such as
general economic indexes, performance of the transport and logistic sector, transport
infrastructure capacity and logistic infrastructure capacity. The calculated integral index of the
logistic capacity of Ukrainian regions showed that the top three leaders with the largest logistic
potential are Odesa (total score 42.07), Dnipropetrovsk (41.27) and Lviv (40.34) regions. The
division of Ukrainian regions according to the level of logistic capacity development into 3
groups is suggested: regions with high, medium and low level of logistic capacity development.
JEL Classification System: R 22, C 43.

Key words:regional logisticcapacity, components of logistic capacity, the
approaches to the logistic capacity assessment, LPI, the integral index of
logistic capacity.
Introduction. Current conditions of a market economy are characterised

by tightening of competitiveness struggle not only among the companies but
38
also among countries and regions.In these conditions, measures aimed at

increasing the competitiveness of regions within the regional policy acquire
special urgency.Competitiveness of countries and regions determines the
volume of capital attraction, inflow of skilled personnel, regions infrastructure
development, etc.At the same time, the competitiveness of each region, on
the one hand, indicates the effectiveness of the activities performed there
while, on the other hand,it determines the effectiveness of the conditions
created for business functioning.
The research analysis confirms that except natural resources,
geopolitical, social and economic components of the regional logistic capacity
the most important prerequisites for regional development are infrastructure
logistic support, i.e., road and storage infrastructure, logisticcentres, clusters,
as well as creation of special conditions for investments attraction (special or
free economic zones, technology parks, etc.). Creation of the logistic objects
ensures the conditions for competition between different regions while the
logistics inversely affects the attractiveness of these areas.
An integrated logistic performance index LPI34 is one of the indexes by
means of which the effectiveness of logistics is evaluated in 160 countries of
the world.LPI is an interactive tool for comparative analysis, which is based on
the following parameters:
− alevel of customs service (Customs);
− alevel of trade and transport infrastructure (Infrastructure);
− ease of procurement documentation performance (Ease of arranging
shipments);
− quality of service and competence in the logistic sphere (Quality of
logistics services);
− alevel of cargo tracking (Tracking and tracing);
− timeliness.
In 2016 the position of Ukraine in the global LPIranking fell to the 80th
among 160 countries with a score of 2.74, compared to 61st position in 2014
34
Internet resource of the World Bank [Electronic resource]. – Available at:
https://lpi.worldbank.org/international/global
ranking and with a score of 2.98 (Table 1).For comparison, Hungary and Poland
in 2016were the 31st and 33rd in ranking.
Table 1.LPI ranking of Ukraine in 2010–2016

Tracking
LPI LPI Infra- International Logistics Time-
Year Customs &
Rank Score structure shipments competence liness
tracing
2016 80 2.74 2.30 2.49 2.59 2.55 2.96 3.51
2014 61 2.98 2.69 2.65 2.95 2.84 3.20 3.51
2012 66 2.85 2.41 2.69 2.72 2.85 3.15 3.31
2010 102 2.57 2.02 2.44 2.79 2.59 2.49 3.06
35
Source: compiled on the basis of
It should be noted that during 2010–2014, there was an improvement of

the integrated logistic performance index for Ukraine, but from 2014 to 2016,
this index significantly decreased due to the worsening of the customs service
conditions, trade and transport infrastructure and international shipments.
When comparing LPI of our close neighbours – Poland and the Russian
Federation (Figure 1), we can see that the Ukrainian LPI rank is higher than
that of the Russian Federation – 80 and 99 respectively, but much lower than a
Polish one – 33. Ukraine has very low logisticcompetence, bad infrastructure
and our customs areinefficient.
35
Internet resource of the World Bank [Electronic resource]. – Available
at:https://lpi.worldbank.org/international/global
40
Figure 1. LPI comparison of Ukraine, Poland and theRussian Federation in 2016
LPI Score
4
3,5
3
Timeliness 2,5 Customs
2
1,5
1 Poland
0,5
0 Ukraine
Tracking &
Infrastructure Russian Federation
tracing
Logistics International
competence shipments
36
Thus, the analysis of regional logistic capacity is particularly relevant in

present conditions, since subsequent management of regional development
and creation of new competitive advantages depend on correct identification
of opportunities, priority development areas and comparative advantages of
the region. The formation of strategic development directions that are
particularly relevant for those countries and regions has to be madebased on
such an analysis.
I. Regional logistic capacity: the nature and methodological approaches
to its evaluation
Effective management of regional competitiveness must be based on the
evaluation of its logistical capacity and identification of the nature of the
“logistic capacity” concept(Table 2).
36
Internet resource of the World Bank [Electronic resource]. – Available
Table 2. The interpretation of the concept of “regional logistic capacity”

Author Definition
Moroz O.D. capabilities of a region in the area of economic
activity related to ensuring the efficient movement
of economic flows of the region, ensuring efficient
transportation, supervision of the proper
performance of all the above-mentioned functions
SyzdykbaievaB., aggregation of the indexes and factors featuring
RaimbekovJ., the strength, sources, capabilities, assets and other
ZhumataievaB. reserves that can be used in economic activity
Uvarov S.A. elements of the infrastructure logistic complex
facilitating achievement of the objectives of
enterprises in the area of regional and
interregional supply
KhvyshchunN.V. capabilities of a region to ensure the efficient
movement of economic flows of the region and
organization of the storage and transportation
system in order to create the necessary conditions
for obtaining an economic effect of the region’s
potential.
BilovodskaO., aggregation of existing and potentially possible
HryshchenkoO., elements and factors of the logistic infrastructure
SyhydaL. involved in the formation and distribution of
material and respective accompanying flows
Koblianska I.I., capabilities of a regional system to ensure optimal
Rybalko N.O., parameters of economic flows in space and time,
Mischenko O.V. which are formed as a result of logistic
management methods
Hrytsenko S.I. ability of an economic entity under favourable
conditions to optimize the structure of resources
and rationally use them in order to achieve the
goal
Freidman O.A. aggregation of factors and objects of logistic
infrastructure facilitating the performance of the
objectives of optimizing the material flows within
the scope of the implementation of strategic tasks
of regional and national support.
37
37
Moroz, O. (2010): Method of preconditions estimation of regional logistic systems formation. Available
at: http://www.nbuv.gov.ua;Syzdykbaeva, B., Raimbekov, J., Zhumataeva, B. (2013): Evaluation of the
transport and logistics potential development efficiency of the regions of Kazakhstan. Actual problems of
economics, 5 (143), 473-481; Uvarov, S. Management of the logistics infrastructure: the problems of
42
Thus, regional logistic capacity features the region’s ability to optimize

the resource structure and efficiently use the existing logistic infrastructure to
optimize the material flows within the scope of regional and national support
in order to obtain a positive economic effect for the region.
The regional logistic capacity is a much broader definition than the
regional transit capacity, because the transit capacity implies only the feature
of cargo turnover of rail, road, air transport as well as export and import of
goods in a region, while the logistic capacity includes geographical, social and
economic, transport, infrastructure and institutional components.
However, the definition of transit capacity is directly associated with the
peculiarities of functioning of the region’s logistic infrastructure.As stated in38
the optimal course of traffic flows within transit territory of the region is
impossible without the formation and development of
transportinfrastructure.Effective use of transit capacityrequiresthe region to
be provided by the objects of transportinfrastructure and proper
transportservices by differentbusiness entities.
The optimal logistic capacity can be achieved as a result of synthesis of
its constituent parts, i.e. resources, abilities and conditions of operation of
regional transport and logistic systems.The optimality of logistic capacity
implies its compliance with the main aim of the advance development strategy
of the regional transport and logistic systems.This is an increase of the national
economy competitiveness in the transport services market providing an
integration transformation of the Ukrainian economy towards the network
form of cooperation between the subjects.Minimal total logistic costs are the
formation and development: report [Available at:http://www.yuzhno-sakh.ru/files/prodresyrs/logist;

Khvishun, N. (2014): Logistics potential of the regions of Ukraine: analysis and assessment, formation and
growth Scientific Bulletin of the DSEA, 2 (14E), 202–208; Bilovodskaya, O., Grishchenko O., Sigida L.
(2016): Features of logistic potential of the region evaluation in the process of developing a distribution
system at the enterprise. Economic Journal-XXI, 160, 105–111; Koblianskaya, I., Rybalko, N., Mischenko,
O. (2015): Logistic potential of the region: the essence and methodical approach to its evaluation. Visnyk
of Sumy State University, 2, 23–30;Gritsenko, S. (2013): Modeling sustainable development of the
region’s economy on the basis of transport-logistic systems. Economic Bulletin Donbass, 2 (32), 69–74;
Freedman, O. (2013): Analysis of the logistic potential of the region: monograph. Irkutsk: Irkutsk State
University, 164
38
Kovalska, L., Savosh, L., Pavlyuk L. (2014): Transit potential of the region: estimation and directions of
optimization. Economic Chronicle-XXI, 3–4 (1), 82–85
main criterion for optimization of the general model of synthesis components

of logistic capacity. Optimization of the objective function by means of total
logistic costs minimization for the network of transport and logistics chains
entails determining the resources needed for support of a given level of
logistics services in the regional and interregional conditions of transport and
logistic systems functioning39.
Therefore, the issue of effective use of regional logistic capacity due
minimizing logistic costs throughout the transport and logistic network in the
region is important, since it will determine the effectiveness of the whole
economic system of the region.At the same time, competitiveness of the
region will be provided not only by solving the problem of logistic costs
minimization, but also by maintaining an acceptable level of logistic service at
the level of a respective economic zone.
The analysis of the regional logistic capacity is justified, first of all, by the
peculiarities of socio-economic processes in the regions, which due to
historical, socio-cultural and economic reasons have many specific features.
Accordingly, without a detailed analysis and assessment of regional
development, all actions aimed at developing regional logistic systems would
be ungrounded.It should be noted that nowadays there are no special
methods of regional logistic capacity analysis; its partial indexes are analysed
separately as components of the assessment of investment, production,
transit, infrastructure and other capacitiesof a region40.
Several methodological approaches are used for the regional logistic
capacity assessment.Most of them are based on the calculations of the
integral index of logistics capacity (IILC) of a region defined by the formula 141
39
Gritsenko, S. (2013): Modeling sustainable development of the region’s economy on the basis of
transport-logistic systems. Economic Bulletin Donbass, 2 (32), 69–74
40
Khvishun, N. (2014): Logistics potential of the regions of Ukraine: analysis and assessment, formation
and growth Scientific Bulletin of the DSEA, 2 (14E), 202–208
41
Kovalska, L., Savosh, L., Pavlyuk L. (2014): Transit potential of the region: estimation and directions of
optimization. Economic Chronicle-XXI, 3–4 (1), 82–85;Kovalska, L., Savosh, L., Pavlyuk L. (2014): Transit
potential of the region: estimation and directions of optimization. Economic Chronicle-XXI, 3–4 (1), 82–
85; Koblianskaya, I., Rybalko, N., Mischenko, O. (2015): Logistic potential of the region: the essence and
methodical approach to its evaluation. Visnyk of Sumy State University, 2, 23–30; Khvishchun, N. (2016):
Logistic potential of the regions of Western Ukraine. Actual problems of the state administration, 2 (50),
1–6
44
=
⋯
, (1)
where, "#1, "#2, "#& mean respective values of separate indexes of
constituent elements of logistics capabilities.
In order to figure out the integral index of regional logistic capacity,
calculated on the basis of logistic capacity partial indexes as the ratio of the
sum of separate partial regional indexes to the sum of these indexes in the
country (according to the number of indexes), the formula 2 shall be used 42,
43
= ∑ ' ' … . ' /((∑ , , … . , )/&),

.
where, ∑ ' ' … . ' mean the sum of the partial indexes of a region,
(2)
∑ , , … . , mean the sum of partial indexes of Ukraine, n – number of

indexes.
At the same time for each index there shall be created matrix of indexes
X (formula 3) and then we should standardize them (formulas 4, 5):
2 …2 …2
2
…2 …2
1 ………… 5
.=0 2 2 2 77777
4 , 6 = 1, 777777
&, " = 1, 8,
0 … … 4
(3)
…………
/2 … 2 … 2 3
where n means number of indexes;m – number of regions;xij – value of

j index featuring ith region.
th
. =
9:;
9
, (4)
<=>;
. =
9<=>;
9:;
, (5)
where i=1, 2, ..., m;j=1, 2, ...., n, Xm+1j means the jth parameter of the
reference region (reference region is the region with the best value of the
42
Kovalska, L. (2014): Analysis and evaluation of transit potential of the regions of the state. Economic
forum, 3, 73–83
43
Kauf, S., Tluczak, A. (2014): Logistyka miasta i regionu: metody ilosciowe w decyzjach przestrzennych,
Difin, 228.
index of studied aggregate).Formula (4) is used when the reference is the

maximum value and the formula (5) is used when the reference is
minimum. = 1 − . . The smaller is the value of , the less are deviations
from the reference, i.e., the better is the position of a region to other regions.
Some authors44use the methods of correlation and regression analysis to
study the regional logistic capacity.When selecting indexes to assess the
transport and regional logistic capacity, only indexes with the most significant
levels influencing the resulting index shall be used, which tend to be the gross
regional product (formula 6).
= @A + @ 2 + @ 2 + @ 2 + ⋯ . @ 2 + B , (6)
where 2 , 2 , 2 shall mean various indexes, which are based on different
of statistical sampling, the model allows determining@ , @ , @ , - weights

assumptionsthat can affect the resulting index. In case of sufficient time range
coefficients defining the role of each index considered within the process of
formation of gross regional product.Then, depending on received weight
coefficients of each index, only the most significant can be selected and the
degree of influence of each index shall be determined.
The regional logistic capacity is the result of the interaction of various
components forming the regional logistics system.Quantitative assessment of
the effectiveness of the components of the regional logistics capacity will allow
us to assess the total logistic capacity. The analysis of scientific approaches to
identification of the components including integrated index of regional logistic
capacity are presented in Table 3.
44
Pavlova, Ya. (2013): Efficiency of regional logistics. Logistics, 3., 38–41;Syzdykbaeva, B., Raimbekov, J.,
Zhumataeva, B. (2013): Evaluation of the transport and logistics potential development efficiency of the
regions of Kazakhstan. Actual problems of economics, 5 (143), 473–481
46
Table 3. Methodical approaches to the assessment of components of the

regional logistic capacity
According to Belovodska O.A., Hryshchenko O.F., Syhyda L.O.
Transport potential capacity of the transport system in a region reflecting
the density of the transport system, the presence and
number of items intended for multimodal transport,
the number of parallel transport routes for different
transport modes and various kinds of transport
Warehouse index of the capacity of the region’s warehouse
potential system, by means of which the available warehouse
spaces and prospects of their growth, equipment,
qualitative structure can be estimated
Transit capacity volume of cargo turnover passing through a region in
transit per unit of time, as well as the amount of
transit cargo transported within the territory in
accordance with the terms of the contract
Personnel potential reflects the ability to provide the objects of transport
and logistic infrastructure with in-house expertise
Consumer and sales describes the actual and potential sales depending on
potential demand for goods, general market conditions,
incomes and business activity
Service and unites marketing intermediaries, development of
marketing potential wholesale, retail, mediation markets
Spatial potential integrated index combining the convenience and
features of climate and geographical position, an
attractive social and productive sphere (population
dynamics, indexes of exports and imports, a level of
industry development, construction, agriculture, etc.)
According to Szoltysek J.
Costs rental rates, land prices, labour costs
Market Access population, access to the EU markets, access to
eastern markets
Warehouses areas new objects with area of over 10 thousand. sq. m.,
offer land plots offer
Transport road network development, traffic intensity, regional
network development, road, rail, aviation and
maritime transportation services
According to Kauf S, Tluczak A.
Regional logistics number of main telephone lines per 1000 inhabitants
capacity ofcommercial areas (sq. m.);
number of transfer points for air transport (flights);
length of the railway lines is 100 km.sq.;
the length of roads per 100 sq. km.
According toSyzdykbaieva B.,Raimbekov J.,ZhumataievaB.
General economic share of the region territory in the whole country’s
indexes territory; proportion of the region’s population in the
total population of the country;a share of the
transport sector in the structure of GRP, %;a share of
staff employed in transport and logistics sector;a
share of gross added value of transport and
communication in total gross added value in the
country;a share of investments to the branch in the
total volume of investments in a country
Indexes of transport share of cargo turnover by type in the total volume of
and logistics cargo turnover,%;a rate of return (profit) of the
complex activity transport complex of a region; an index of availability
(TLC) of main transport means of transport complex of the
region for book value of gross regional product;ashare
of number and proportion of the population engaged
in TLC;monthly level of wages;fixed assets of the
transport facilities;a degree of depreciation of fixed
assets at the transport entities of the region, %;
introduction of major production capacity transport at
the costs of construction of new ones, expansion and
48
reconstruction of existing enterprises

Potential of density of rail routes per 1,000 square kilometres of
transport the territory, km; operational length of public
infrastructure railways;transportation by public railways;cargo
turnover by railway transport;length of public
railways;proportion of public roads paved of them in
total length;density of paved public roads per 1,000
square kilometres, km; transportation of goods by
road; cargo turnover of road transport; total length of
public inland waterways; transportation of goods by
public river transport; cargo turnover of public river
transport; availability of airports, units; transportation
of goods by public air transport
Potential of logistics area of warehouses of classes “A”, “B” or
infrastructure “C”;availability and capacity of cargo terminals; a level
of information support; a number of wholesale and
retail trade;a number of forwarding enterprises
Potential of share of employment in small and medium-sized
institutional support enterprises; a share of shadow economy in transport
of the branch and logistic sector; an index of investment
risk;revenues and expenditures (excess of revenues
over expenditures); a share of private sector in
transport;unemployment rate in the transport and
logistic sector; a number of transport enterprises; a
number of enterprises in forwarding services;speed of
cargo delivery;indexes of tariffs for cargo turnover
According toFreidmanO.A.
Transport transport industry system (by different modes of
component transport); cargo and passenger turnover of different
transport; aregion’s share in the transport operation
within the territorial system of a country;
specificweight of export (import) of the region
inforeign tradeturnover of the countries

Warehouse structure of warehouse system, inventory/sales ratio;
component effectiveness in terms ofprotection fromrisky events
Transit component dynamics ofvolume and travel time of transit in cargo
traffic
Personnel economic efficiency of humanresourcesin the region
component and expertassessmentsoftheircomfortand satisfaction
with their work results
Spatial component historic traditions of trade activity;transport and
geographical position; provision with free territories
for organisation of the warehouse distribution
systems; a level of transport and logistic infrastructure
development
According to Kovalska L.L., Savka B.R.
Specialization coefficient of region specialization
Natural and Cumulativeresource potential per capita and a
resource complex territoryunit
Geopolitical Indexesof proximity to the capital, country
component bordersports, internationalairports and
transportcorridors
Infrastructure number of directions of railways and road ways
component (transit ones of state importance) in a region, units,
density of railways and hard paved public roads,
km/1000 sq. km, specific weight of paved roads, %, a
number of enterprises of wholesale/retail trade, units,
total area of own warehouses of enterprises of
wholesale trade, sq. km., level of mobile coverage of
the territory of a region and the number of providers
and the Internet in a region
According to Kobylianska I.I., Rybalko Kh.O.
Geographic to the capital; length of the border; region area
component
50
Socio-economic of sold industrial products;cargo turnover;passenger

component turnover; export and import of goods; export and
import of services;retail turnover;monthly wage of
one employee
Transport number of motor vehicles checkpoints; a number of
component railway nodes;roads and railways density; a volume of
goods transported by road;a volume of cargo
turnover by rail
Infrastructure density of retail trade enterprises;density of
component wholesale trade enterprises and
intermediaries;density of transport and
communication enterprises;density of financial
enterprises
Institutional number of industrial enterprises;a number of
component wholesale and retail trade enterprises; a number of
enterprises providing repair services for motor
vehicles and motorcycles; a number of enterprises in
the field of transport, warehouses, postal and courier
activities;a number of enterprises in the sphere of
insurance and financial activity
According to Khvyshchun N.V.
Level of coefficient of region specialization
regionspecialization
potential resource potential per capita, resource potential per
territoryunit
Geopolitical index of proximity to the capital, proximity to the
potential border of the country, the proximity index to the sea,
to national and international ports, international
airports and transport corridors
Infrastructure number of railway tracks in the region, units, a
potential number of public roads in a region, units, availability
and a number of sea/river/international ports in the
region, units, density of public railways, km/100

sq.km, relative weight of paved roads, %, density of
paved public roads, km/100sq.km., a number of
wholesale/retail enterprises, units, total area of own
warehouses of wholesale trade enterprises, sq. km., a
level of coverage with mobile communications of a
region, number of Internet providers in the region
45
J. Szoltysek suggests that the concept of a region’s logistic attractiveness

evaluation entails the notion of logistic absorptive power i.e. a region’s
readiness (or capability) for absorbing state of the art logistic solutions. It
envisages determining measures, by means of which logistic absorptive power
could be described, and subsequently differences could be identified between
logistic attractiveness of a given region and its competitors, or region’s “as-is”
and target logistic absorptive power46.
The analysis of assessment criteria for the regional logistic capacity,
proposed by various researchers evidences that the key indexes determining
the logistic capacity are the indexes of transport and logistic infrastructure
development, as well as the cost of the labour force in the region.At the same
time, such separate aspects of logistic capacity assessment as industry
45
Bilovodskaya, O., Grishchenko O., Sigida L. (2016): Features of logistic potential of the region evaluation
in the process of developing a distribution system at the enterprise. Economic Journal-XXI, 160, 105–111;
Szoltysek,J. (2008): Ocena przygotowania region do absorpcji rozwiązań logistycznych. Gospodarka
materiałowa i logistyka, 4; Kauf, S., Tluczak, A. (2014): Logistyka miasta i regionu: metody ilosciowe w
decyzjach przestrzennych, Difin, 228; Syzdykbaeva, B., Raimbekov, J., Zhumataeva, B. (2013): Evaluation
of the transport and logistics potential development efficiency of the regions of Kazakhstan. Actual
problems of economics, 5 (143), 473-481; Freedman, O. (2013): Analysis of the logistic potential of the
region: monograph. Irkutsk: Irkutsk State University, 164; Kovalska, L., Savka, B. (2012): Formation and
development of the region logistic infrastructure of the region, Bulletin of the National University "Lviv
Polytechnic", 749, 410–416; Koblianskaya, I., Rybalko, N., Mischenko, O. (2015): Logistic potential of the
region: the essence and methodical approach to its evaluation. Visnyk of Sumy State University, 2, 23–30;
Khvishun, N. (2014): Logistics potential of the regions of Ukraine: analysis and assessment, formation and
growth. Scientific Bulletin of the DSEA, 2 (14E), 202–208.
46
Sholtisek, J. (2011): The logistical attractiveness of the region as a mechanism for active promotion of
international co-operation. Economy: realities of time. Scientific Journal, 1 (1), 139–142.
52
institutions, socio-economic and geographic aspects, rental rates and land

value are specific to each approach.
Therefore, strategic planning of regional development should include not
only planning of sustainable transport development, but also it shall integrate
transport planning into a complex system of logistic capacity development
planning that will combine planning of transport infrastructure and services
development, land use planning, housing construction rates, environmental
planning of a transport policy, social aspects of accessibility and mobility as
well as harmonization of these strategic planning components with the
industrial policy.
II. The assessment of logistic capacity of Ukrainian regions
The regional logistic capacity of Ukraine will be analysed using the
methodology proposed by Syzdykbaieva B., Raimbekov Zh. and Zhumataieva
B.47 The logistic capacity components include general economic indexes,
performance of the transport and logistic sector, transport infrastructure
capacity and logistic infrastructure capacity (Table 4).
Table 4. Components of the regional logistic capacity

Componen No. Indexes Units of
ts of measure
Logistic ment
capacity
General 1.1 Indexes of the gross regional product %
economic 1.2 Quantities of the region’s population thousand
indexes people
1.3 Average number of employees „Transport, storage, thousand
agriculture andcourieractivity” in the region people
1.4 Capital investment in „Transport, storage, agriculture mln UAH
andcourieractivity in the region” in actualprices
47
Syzdykbaeva, B., Raimbekov, J., Zhumataeva, B. (2013): Evaluation of the transport and logistics
potential development efficiency of the regions of Kazakhstan. Actual problems of economics, 5 (143),
473–481
1.5 Directinvestments (equitycapital) in regional % of total

enterprisesof „Transport, storage, agriculture volume
andcourieractivity”
1.6 Export volumes in the region %ofvolum
e
1.7 Imports volumesin the region % of
volume
1.8 Consumer price indexes for goods and services by % of
region previous
year
Indexes of 2.1 Profitability of the enterprises in „Transport, storage, mln UAH
transport agriculture andcourieractivity”, netprofit loss
and logistic 2.2 Real wage indexes by regions in 2016 %ofprevio
complex us year
activity 2.3 Cargo transportation by the road transport %
Transport 3.1 Density of public railways km per 1
infrastruct thousand
ure sq. km of
capacity territory
3.2 Length of public roads by region thousand.
km
3.3 Paved public roads Km
3.4 Specific weight of paved roads in total length %
3.5 Density of public paved roads Kmper 1
thousand
sq.km in
the
territory
3.6 Cargo turnover of road transport by region million
tkm
3.7 Cargo turnover of road transport enterprises by million
region tkm
3.8 Total mileage of the trucks with cargo of Ukrainian thousand
enterprises and organisations km
54
3.9 Operating length of public railways by region Km

Logistics 4.1 Number of enterprisesbyregion Units
infrastruct 4.2 Distribution of goods transportation by road %
ure transport enterprises by region
capacity 4.3 Refuellingstations Units
4.4 Average distance of transportation of one ton of Km
cargo by road transport
Source: compiled by the authors on the basis of the research
All the indexes used to analyse the regional logistic capacity of Ukraine
have been taken from the official statistics for 201648. Crimea wasn`t analysed
in this study.
We will apply the procedure of standardizing the indexes for separate
C D:;
components of the logistics capacity by the formulas:
,
(7)
E
where Fmeans standard deviation of the variable2 .
F= G ∑ (2 − 2) , (8)
2 means the ithelement of the sample;
2means the average value of the variable x.
After performing standardization procedure for each indicator under

separate components and summing the standardized values within each
component, we obtain the standardized values of four components of regional
logistic capacity of Ukraine (Table 5).
48
State statistics service of Ukraine [Electronic resource]. – Available at: http://www.ukrstat.gov.ua.
Table 5. Standardized indexes of logistic capacity of regions of Ukraine

Indexes of
General transport Transport Logistic
Regions
economic and logistic infrastructure infrastructure
of Ukraine
indexes complex capacity capacity
activity
Volyn region 126,1287 33,23488 71,24137 5,33998
Dnipropetrovsk region 126,7384 32,84969 64,61914 4,724196
Donetsk region 138,4162 34,16316 82,48629 11,24131
Zhytomyr region 136,1439 33,84562 74,94923 8,981212
Transcarpathian region 127,1155 33,08232 68,85467 4,290758
Zaporizhia region 126,2373 35,51438 68,37075 8,351613
Ivano-Frankivsk region 128,2777 32,98886 68,15379 6,195854
Kiev region 125,1987 32,79053 66,50609 4,808255
Kirovohrad region 133,1178 37,09102 75,30333 8,84469
Luhansk region 127,6326 32,42786 66,37077 4,015789
Lviv region 130,0202 35,35583 65,43695 2,280317
Mykolaiv region 134,2678 31,27016 83,29934 9,509941
Odessa region 131,62 34,58309 63,63087 5,372118
Poltava region 148,1368 33,22532 71,95144 9,502326
Rivne region 131,3602 35,33605 73,73381 4,547174
Sumy region 125,9207 32,31305 65,17211 3,80343
Ternopil region 127,6199 30,94748 62,82822 2,998601
Kharkiv region 124,3622 32,26891 67,79496 3,883378
Kherson region 134,1683 31,1984 79,24645 10,12875
Khmelnitsky region 126,5276 34,05269 60,45587 4,617729
Cherkasy region 125,321 32,15779 70,87173 5,103533
Chernivtsi region 127,2135 33,11177 65,47074 4,75401
Chernihiv region 123,6578 33,35276 64,52667 4,390063
Vinnitsa region 126,4652 31,84932 63,40224 3,576005
After performing standardization procedures, we shall calculate the

integral index of the regional logistic capacity (IILC) according to formula 9.
=
⋯
, (9)
Where "#1, "#2, "#& mean respectively the estimated values of individual
partial indexes for the components of the logistic capacity.
56
The calculated integral indicator of the regional logistic capacity of

Ukraine evidences that the top three leaders with the largest logistic capacity
among the Ukrainian regions are Odesa (total score 42,07), Dnipropetrovsk
(41,27) and Lviv (40,34) regions (Figure 2).For example, Kherson region that is
traditionally perceived as a region with a strong logistic capacity due to the
availability of port infrastructure, gets a penultimate position with a score of
36,09 according to the index of logistic capacity.Obviously, such a low position
in the ranking is explained by low value of such part of the integral indicator as
the logistic infrastructure capacity.
Figure2. The integral index of logistic capacity of Ukrainian regions

42,07
41,27
43,00
40,34
39,83
39,81
42,00
39,41
38,70
41,00
40,00
37,58
37,45
37,27
37,18
37,09
37,03
36,90
36,88
36,73
39,00
36,52
36,40
36,40
36,37
36,33
36,26
36,09
35,87
38,00
37,00
36,00
35,00
34,00
33,00
32,00
In general, the analysis of logistic capacityof Ukrainian

regionsdemonstrates that there are no serious imbalances among the regions
and there are noobviousoutsiders. However, it is worth dividing these regions
by the level of the logistic capacity development into 3 groups (Figure3):
1. Regions with high logistic capacity (IILC value from 42,07 to 38,7):
Odesa, Dnipropetrovsk, Lviv, Donetsk, Kharkiv, Kyiv, Poltava;
2. Regions with an average level of logistic capacity (IILC value from
37,58 to 37,03): Mykolaiv, Luhansk, Zaporizhia, Vinnytsia, Zakarpattia;
3. Regions with a low level of logistic capacity (IILC value from 36,90 to
35,87): Khmelnytskyi, Kirovohrad, Cherkasy, Volyn, Sumy, Ivano-Frankivsk,
Rivne, Ternopil, Chernihiv, Kherson, Chernivtsi.
4.
Figure 3. Ukrainian regions due to their logistic capacity
Conclusions.Thus, regions should invest it their transport and logistic

infrastructure through attracting funds from the regional and national
budgets, investors' funds, international donor funds and grants to become
competitive because the sole geographical position does not guarantee high
logistic potential as we can see on the figure above. Human resources became
also the key factor in competitiveness and regions with leading universities are
at the top of the rank of logistic potential.
58
The analysis of logistic performance has shown that Ukraine has bad
infrastructure and the analysis of logistic potential of our regions confirmed
this state and its importance. These factors became especially important due
to the good position of our neighbouring countries, especially Poland, if
Ukraine and its regions want to be competitive and attract investment.
Oksana Sobkevych
National Institute for Strategic Studies, Kyiv, Ukraine
TRENDS AND CONDITIONS OF THE REAL

SECTOR DEVELOPMENT OF THE UKRAINIAN ECONOMY
IN THE COORDINATES
OF STRENGTHENING ECONOMIC SECURITY
Abstract. The article analyses the indicators of development of the real sector of the
Ukrainianeconomy in 2016 and 2017. The present challenges and threats to its functioning,
which are connected with the long-term opposition of Ukraine to Russian aggression, are
described. In industry, the following challenges and threats are defined: the loss of a number of
important production, the gap between production and cooperative ties in the production
chain; in the agro-industrial complex, there are such problems as the impossibility of
implementing a stable economic activity due to unpredictable actions of militants and in the
transport and road sector – the physical destruction of key transport and logistic facilities and
infrastructure.
The objective conditions of the internal and external environment, which will determine the
formation of trends in spheres of the real sector, are revealed. Such conditions are: an increase
in the demand for products of the agro-industrial complex –both on domestic and foreign
markets; outstripping development of industries related to the agrarian production; continuous
exhaustion of competitive advantages of Ukraine in traditional export markets; a significant
gap between reproduction rates and the rates of phasing down the production in the mining
industry; the improvement of the construction industry; carrying out foreign trade activity of
Ukraine under the unprecedented conditions of economic pressure on the part of the Russian
Federation; putting into practice the «roadmap» for implementing the strategy of European
integration of Ukraine, which will be accompanied by the renewal of the strategic process of
modernizing the economy on a European basis.
To restore growth in the real sector, it is important to consistently implement the reform
direction, which should strengthen the economic security of the state bycreating a new model
of growth on the basis of intensification of the resource, scientific and technical and human
potential of the real sector of the economy and by using the competitive advantages of its
components and then it should attach great significance to the process of rapprochement
between Ukraine and the EU.
JEL Classification System: L 160, H 560

60
Key words: real sector of economy, economic security of the state, European
integration, industry, agro-industrial sector, transport industry.
Introduction. The conditions of long-lasting opposition of Ukraine to the

aggression of Russia in the struggle for its independence, the military actions
that have been continuing for four years on the territory of Ukraine, andthe
illegal “seizure” of Crimea by Russia intensified the challenges of development
of the real sector of the economy. Russia avoids open forms of military
intervention in Ukraine and artificially drags the Donbass conflict out, which
causes the emergence of new forms of confrontation. Consequently, the
emphasis in the hybrid war of Russia against Ukraine has shifted to the
economic plane as much as possible, and now there are new tools of economic
pressure on Ukraine. Among such tools, one can define the use of a range of
obstructive measures with violation of all norms of the international law.
The losses of different scales in the real sector of the Ukrainian economy
were the consequences of the actions of Russia. In industry, a number of
important production plants have been lost, industrial and cooperative ties in
the production chains have been cut; the work of the agro-industrial complex
is complicated by the impossibility of implementing a stable economic activity
due to unpredictable actions of militants; the transport and road sector is the
sphere, which suffers the most because of the physical destruction of key
transport and logistic facilities and infrastructure.
It is difficult to withstand the mentioned challenges, as they not only
destabilize the work of certain branches of the real sector, but undermine the
foundations of the national economy functioning. Therefore, it is important to
invent new ways and mechanisms for eliminating existing problems not only to
counteract the aggressive actions of the Russian side, but also strengthen the
economic security of the state by creating a new model of growth on the basis
of activating the resource, scientific and technological and human potential of
the real sector of the economy and using the competitive advantages of its
components.
The real sector of the Ukrainian economy, which is accountable for more
than one third of the total gross added value, is the basis for maintaining the
country's competitiveness and strengthening its economic security. Shaping
the policy aimed at developing the real sector should take place in the context
of general economic policy, one of the most important goals of which is
technological restructuring with the goal of getting the existing production
structure closer to the parameters typical for a post-industrial society. Today,
the technological structure of economically and technologically developed
countries is dominated by the fifth technological structure, with the basic
technologies like information and communication technologies,
biotechnologies, microelectronics, aerospace technologies, new energy types
development, etc. At the same time, the signs of the succeeding technological
structures – the sixth and even the seventh - become more and more visible.
For example, the sixth technological structure is closely associated with the
genesis and proliferation of advanced bio- and space technology, genetic
engineering, nanoelectronics, global information and communication
networks, the use of artificial intelligence, nuclear and renewable energy.
In Ukraine, 85% to 95% of total production is generated by branches of
the third and fourth technological structure.This is strong evidence, suggesting
a long-term technological decline of the country and a broadening
technological gap with the developed countries.
A slowdown in transition from reproductive to innovative processes
"mothballs" the state of technological decline in the real sector of the
economy. This restrains the transformation from an industrial model of the
economy into a post-industrial, information-network model, which is
characterized by highly developed information technologies and their impact
on all spheres of life. Currently, in Ukraine, network structures are
underdeveloped. In a postindustrial economy such structures supercede the
traditional forms of relations between economic entities. Today, a particular
informational and economic space is being formed globally, which allows to
dispense the process of industrial distribution between separate
62
geographically remote production units, by applying information and

communication processes.
In Ukraine, such changes are being extremely slowly. The comparative
data from the World Economic Forum's Global Information Technology Report,
namely the WEF Networked Readiness Index (NRI), shows that in 2016 Ukraine
scored 4.2 points out of a possible 7. The leaders in this ranking are Singapore
and Finland (6 points each), Sweden, the Netherlands, Norway, Switzerland,
the USA (5.8 points each).
The policy aimed at developing the real sector of the economy in Ukraine
should be applied towards "launching" the process of informatization and
implementing information and communication technologies in order to bring
the economy closer to the post-industrial development model.
In 2016 and 2017, the Ukrainian economy began to overcome the crisis,
originating in 2014-2015. GDP growth in 2016 was fixed at the level of 2.3%, in
the first quarter of 2017 – 2.5%, in the second quarter – 2.3%, in the third
quarter – 2.1%.
In 2016 and 2017, the Ukrainian economy began to overcome the crisis,
originating in 2014-2015. GDP growth in 2016 was fixed at the level of 2.3%, in
the first quarter of 2017 – 2.5%, in the second quarter – 2.3%, in the third
quarter – 2.1%.
The growth rates in the real sector of the economy will depend on the
effectiveness of the state policy on overcoming significant internal institutional
and macroeconomic imbalances and fundamental structural problems. It is
also vital to overcome the dependence of some production plants on Russian
markets and change the vector of the economic policy towards expanding
cooperation with the European Union, taking into account Ukraine’s national
interests regarding the development of a high-tech sector of the economy, the
creation of new production, and the provision of sustainable inclusive
economic growth. In general, trends in the spheres of the real sector will be
determined by a combination of the following objective conditions.
1. The growing demand for agricultural products – both within the
country and in foreign markets. The significance of the agro-industrial complex
in the economy of the state will be re-evaluated and appropriate adjustments

to the strategy for its reforming will be made, taking into account the need to
saturate the market with own agricultural and food goods, reduce the level of
threats to the food security of the state, expandexport opportunities, increase
the level of processing agricultural products and introduce the latest
production technologies. The conditions that will ensure an increase in the
demand for agricultural products are as follows:
− a gradual expansion of the capacity of the internal market of food
products, because the current state of consumption of basic food products by
the population of Ukraine according to some products, is not consistent with
physiological standards established by the Ukrainian Research Institute of
Nutrition of the Ministry of Health Care of Ukraine; moreover, according to
some standards,the consumption of such food as meat and meat products,
milk and dairy products, fruit, berries and grapes is critical;
− Ukrainians consume the bulk of their calories with plant products,
while consumption of animal products in the daily diet is rather low, below the
threshold. Thus, 29.2% of the average daily ration is provided by consuming
the products of animal origin, which is almost twice lower than the established
threshold criterion (55%)49;
− the growing global demand for food and agricultural products as a
result of the increase in the world population and rising consumption in rapidly
developing countries, as well as a reduced number of areas suitable for
cultivating crops.
The rapid population growth and its urbanization raise the issue of food
security of regional economies. Food consumption in the most populated
countries of the world – India and China – is constantly rising because of the
rapid growth of the economies of these countries, accompanied by an increase
in household incomes and consumer demand.
At the same time, there is a tendency towards reducing the areas
suitable for cultivating agricultural crops. Each year, the earth loses from 5 to
49
Rusan V. (2105). Current state and threats to food safety of Ukraine. Available at:
http://www.niss.gov.ua/public/File/2015_analit/prodovolcha_bezpeka.pdf
64
10 million hectares of farmland due to the deterioration of the environment

and 19.5 million hectares are lost each year due to the rapid development of
industry and the real estate market50.
Ukraine is characterized by a high level of agricultural land supply (90
hectares per 100 people) and only Canada, Russia, Belarus and the United
States (according to the level of supply of arable land, only Canada and Russia
are ahead of Ukraine) have higher indicators. The existing natural resource
potential of Ukraine makes it possible to increase gross production in the
agrarian sector of the economy. Therefore, it is obvious that the potential of
land should be further used as one of the competitive advantages of domestic
agriculture. According to experts, Ukrainian land can provide 140–145 million
people with food51.
2. The progressive development of spheres, related to the agricultural
production, in particular, agricultural machinery, agrochemistry, food industry
and agricultural processing. The consistent implementation of the agrarian
reform, which can result in a rise of the inflow of investment in the agrarian
sector, will boost the demand for agricultural machinery and equipment both
for large and small farms. After all, today, agrarian enterprisesare provided
with agricultural machinery from 45 to 80% of the technological need, and the
share of quality highly efficient equipment is poor.
These problems lead to the loss of crops, non-compliance with the
optimal harvest time, the fact of exceeding the standard production load per
unit of equipment, the impossibility of a qualitative and operative
implementation of the whole complex of regulated agricultural work.
Domestic agrarian engineering has enough production capacity for
manufacturing most types of machinery. However, unfortunately, according to
many operational indicators, Ukrainian agricultural machinery is still lagging
behind foreign counterparts. Therefore, enterprises will gradually get
accustomed to the field of producing new generation equipment through the
implementation of joint investment projects with foreign companies. The first
50
Each year, the Earth loses 30 million hectares of agricultural land – the UN. Available at:
http://www.newsmarket.com.ua/2010/10/10022592/shhoroku-zemlya-vtrachaye-30-milyoniv-gekta
51
Tretiak, A.,&Babmindra, D. (2003). LandresourcesofUkraineandtheirusage. Kyiv, LLC «TSZRU». – 143 p.
stage of such projects may be the establishment of semi-knock down

assembling of those types of machines that are already manufactured abroad.
Then, the placement of a government order for certain types of agricultural
machinery can become a powerful factor of enterprises development in this
sphere. In addition, one should increase public spending on research and
development in the field of agricultural machinery and on carrying out
research, development, preparation, marketing work on creation and
mastering the production of technology of new generations.
The increase in the production of agricultural products will boost the
internal consumption of goods of the chemical complex. Comparative statistics
show that today in Ukraine the demand for basic types of chemical products,
the domestic production of which is sufficiently developed is much lower than
in Europe. Thus, according to the World Bank, the fertilizer treatment in
Poland, in 2014, was 231.6 kg/ha of the sown area, in the USA – 137.6 kg/ha,
in Germany – 217.7 kg/ha, in Belarus – 214.9 kg/ha, whereas in Ukraine – only
45.2 kg/ha52. The accelerated development of agriculture in Ukraine will help
to increase the consumption of mineral fertilizers.
The expansion of the base of agricultural raw materials will have a
positive impact on the indices of production and export of the food industry
due to the intensification of the integration processes in the agro-industrial
complex, the extension of production and sales cooperative ties, and the
creation of closed-link chains of manufacturing in-depth processing products.
3. Continuous exhaustion of Ukraine’s competitive advantages in
traditional export markets (products of metallurgy and chemical industry).
Modern trends in world markets lead to a decrease in the demand for the
main export products of Ukraine. In the future, the development of
metallurgical and chemical industries in Ukraine will be influenced by the
following world trends:
− introduction of new production capacity of steel smelting. The main
purchasing countries of metal will continue to create their own production,
52
WorldBank. WorldDevelopmentIndicators. FertilizerConsumption. Available
at:http://www.worldbank.org/
66
reducing the purchase of metal from abroad. The projects concerning the
introduction of new capacity are already being implemented in Asia and Africa,
particularly, in Turkey and Egypt;
− increased competition among producers of iron ore raw materials. For
example, China satisfies 45% of its internal needs for iron ore raw materials.
Against this background, the demand for raw materials for metallurgy industry
will decline, causing a reduction in the price of metal products;
− increased competition in the global market for chemical products. The
chemical complex of Ukraine develops under conditions of significant external
competitive pressure, which is conditioned, first of all, by the rise in the
volume of sales of chemical products by Asian countries (mostly the People’s
Republic of China).
The above-mentioned trends will require an investment and innovation
upgrade of the technological processes of traditional industries, which allows
predicting high investment dynamics and a gradual increase in the share of
fixed capital accumulation in GDP of the country.
Thus, the metallurgical industry development on an innovative basis is
able to overcome the structural deformations in the industry, connected with
technological backwardness, high energy and resource intensity of enterprises.
Prospects for the industry development consist in optimization of the
production structure by increasing the range of new types of products,
including electromelting production of steel, production of titanium alloys and
rolled products, aluminium foil and creating new types of zirconium products
of high demand, in particular, for electric power plants with direct conversion
of fuel energy to electricity53.
One of the most important trends in the development of the chemical
and petrochemical industries in the world is transformation of this industry
from the supplier of raw materials into a full participant of the value-added
chain in creating goods of high-tech production of other sectors of the
economy such as advanced materials, process innovations for automotive
industry, food industry, electricity-producing industry etc. This brings about
53
Innovative Ukraine 2020: nationalreport (2015). National Academy of Sciences of Ukraine, p.108.
an increase in the production of fine chemicals in Ukraine as the most

promising sub-branch of the chemical complex for providing innovative
development. For example, an increase in energy efficiency in housing and
public services is achieved by combining the use of solar panels, thermal
insulation panels and insulating foam; plastic and foam are more often used
instead of steel parts in the automotive industry, which decreases the weight
of a car by 60–70%, reducing fuel consumption and carbon emissions54.
4. A significant gap between reproduction rates and the rates of phasing
down the production in the mining industry, primarily in the extraction and
production of coal, which was caused by:
− the deterioration of mining and geological conditions of extraction,
growing wear and tear of mining equipment, low rates of modernization and
technical re-equipment of coal production, as well as a low level of
mechanization of mining operations. Consequently, the volume of
manufacturing coal products will be reduced, their quality will deteriorate, and
the problem of providing safe working conditions for miners will become more
acute.Almost 96% of mines have been operating without reconstruction for
more than 20 years, the degree of wear and tear of fixed assets in the field is
about 50%; one third of the mining faces are equipped with outdated
equipment, including coal hammers; the level of continuous mining is low
(50%). The coal industry of Ukraineis in the lead according to the level of
injuries and mortality at the place of production. Each million tons of mined
coal takes the lives of two miners (for comparison: in the USA – 0,03, in Russia
– 1,1 etc.);
− a decrease in the demand for metallurgical coal of domestic production
on the part of iron and steel enterprises, which are its main consumers. The
quality of Ukrainian metallurgical coal is low due to the high content ofsulphur
in it, which makes it non-competitive in the domestic market and leads to an
increase in imports of coke and semi-coke from coal to Ukraine. Thus,
Ukrainian coal for coking has a sulphur content of 1.7-3.5%, while the coal of
54
Shevchenko A. Priorities of innovation development of the chemical and petrochemical industry of
Ukraine. Analytical note.Available at: http://www.niss.gov.ua/articles/1280/
68
the Pechora basin contains 1.0%, the coal of the Karaganda basin– 0.5-0.6%,
the coal in the South Yakutsk basin– 0.15–0.25%;
− lack of modernization of existing energy generating plants in Ukraine,
which use power station coal. Prospects for development of coal energy
generation are heavily dependent on creating conditions for large-scale
investments. Existing capacity of energy generating companies has been
exploited for 30–45 years, which significantly exceeds the project operational
lifetime. The extension of coalusage by domestic CHP (combined heat and
power) stations requires substantial investment in the introduction of modern
technologies of coal energy generation, which are estimated at 11–15 billion
US dollars with the payback period of about 40 years;
− insufficient rates of introducing new technologies for in-depth
processing of coal for using the obtained products in industry and housing and
public services, particularly, coal gasification, production of water-coal fuels,
synthetic liquid fuels, etc. For example, advanced technologies of capture and
use of coalmine methane are rarely used. However, in the long run, the need
for replacing natural gas will increase the demand for creation and
introduction of new alternative fuels based on coal energy technologies.
5. The improvement of the construction industry – the activation of
housing construction and accelerated development of the network of
motorways.
Today, the construction industry shows high and fast rates of
development – GDP growth in construction in 2016 amounted to 16.3%, in the
first quarter of 2017 – 21.3%, in the second quarter of 2017 – 28.8%.
The introduction of mechanisms of public and private partnership in the
sphere of public roads construction will expand the investment opportunities
for the creation of a well-developed road infrastructure in Ukraine that will
meet the established technical standards. This will be promoted by the
improvement of the concession legislation in order to facilitate its
implementation, taking into account the interests of the investor, along with
the establishment of optimal requirements for the results of its activities, as
well as taking into consideration European experience in the implementation

of concession projects in the sphere of road construction.
Innovative development of the road sphere,particularly, the widespread
use of new products and innovative technologies while carrying out roadwork,
will allow building modern roads with high operational performance. The state
will create conditions for the practical application of advanced technologies
and materials by developing systematically the market for innovative products
and technologies through certification and standardization of new products,
patenting and licensing of new technologies.
6. The implementation of foreign trade activity of Ukraine in
unprecedented conditions of economic pressure from the Russian Federation,
which will reduce export opportunities and lead to economic losses.
Starting from 1, January 2016, the Russian Federation suspendedthe
Agreement on the free trade zone with Ukraine in accordance with the
Presidential Decree “On suspension by the Russian Federation of the
Agreement on free trade area regarding Ukraine” No. 628, dated 16.12.2015.
This resulted in imposition by the Russian Federation of the most-favoured-
nation treatment regarding the goods originating from Ukraine, instead of
preferential treatment, which had been applied since 2011; the new treatment
involves application of the basic custom duties envisaged by the Uniform
Customs Tariff of the Eurasian Economic Union to all groups of Ukrainian
products instead of zero rates. Thus, import duties rose from 0 to 5–20%, the
average weighted rate rose up to 7.7%, and Russia had possibility to introduce
additional quotas, prohibitions and other non-tariff measures. In addition, the
Decree of the Russian Federation “On amendments to par. 1 of the resolution
of the Government of the Russian Federation No. 778, dated August 7, 2014”
No. 1397 dated 21.12.2015 introduced an embargo on the import of food from
Ukraine from 01.01.2016. The actual suspension of export supplies of
Ukrainian goods to the Russian Federation was a consequence of the
embargo55.
55
World Hybrid War: Ukrainianfront:monograph. (2017). Kyiv,NISD, p. 283.
70
By the Decree of the President of the Russian Federation dated January

1, 2016 No. 1 “On measures to ensure economic security and national
interests of the Russian Federation in international cargo transit from the
territory of Ukraine to the territory of the Republic of Kazakhstan through the
territory of the Russian Federation” and the corresponding Government
Resolution56 concerning its implementation, the transit of Ukrainian goods
through the territory of the Russian Federation is significantly limited. In
particular, direct transit transportation of goods from Ukraine to Kazakhstan
by road and rail is banned.From January 1, 2016, international transit car and
rail transportation of goods from the territory of Ukraine to the territory of the
Republic of Kazakhstan through the territory of the Russian Federation are
carried out only from the territory of Belarus. According to the Decree, there
are two transit checkpoints for Ukrainian goods on the Russian Federation–
Republic of Belarus border and three of them on the Russian Federation –
Republic of Kazakhstan state border. In case of container transportation, a
special identification seal is provided for connection with the satellite system
using the technology of the navigation satellite system GLONASS when
entering the territory of the Russian Federation.
From July 1, 2016, Russia imposed additional restrictive measures on
transit of goods originating in Ukraine through the territory of Russia57. They,
in particular, include the continuation of existing restrictions on the transit of
goods from Ukraine to the Republic of Kazakhstan and the extension of these
restrictions on transit to the Kyrgyz Republic, a complete ban on the transit of
goods that are subject to an embargo (in accordance with the approved list
and such goods to which the Russian Federation applies import duty rates
56
Decree of the Government of the Russian Federation of 1 January 2016 No. 1 “On measures to
implement the Decree of the President of the Russian Federation of 1 January 2016 No. 1 “On measures
to ensure economic security and national interests of the Russian Federation in international cargo
transit from the territory of Ukraine to the territory of the Republic of Kazakhstan through the territory
of the Russian Federation””. Available at:
http://publication.pravo.gov.ru/Document/View/0001201601010003
57
Decree of the President of the Russian Federation “On amendments to the Decree of the President of
the Russian Federation of 1 January 2016 No. 1 “On measures to ensure economic security and national
interests of the Russian Federation in international cargo transit from the territory of Ukraine to the
territory of the Republic of Kazakhstan through the territory of the Russian Federation”” No. 319 of
01/07/2016. Available at: http://publication.pravo.gov.ru/Document/View/0001201607030001
higher than 0 (import duties according to the rates of the Common Customs
Tariff of the Eurasian Economic Union).
These Russian resolutions are aimedat not only driving Ukraine out of
the Russian commodity market, but also driving out of the commodity markets
of the countries of Central and East Asia. It is known that in 2015, China ranked
first in export transportation by rail from Ukraine, the volume of which
reached 24.1 million tons;380 thousand tons of cargoes were delivered from
Ukraine to Kazakhstan through the territory of the Russian Federation. Russia,
of course, tries to impede this freight traffic in every possible way.
The losses of various degree in the real sector of the Ukrainian economy
were consequences of the actions by the Russian Federation. According to the
Ministry of Economic Development, due to restrictive measures imposed by
Russia, in 2016, the Ukrainian economy lost about 1 billion US dollars. The
policy of Russia to impose restrictions on the import of certain types of
Ukrainian goods, as well as the active implementation of its own import-
substituting projects, resulted in a drop in Ukrainian exports to the Russian
Federation in 2014 by 33.7%, in 2015 – by 50.7%, in 2016 р. – by 25.6%. This
had a negative influence on the general dynamics of exports from Ukraine,
considering its low geographical diversification according to separate
commodity groups. From 2012 to 2016, the export of products of machine
building has decreased by 6.6 times, metallurgy – by 3.8 times, agricultural
products – by 21.5 times. The export of chemical complex products
experienced a slightly smaller fall; it decreased by 2.5 times.
7. Putting into practice “the roadmap” for implementing thestrategy of
European integration of Ukraine, which will be accompanied by the renewal of
the strategic process of modernizing the economy on a European basis and
overcoming significant internal institutional and macroeconomic imbalances,
and serious structural problems. The implementation of the European
integration strategy of Ukraine provides the following prospects for the real
sector of the Ukrainian economy:
− theexpansion of the presence of Ukrainian products in the EU market
due to the reduction of tariff barriers in trade. Particularly, it concerns
72
industrial products such as ferrous metals; ores, slag and ash; electric cars; fats
and oils, mineral products etc., the share of which is traditionally high in
Ukrainian exports to the EU. Domestic agricultural companies will continue to
explore the EU market and the level of quality, safety, environmental
characteristics of Ukrainian agricultural products will rise.Since the agreement
sets quotas for duty-free export supplies from Ukraine of certain types of
agricultural products, it is necessary to fill them, which then can confirm the
quality of domestic products and their compliance with European standards as
well as increase the attractiveness and competitiveness of domestic
agriculture in export directions.
It is also possible to lower some non-tariff barriers, for example, to
curtail the number of anti-dumping measures applied by the EU to Ukrainian
products;
− the possibility to improve access of Ukrainian producers, by lowering
import duty rates,to such production resources as raw materials and semi-
finished products for manufacturing finished products (in the confectionery
industry, consumer goods industry, chemical complex), high-tech means of
production and components, which will promote modernization and technical
re-equipment of domestic industrial enterprises;
− theimprovement of ecological characteristics, a reduction of resource
and energy intensity of production due to harmonization of legislation in the
sphere of environmental protection concerning industrial pollution and
industrial threats with the EU legislation;
− an increase in the inflow of foreign investment due to the expansion of
cooperation between the governments of Ukraine and the EU member states.
It can be achieved by forging scientific and technical and production links
between Ukrainian producers and leading manufacturers of the EU, creating
joint ventures and transferring European production capacity to Ukraine,
launching new projects for international technical assistance on the basis of
the elaboration of a plan of action and specific agenda for introducing
European standards at enterprises, including joint investment projects in
strategically important spheres;
− better protection of consumer rights. The introduction of European

rules of technical regulation and standardization of products will improve
safety of domestic food products. At the same time, the shift of responsibility
for compliance with standards and requirements concerningfood safety from
the government services onto producers will lead to decentralization of
control processesand an increase in business responsibility;
− modernization of the state agricultural policy in accordance with the EU
regulations and directives, which will provide for the improvement of existing
instruments and introduction of new tools of state support in the sphere of
agriculture and rural development;
− sustainable development of agricultural production, taking into account
the need to protect the environment and animals, which, particularly, involves
the extensive use of organic production methods, modern biotechnologies
when fattening and keeping animals as well as crop production technologies;
− thecreation of new jobs by improving the investment climate in Ukraine
due to the creation of a favourable regulatory environment, which will be
harmonized with the norms and rules that are in force in the EU;
− the improvement in the safety of transportation, energy efficiency and
the reduction of a negative impact of transport on the environment through
the introduction of European regulatory requirements for the modernization
of technical equipment and fleets of automobile, rail, river, sea and air
transport;
− enhanced quality and lower cost of transportation as a result of the
entry of European companies into the national market of transport services
that will be able to ensure travels on the domestic routes of Ukraine in the
sphere of air, sea and, then, road transportation on equal terms with Ukrainian
companies;
− development of the trans-European multimodal transport network
(TEN-T) in the eastern direction; concentration of resources (credit resources
or direct aid to Ukraine) on the most advantageous routes for the EU, which
will provide efficient service to the common market of goods for Ukraine and
74
the EU, as well as the extension of transport infrastructure in the direction of

international transport corridors;
− the expansion of international cooperation through the participation of
Ukraine in international transport organizations and projects, such as:
organization of high-speed rail communication with the EU by constructing the
European rail from the border with Poland to the city of Lviv; construction of
the Beregovo-Mukachevo road at the expense of credit resources fromthe
Hungarian Eximbankfor connecting the border point on the Ukrainian-
Hungarian border with the Kyiv-Chop road; Ukraine’s participation in the
implementation of the European Strategy concerning the Danube Region.
− access to new technologies in the transport sector by means of
expanding scientific and technical cooperation with European countries,
especially, in the introduction of intelligent transport systems, satellite
navigation systems, the use of innovative fuels, other advanced technologies
and commercial solutions that facilitate transportation. The development of
collaboration between Ukrainian transport companies and industrial
companies in Europe will become the basis for high-tech cooperation in
creating joint ventures for manufacturing trains and locomotives, automotive
and aircraft engineering.
Apparently, the next trend in the real sector of the Ukrainian economy
will be determined by both economic and noneconomic factors. However, in
any case, it is important to keep up the initiated reform process and
implement strategic decisions as quickly as possible at all levels of public
administration.Prioritizing structural reforms should become a key factor in
restoring the national economy and the only possible way for Ukraine to move
in the European direction. Otherwise, it will be impossible to avoid the
ultimate degradation of the economic system and society as well as the rapid
transformation of Ukraine into a poor colonial-type state that lives on small
contributions from more affluent countries, while it supplies the world with
only cheap natural and human resources.
Economic preconditions, known as the “Copenhagen Criteria”, which
provide a country with prospects of the EU membership when they are
fulfilled, include the existence of a developed market economy in a country

and the ability to meet the stringent competitive conditions established in the
EU internal market. Unfortunately, today, the state of the real sector of
Ukraine does not allow us to speak about the readiness of our country to face
intense competitive pressure, which characterizes most of the EU markets.
In industry, the most urgent European integration tasks are the issues of
removing non-tariff barriers in trade with the EU, first of all, by ensuring
compliance of technical regulations with the provisions of the corresponding
EU legislation, which should provide Ukrainian producers with free access to
the EU markets without additional certification in the EU countries. Ukraine
has made some progress in this direction. Thus, as of the beginning of 2017,
out of 27 acts of the European sectoral legislation, defined by the Appendix III
to the Association Agreement between Ukraine and the EU, 24 technical
regulations were adopted in Ukraine, while 23 of them are obligatory for
implementation58.
The fact that the Laws of Ukraine “On metrology and metrological
activity” and “On technical regulations and conformity assessment” came into
effect in 2016, was also a positive step.
Cooperation between Ukraine and EU countries in the field of agriculture
and rural development covers a number of areas; in 2016, the activity of the
Government was focused on the following ones:
− improvement of modern and sustainable agricultural production, taking
into account the need to protect the environment and animals, in particular,
expanding the use of organic production methods and exploitation of
biotechnology by introducing best practices in these areas;
− promotion of the policy towardsagricultural product quality in the
spheres of product standards, production requirements and quality schemes.
Therefore, in order to increase the volumes of production, saturate the
domestic market with high-quality food products and deepen the integration
58
List of Ukrainian technical regulations adopted within the framework of obligations under the
Association Agreement with the EU (Appendix III). List of European Directives, which are not adopted
within the framework of obligations under the Association Agreement with the EU (Appendix III).
Available at: http://www.me.gov.ua/Documents/List?lang=uk -UA & tag = MizhnarodneSpivrobitnitstvo2
76
of Ukrainian agrarian production into the EU market and world markets, the
Government of Ukraine has approved such rules:
− detailed rules for production of organic products (raw materials) of
beekeeping,
vegetable origin59;
animal origin60.
The activity of the Government in the sphere of enhancing the quality of
agricultural products was carried out simultaneously with the introduction of
the system, which was equivalent to the European system of control over
quality and food safety, which would reduce significantly non-tariff barriers
and restrictions for Ukrainian exports of agricultural and food products to the
EU market.
For this purpose, a number of legislative acts have been adopted to
ensure the implementation of basic principles of the European food safety
system, in particular, control over safety of the food chain “from the field to
the table”, and the international system for controlling safety and quality of
food products – Hazard Analysis and Critical Control Points (HACCP).
As a result, starting from the second half of 2016, Ukrainian enterprises
began exporting dairy products to the EU. By the end of 2016, 13 enterprises
were inspected and entitled to export dairy products to the EU. Generally, in
2016, 277 Ukrainian producers of agricultural and food products of animal
origin had the right to export their products to the European market
(particularly, 97 of them had the right to export food products of animal origin,
180 of them– non-food products).
Transport is one of the key areas of cooperation between the EU and
Ukraine, and in accordance with the Article 368 of the Association Agreement,
59
“On Approval of detailed rules for production of organic products (raw materials) of plant origin.
(2016). Decree of the Cabinet of Ministers of Ukraine dated August 31”, No. 577. Available at:
http://www.kmu.gov.ua/control/uk/cardnpd?docid=249288974
60
“On Approval of detailed rules for production of organic products (raw materials) of animal origin.
(2016). Decree of the Cabinet of Ministers of Ukraine dated March 30”, 2016 No. 241. Uriadovy Kurier,
No. 71, April 14
the main objective of such cooperation is to facilitate the restructuring and

modernization of the Ukrainian transport sector and gradual harmonization of
standards and policies that are in effect with the existing ones in the EU.
The Association Agreement presupposes the expansion and
strengthening of cooperation between Ukraine and the EU in the sphere of
transport, liberalization of rail and road transport and inland waterway
transportation in order to create a competitive market for transport services in
Ukraine, increase the efficiency, safety and reliability of transport connection,
ensure the free movement of goods under conditions of the single European
market and the free trade zone of Ukraine and the EU.
In order to organize work on the implementation of the Association
Agreement, the Ministry of Infrastructure of Ukraine established a
Coordinating Council and working groups in the corresponding spheres
(transport policy and infrastructure, safety and transportation of dangerous
goods, air transport, automotivetransport and public road system, rail
transport, sea and river transport, and postal service).
The focus was on the development of primary legislation in the relevant
branches of transport in order to adapt the EU legislation to the Ukrainian
legislation. Four basicdrafts of the Laws of Ukraine were submitted to the
Verkhovna Rada of Ukraine; the adoption of these bills will create a legislative
basis for the implementation of at least 70% of the EU norms in the relevant
spheres as soon as possible.
The draft Law “On rail transport” (reg. No. 4593 dated May 5, 2016,
returned for revision on February 21, 2017) provides for the creation of a new
structure of relations between participants in the process of rail
transportation, especially, the creation of a new model of government control
over rail transport; demonopolization of the industry through the allocation of
competitive types of activities in the railway transport, the formation of the
entity “infrastructure operator”, which is responsible for its exploitation,
modernization and development; the introduction of free tariff formation in
the sphere, which is not regulated by the state and ensuring state regulation of
tariffs for railway infrastructure as a monopoly component of the market; the
78
introduction of a European security management system at railway

enterprises, etc. The implementation of the Council Directive 95/18/EU of 19
June 1995 on the licensing of railway enterprises, Directive 2007/59/EU of 23
October 2007 on the certification of locomotives, Directive 2001/14/EU of 26
February 2001 on the allocation of capacity for rail infrastructure and
collection of charges for the use of railway infrastructure, Directives 2004/49 /
EU on railway safety and other standards of theEU will be envisaged in the
draft.
The draft Law of Ukraine “On bringing the legislation of Ukraine in the
sphere of automotive transport in line with the acts of the European Union”
(registration number 4683 dated May 17, 2016, returned for revision on
January 21, 2017) will standardize access to the market of transportation,
organization of public transportation, social protection of working time and
rest time for drivers, use of tachographs, maintenance of the level of
professional competence of drivers and use of speed limiters, etc. The bill
takes into account the provisions of14 EU legal acts – 7 Regulations and 7
Directives, 4 of them are not included in Appendix 32 to the Association
Agreement. After the adoption of the Law, more than 70 normative legal acts
must be repealed, elaborated or amended within 5 years.
The draft Law of Ukraine “On amendments to certain legislative acts on
bringing them in line with the legislation of the European Union in the sphere
of dangerous goods transportation” (reg. 4644 dated 11.05.2016) provides for
amendments to the laws of Ukraine “On transportation of dangerous goods”,
“On transport” and “On automotive transport” in order to bring the specified
laws in line with the requirements of the international treaties of Ukraine in
the sphere of dangerous goods transportation and Directive 2008/68/EU.
Unfortunately, the bill was originally adopted in the first reading, but on
21.03.2017it was rejected and excluded from consideration.
With the aim of opening the inland waterways of Ukraine for the entry of
ships under the flags of third countries in accordance with the commitments
given by Ukraine within the framework of the WTO, the draft law “On inland
water transport” (reg. No. 2475а dated August 4, 2015), has been developed.
It takes into account the provisions of the four Directives of the EU and
provides for regulating legal relations in the sphere of navigation on inland
waterways of Ukraine; definition of the legal framework of infrastructure
entities; improvement of the state of the river engineering; promotion ofthe
services market development on a competitive basis; reorientation of cargo
flows into ecological and economic river transport.
Conclusions. The consistent implementation of the reform course is the
only way to restore the Ukrainian economy, preserve its independence,
strengthen the economic security of the state and attach great significance to
the process of rapprochement between Ukraine and the EU. To achieve this,
we need to:
− take further steps to encourage new quality of growth, which requires
the fullest practical implementation of the adopted initiatives, ensuring the
accurate and efficient operation of newly created tools and mechanisms by
joint efforts of the authorities, business, the scientific sector and the general
public. In particular, attention should be paid to the implementation of
measures aimed at creating legislative and organizational prerequisites for
stimulating the development of ecological and innovative industries, first of all,
through a network of industrial parks and cluster production;
− promote the further integration of Ukrainian producers into global
value-added chains, development and establishment of manufacturing of high-
price finished products and ensure their entry into new markets, especially,
the markets of Asia, Africa and the Customs Union;
− create conditions for modernization of the basic industries
(metallurgical, chemical, coal), reduce their resource intensity, keep free
capacity fully occupied, which should become the basis for the domestic
market development, the export activity growth, strengthening of inter-branch
relations, acceleration of technical modernization of the real sector;
− ensure the development of competition and prevent excessive
concentration of sectoral markets by formulating a well-balanced antitrust
policy;
80
− develop the Strategy of technological and technical modernization of

the enterprises of the real sector of the Ukrainian economy by 2035, which will
help the Ukrainian economy to reach a new technological level and create
conditions for its integration into the European and world economic systems.
Nataliya Koren
National Institute for Strategic Studies, Kyiv, Ukraine
MODERNIZATION OF FISCAL MECHANISMS

FOR ENSURING ECONOMIC DEVELOPMENT
Abstract. Public reforms, which are currently being implemented, are recognized by
Ukrainian society and the international communityas the most expedient way of progressive
development, aimed at the development of Ukrainian statehood, solving pressing problems
and achieving the set goals. Ensuring their effective implementation at the current stage
actualizes the issue of forming a new model of fiscal policy, which causes the search for
modern conceptual approaches to the appropriate modernization of its levers and instruments.
In addition, the emergence of a complex of new threats and challenges actualizes the need to
develop appropriate mechanisms for overcoming the influence of negative factors, stabilizing
and ensuring sustained development in conditions of resource constraints. Eurointegration
processes and strengthening of international, and especially inter-regional cooperation,
actualize a new set of tasks for fiscal policy. In particular, the authorities' ability to ensure
competitiveness of the economy and national security, provide high-quality public services and
so on.
The budget reform is an important component of modern transformational changes in
the economy and social sphere in Ukraine. First of all, restoration of the basic institutions of the
budgetary system in a new quality, as well as a consistent solution, based on institutional
renewal, of the contradictions of socio-economic development, should be considered for
further overcoming the systemic crisis.
An important mechanism for ensuring the reform of fiscal policy is the balancing of the
fiscal burden and the state's performance of the functions assigned to it. Fulfilment of the
state's functions (the volume of tasks in the areas of reducing social inequality and ensuring a
quality of life remains sufficiently high) should be accompanied by obligations on the proper
payment of taxes under transparent controlled procedures and consistent unshadowing of the
economy. In particular, ensuring freedom of entrepreneurship and competitiveness of markets
should be an important factor. Further deregulation will require a change in regulatory policy
mechanisms. The implementation of the budget decentralization reform is aimed at ensuring
distribution of powers between state authorities and local self-government and should occur
on the basis of their clearly defined functions and their resource support. Expanding
possibilities for the regions to realize their own development potential must be accompanied
by an increase in their responsibility for development of local infrastructure, and should be also
ensured by institutional guarantees for observing the balance of rights. This reform is
fundamental for a number of sectoral reforms, as it provides subsidiarity, development of local
82
self-government, financial self-sufficiency of communities, and responsibility of local

governments to society. An important task of implementation is the formation of such a
mechanism of budgetary regulation that will ensure equal access to budgetary goods and
services, as well as development of incentives for business entities and ordinary citizens. The
target character and transparency of the use of budget funds should be introduced with the
establishment of effective control and reporting tools.
JEL-classification: G38
Keywords:fiscal policy, budgetary system, budgetary risks, budget revenues,
expenditures, public debt
Introduction. The conformity of state policy and regulatory mechanisms

to today's challenges, threats and needs is a significant prerequisite for
economic, social, political, democratic and cultural development of society.
However, it is obvious that this discrepancy causes the formation of deep
contradictions and tendencies of crisis phenomena, finally brings about a
certain "crisis of national states effectiveness". Public reforms, which are
currently being implemented, are recognized as the most expedient way of
progressive development, aimed at the development of Ukrainian statehood,
solving pressing problems and achieving the set goals. Ensuring their effective
implementation at the current stage actualizes the issue of forming a new
model of fiscal policy, which causes the search for modern conceptual
approaches to the appropriate modernization of its levers and instruments. It
should be noted that modernization as a tool of ensuring transition from one
state of the system to another one based on its updating, improvement and
ensuring compliance with modern requirements and challenges, implies not
only creation of something new, but also preservation of the already existing
effective components that can form the basis of transformation. Reforms, as
well as modernization processes, belong to such forms of social
transformations that have a multiplicative nature of feedforward or feedback,
and without adequate institutional and resource support they will not be able
to acquire a systematic character and solve certain tasks.
The increasing role of the State in regulating the dynamics of social and
economic processes in the context of crises and transformational changes is

determined by the laws and realities of the development of a market-oriented
economy, confirmed by world practice and proven by economic science. In the
complex mechanism of the operation of economic laws, where the law of
market self-regulation is predominant, the law on the necessary and obligatory
role of the state in the functioning of the market mechanism is of great
importance. Its compliance ensures the achievement of the goals of economic
development, while ignoring the growth slows down the movement towards
them. This law evokes the existence of another important law - the need for
state regulation of those sectors of the economy whose development, for
objective reasons, is not secured by the operation of the market mechanism.
For a long time in the economic science in the process of seeking forms and
methods for ensuring long-term economic development, the issues of
interaction between the state and the market-oriented economy from the
point of view of justification of the expediency of state regulation were
studied. At present time, the methodological task of ensuring long-term
development is aimed at increasing the effectiveness of the levers of state
regulation, determining the ways of their transformation into effective
instruments for solving both tactical and strategic tasks of economic policy.
The search for the optimal balance between the levers of state and market
regulation of the economy is a actually topical task, which in each country
finds its ambiguous solution61. The correlation of economic science with
practice, especially at the macroeconomic level, is quite clearly illustrated by
the words of the ancient Greek philosopher and scientist Aristotle (384 – 322
B.C.) that the goal is not the object of the decision, but only the levers that
lead to it. Today, the important role of the state in regulating economic and
social processes in society is recognized by all economic schools. Existing
directions of economic thought differ particularly in methods and levers, but
they have a common goal: achieving economic growth and macroeconomic
balance. The state, implementing the regulation of social and economic
61
Malyi I.Yi. The state and the market: Philosophy of interaction: monograph/ I.Yi. Malyi, M.I.Dyba, M.K.
Galaburda; edited by I.Yi. Malyi – K.: KNEU, 2005. – 358 p
84
processes, uses a system of methods and levers aimed at ensuring the

performance of functions and depending on economic tasks, historical
traditions and the place of the country in the world economic space. The
analysis of the functional importance of the budget in the regulation of social
and economic processes provides grounds for making a conclusion that the
attention of researchers is focused on two concepts: Keynesianism and
Monetarism.
These concepts of macroeconomic regulation during the twentieth
century complemented each other in different countries of the world and at
different periods of their development, despite the opposition of certain
instruments of financial policy622. Tendencies in the development of public
finances in the twentieth century make possible to characterize this period as
an age of searching for the balance of the economy and the social sphere of
modern civilization. Two ways of optimizing the budget were formed: radical
and evolutionary. The first method is implemented in the mobilization model
of the budget, the second - in the market model of the budget and social state.
For both models, the strengthening of social functions of the state and, along
with that, the absolute and relative growth of social expenditures of the
budget is characteristic. This is accompanied by an increased role of the tax
system in the mechanism of state regulation of socio-economic development.
The beginning of the XXI century is characterized by the formation of
new technological structures, and each state determines its development
strategy in the coordinate system of the modern world. Social and investment
components to the first positions in the budgets, a transition from general
security to differentiation of the provision of public services occurs,
accompanied by an increase in the total amount of financial resources of
budgets.
As a result, the number of direct and reverse connections between
budget parameters and macro indicators is increasing, which calls for a search
for ways to improve the effectiveness of budgetary regulations levers. At the
62
AndrianovV. State or market?Keynesianism or monetarism?/ V. Andrianov // Society and Economics. -
2008. - No. 10-11. - P. 129-146
present stage, the basis of macroeconomic regulation is the symbiosis of many

economic theories, which was named the modern concept of neoclassical
synthesis. Its main point lies in rationalization of the idea that modern
economic theory is considering the possibility of securing full employment and
economic growth, while using both the principles of economic liberalism and
the elements of the Keynesian concept as elements of a market-based
economic mechanism, which limits the elements of the free market. It is
known that, while maintaining the quality of management, the complexity of
the managed system has an exponential dependence on the complexity of the
managed object. Since it is impossible to increase the complexity of budget
levers indefinitely, then the efficiency of the regulation will decrease in
accordance with the increasing complexity of the object of regulation.
Academic economists point out that they should make the most of the two
main, fundamentally different approaches in the national economic policy:
restrictive, mainly monetary-oriented, financial policy and the concept of
accelerated growth of money supply, an increase in public financing in the real
sector of the economy as a certain kind of national Keynesianism.
Each era in economic science must have its own “toolbox”, therefore it is
impossible to apply the methodology and tools of the industrial era to the
analysis of economic phenomena and the processes of the information
economy and society. The role of the state in society and the economy, which
is now defined by modern economists as a digital economy, is changing, which
affects the change in both of the functions of the state and the functions of its
instruments, namely, the budget. According to the report of the Chinese
Academy of Cyber Space Research (CACS), the digital economy now accounts
for 30% of China's GDP in absolute terms is about 3.4 trillion dollars. In total
about 22% of world GDP is created thanks to the digital economy. The new
report of the United Nations Organization called digital inequality one of the
main world problems. The report notes that digital inequality is only getting
worse every year, in addition, digital technology and the digital economy are
able to change the lives of billions for the better only on condition if resources
86
are available to all63. A number of scientists, examining the transformations of

the present stage, compare them in significance with the passage from the
feudal to the industrial society. A retrospective study shows that during this
period the paradigm of the essence and purpose of the budget in the
economic mechanism for regulating socio-economic processes changed. In the
socially regulated market economy, currently operate all known market laws,
but the scope and scale of their operation is limited by the rules established by
the state64. Strengthening the transnationalization and globalization of
economic development causes the formation of a number of internal and
external factors, which will influence the mechanisms for regulating socio-
economic dynamics and the choice of instruments of impact.
Introduced systemic transformation processes necessitate the
implementation of appropriate adjustments in the system of state regulation
and require widespread use of economic instruments and instruments for
regulating the reproductive processes that are crucial for ensuring the success
of public structural reforms. In addition, the emergence of a complex of new
threats and challenges underlines the need for developing appropriate
mechanisms for overcoming the influence of negative factors, stabilizing and
ensuring sustained development in conditions of resource constraints.
Eurointegration processes and strengthening of international, and especially
inter-regional cooperation, actualize a new set of tasks for fiscal policy. In
particular, the authorities' ability to ensure competitiveness of the economy
and national security, provide high-quality public services and so on. The world
practice of successful economies shows that the most effective are those
reforms in which the relationship between the goals and objectives of public
policy, their systemic nature and transparency is clearly coordinated.
The economy of Ukraine increased by 2.3% in 2016, primarily due to the
high harvest, which led to acceleration of economic growth to 4.8% in the
fourth quarter. In addition, the implemented reforms, initiated in 2014 and
63
UNO:”Digital technologies strengthen inequality between countries”. The electronic resource. - [Access
Mode]: https://hightech.fm/2017/11/17/digital_devide
64
Knyazev Yu. Evolution of the economic theory: from market liberalism to social regulation / Yu.
Knyazev // Society and economy. - 2008. - No.3-4. - СP.19-44.
2015, helped to stabilize economic dynamics and improve the investment

sentiment. In the first half of 2017, the indicator of economic growth was 2.4
percent. The budget system is a reflection of socio-economic processes in the
state. Budget tools should ensure their positive dynamics and ability to reduce
the negative impact of numerous challenges and risks, which are exacerbated
not only during the crisis, but also during the transformational shifts that are
currently taking place in the political, economic and socio-cultural spheres. The
current state of the budgetary system of Ukraine was formed under the
influence of a number of destructive external and internal factors that
exacerbated its imbalances and actualized simultaneously the issue of fiscal
mechanisms modernization. Under the influence of direct and hybrid threats,
there is aggravation of internal system imbalances that are caused by a wide
range of social, economic, socio-political, environmental factors - both
impermanent and long-term ones that are related to the specifics of socio-
historical development of the country, and those that are caused by the
transformational shifts of the present stage. The main factors that caused
aggravation of imbalances in the budget system are:
1. A high level of state debt. Over the past five years, the total amount
of state and guaranteed state debt has increased 4-fold and as of December
31, 2016, the state and state-guaranteed debt of Ukraine made up 19 billion
UAH (70.97 billion USD)65. At the same time, the amount of the state debt
increased by 1339.5 billion UAH, and the amount of the state guaranteed debt
increased by 191.7 billion UAH66. In addition, the growth rate of external debt
exceeds significantly the growth rate of domestic borrowing. The growth in the
volume of state and state-guaranteed debt was due to devaluation of the
national currency67, securing financing of the state budget deficit,
capitalization of state-owned banks, including because of the transition of PJSC
65
Official site of the Ministry of Finance of Ukraine. Summary on the state and state guaranteed debt of
Ukraine as of December 31, 2016. - Available at: http://www.minfin.gov.ua/news/view/statystychni-
materialy-shchodo-derzhavnoho-ta-harantovanoho-derzhavoiu-borhu-
ukrainy_2016?category=borg&subcategory
66
Statistical materials on the state and state guaranteed debt of Ukraine. Available at:
https://www.minfin.gov.ua/news/view/statystychni-materialy-shchodo-derzhavnoho-ta-harantovanoho-
derzhavoiu-borhu-ukrainy_2016?category=borg
67
The same
88
CB "PrivatBank" to the state ownership in accordance with the Decree of the

Cabinet of Ministers of Ukraine of December 18, 2016 No. 961 (as amended),
and provision of a loan to the Fund of Deposit Guarantee for Individuals in
accordance with Decree of the Cabinet of Ministers of December 28, 2016 No.
100368. Privatization of PrivatBank has also increased the state's quasi-fiscal
expenditures by 4.5 % of GDP69. The state direct and state-guaranteed debt in
Ukraine in 2016 amounted to 81.0% of GDP, which is much higher than the
limit of 60% of GDP determined by the Budget Code of Ukraine. In previous
years, this indicator was slightly lower: in 2015 it was 79.2% of GDP, in 2014 -
69.4% of GDP. As of October 31, 2017, the total amount of state and state-
guaranteed debt amounted to 76.3 billion USD, which is 5.33 billion USD
higher than at the beginning of 2017, which was 70.97 billion USD. In hryvnia
equivalent, the increase in the amount of state and state-guaranteed debt
amounted to 116.97 billion UAH.
In September 2017, Ukraine placed Eurobonds worth 3 billion USD at
7.375% per annum for 15 years, which indicates a positive assessment on the
part of investors of the reforms that are taking place in Ukraine, and became a
"financial platform for further reforms"70. Of this amount, about 1.6 billion
USD is provided for the payment of repurchased bonds with redemption in
2019 and 2020. As a result, the net increase in the state debt from this
transaction will be about 1.4 billion USD71. To date, "short securities" cost
7.75%, then today their price is reduced to 7.375%, and consequently it saves
state budget funds for servicing external debt72.This important for the state
agreement was the first market placement for the country since 2013. Since
then, Ukraine has sold 10-year Eurobonds for 1.25 billion USD with a yield of
68
Official site of the Ministry of Finance of Ukraine. Statistical materials on the state and state guaranteed
debt of Ukraine. Available at: http://www.minfin.gov.ua/news/view/statystychni-materialy-shchodo-
derzhavnoho-ta-harantovanoho-derzhavoiu-borhu
ukrainy_2016?category=borg&subcategory=statistichna-informacija-schodo-borgu
69
Center for economic strategy.The fiscal results of 2016.Available at:http://ces.org.ua/wp-
content/uploads/2017/02/2016_budget_results_note.pdf
70
The same
71
Ukraine placed Eurobonds for the first time after Euromaidan. Available at:
http://www.dw.com/uk83/a-40570429
72
Ukraine attracted 3 billion USD from the placement of Eurobonds - Poroshenko. Available
at:http://www.pravda.com.ua/news/2017/09/18/7155575/
7.5% per annum. Since 2014, Ukraine has annually placed 5-year Eurobonds
worth 1 billion USD, debt securities were guaranteed by the US, which allowed
the country to borrow at record low rates. In 2015, 13 issues of the country's
Eurobonds were restructured for 14.36 billion USD and 0.6 billion EUR,
investors agreed to write off about 20% of the principal debt and transfer
payments for the next 4 years. The coupon rate of all restructured issues was
set at 7.75% per annum. In 2016, the yield of Ukrainian Eurobonds was only
1.471%73.
The growth of the state debt obligations resulted in an increase in the
share of budget expenditures for servicing the state debt, which, under the
conditions of implementation of systemic reforms, conducting ATO in the east
of the country and the need to ensure implementation of state functions,
increases the burden on the state's main fund and negatively affects its
balance.
At the end of 2016, the amount of servicing the state debt was 96.1
billion UAH, which is by 11.6 billion UAH more than the indicator of 2015, and
by 48.1 billion UAH more than the indicator of 2014. Thus, for two years the
amount of servicing the state debt has doubled. In 2017, 112.0 billion UAH will
be allocated for servicing the state debt, which is 11.7% of the planned value
of the consolidated budget expenditures. As of January-October 2017, the
amount of servicing the state debt was 88.4 billion UAH, which is 77.5% of the
planned value for the year.
Accumulation of the state debt obligations in the context of fiscal
imbalances increased the burden on the budget, since almost one-fifth of the
budget expenditures must be for these purposes. In 2014, the cost of servicing
the state debt was 48.0 billion UAH or 16.0% of the budget expenditures. In
2015, under the influence of devaluation, this figure rose to 84.5 billion UAH or
21.0% of the budget expenditures, and in 2017 for this purpose 114.0 billion
UAH or 10.5% of the consolidated budget expenditures is directed.
73
Ukraine attracted 3 billion USD from the placement of Eurobonds - Poroshenko. Available
at::http://www.pravda.com.ua/news/2017/09/18/7155575/
90
Dynamics of budget expenditures for servicing the state debt is growing.

The debt security indicator has been in the danger zone for a long time and is
one of the main indicators of the state budget security. As the state debt
obligations grow, the costs of their servicing will be growing in the next years,
which will predetermine the risks of balancing the budget fund and reducing
the financing of other functions of the state. A high level of the state debt and
an increase in the share of expenditures for its servicing are an important
negative factor that affects not only the balance of the fiscal system, but also
fulfilment of basic functions and achievement of the goals of social and
economic development.
2. A high level of fiscal redistribution of GDP. Dynamics of the level of
fiscal redistribution of GDP through the consolidated budget demonstrates
attempts to use budgetary levers in the context of countercyclical regulation
of socio-economic dynamics. However, the effectiveness of these measures is
determined largely not by the level of redistribution, but by the structure of
fiscal seizures and budget expenditures. Stimulation of consumption in the
context of countercyclical budgetary regulation, which was introduced after
the crisis of 2008-2009, led to an increase in the growth rates of expenditures
over the growth rates of budget revenues. The share of consolidated budget
expenditures in GDP in 2015 was 34.3% against 33.0% in 2014, and in 2016,
this figure was 36.9%, due to the need to restore the country's defence
capacity and national security, service the state debt, preserve a high level of
state obligations to provide public goods and services. The share of
consolidated budget revenues in GDP was 28.7% in 2014, in 2015 - 32.9%,
which indicates an increase in tax pressure on the economy. At the end of
2016, this figure was 34.6% of GDP. It should be noted that the level of fiscal
redistribution of GDP in Ukraine is one of the highest among countries that are
similar in terms of economic development, and in the Eastern European
region74.
74
Fiscal Monitor: Acting Now, Acting Together / International Monetary Fund, World Economic and
Financial Surveys. – April, 2016, 87-88. Available
at:https://www.imf.org/external/pubs/ft/fm/2016/01/fmindex.htm
3. A high level of the state budget deficit. The growth of the deficit of
the budget of the enlarged government from 1.2% of GDP in 2015 to 2.9% of
GDP in 2016 is due, inter alia, to the need to pay debt obligations, ensure an
adequate level of financing for the security and defence sector of the state,
and ensure the functions of social protection of citizens. In addition, the
reduction in the inpayment of the Unified Social Tax to the Pension Fund of
Ukraine necessitated an increase of its support by the budget. However, a
significant positive factor in stabilizing the budget deficit was the fact of
overcoming the long-term inadequacy of Naftogaz, the deficit of which in 2016
was absent, and in 2015, it made up 1%75. Taking into account the budgetary
financing of Naftogaz of Ukraine, the deficit was 5.8% of GDP in 2015 against
10.1% of GDP in 2014.76
Positive trends in reducing the deficit of Naftogaz of Ukraine are due to
the diversification of gas supply sources. In particular, the share of natural gas
imported from Russia in the total volume of its import decreased to 0% from
92.5% in early 2014, there was a decrease in the price of imported natural gas
from 400.0 USD per 1,000 cu m in 2014 to 200.0 USD per 1,000 cu m in 2016.
However, according to the Inflation report of the National Bank of Ukraine, the
value of imported gas will continue to grow to the level of 2014 indicators and
will amount to 292.0 USD per 1,000 cu m in 201977. The rise in the price of
imported gas in conditions of an unreformed energy sector will cause risks
with regard to formation of a tariff policy for consumers, the need to form
sufficient amounts of subsidies from the state budget for unprotected strata of
the population in the direction of increasing this type of expenditure; it will
affect negatively the state of payments for energy carriers in the budgetary
sphere, and also influence the formation of inflationary fluctuations.
75
The same
76
Presentation of the Law of Ukraine "On the State Budget of Ukraine for 2016" / Ministry of Finance of
Ukraine. - 11/01/2016. Available at:http://www.minfin.gov.ua/uploads/0/1201-
14%20slides_budget_2016.pdf
77
Official website of the National Bank of Ukraine. Inflation Report April 2017.Available
at:https://bank.gov.ua/doccatalog/document;jsessionid=4054FCD35D91D381E325022C9591378C?id=47
356006
92
The deficit of the state budget of Ukraine in 2016 was 70.3 billion UAH,
which is 2.9% of GDP. The indicator corresponds to the Maastricht criteria and
the requirements of the Memorandum of the IMF; in addition, it was less than
the forecasted indicator approved by the Law of Ukraine on the State Budget
for 2016: 83.7 billion UAH or 3.7% of GDP.
Sources of financing the budget deficit are revenues from privatization,
as well as state borrowing. Annually, revenues from privatization to the budget
were less than one percent of the forecasted figure. Thus, from the planned in
2016, 17.1 billion USD of proceeds from privatization for 2016, only 189.0
million UAH was received, in 2015, 151.5 million UAH from the planned 17.0
billion UAH was received, in 2014, 0.5 billion UAH from the planned 17 billion
UAH was received, in 2013, 1.5 billion UAH from the planned 10.9 billion UAH
was received78. Due to the non-fulfilment of privatization plans, the possibility
of replacing this resource by means of an additional issue of government
securities is used, which leads to an increase in the state debt. In the face of a
considerable debt burden and maintaining a high level of budget deficit, this
factor will have a negative impact on the tasks of balancing the budgetary
fund. The budget deficit of the enlarged government could grow to 3.5 percent
of GDP in 2017 due to increased public sector wages and spending on social
programmes79.
The Law of Ukraine "On the State Budget of Ukraine for 2018" provides
for proceeds from privatization in the amount of 22.5 billion UAH, which in the
conditions of non-fulfilment of the indicators for this type of income for a long
time is a rather ambitious plan. This is affected by an unfavourable investment
climate, which reduces the demand and price of privatization objects80.
In the debt policy, the main task is to reduce the level of the state debt
during 2018-2020 from the level of 66.8% in 2017 to 55% in 2020, and one of
the ways of implementing such an ambitious task is to reduce gradually the
78
The same.
79
Ukraine should grow faster than 4 percent a year. Available at:
http://www.worldbank.org/uk/news/press-release/2017/10/03/ukraine-needs-faster-growth-of-4-
percent-or-more
80
The same.
state budget deficit (from 3% GDP in 2017 to 2% of GDP in 2020)81. Under

conditions of a significant debt burden and maintaining a high level of
budgetary deficits, this phenomenon is likely to lead to the sequestration of
certain items of budget expenditures.
4. Military conflict and conducting ATO in the east of the country
led to an increase in the share of budget expenditures for financing the
defence and security sector. The military conflict in the east of the country
determined the need for proper development and financial support for the
security and defence sector. Defence spending increased from 52.1 billion UAH
in 2015 to 59.4 billion UAH in 2016, and the target figure for 2017 is 67.2
billion UAH. Expenditures on activities in the sphere of state security increased
from 5.8 billion UAH in 2015 to 7.7 billion UAH in 2016, and the target figure
for 2017 is 9.8 billion UAH. There was also an increase in spending on ensuring
public order, fighting crime and protecting the state border from 28.5 billion
UAH in 2015 to 39.3 billion UAH in 2016, and the target figure for 2017 is 35.3
billion UAH. It should be noted that the share of defence and security spending
in the structure of consolidated budget expenditures decreased in 2016 and
amounted to 7.1% compared to 12.7% in 2015. In 2017, this figure will be
11.7%. Ensuring the development of the defence and security sector is an
urgent task for every state in the modern world. The main problem in this
context remains the issues of planning, accounting and efficiency of the use of
budget funds, which today are high on the agenda.
5. Growth of social obligations of the state in conditions of
accumulation of the state debt and budget deficit. Social obligations of the
state had a stable growth trend for a long time, and then there was a rise in
the share of social expenditures in the structure of the consolidated budget
expenditures. In 2014, this indicator was 59.1%, in 2015 - 55.6%, in 2016 -
57.4%, and the target figure for 2017 is 57.1%. The largest share in the
structure of social expenditures is the expenditure on social protection and
social security (30.9% in 2016), education (15.5% in 2016) and health (9.0% in
81
Minister of Finance: "Gradual reduction of the deficit is an important element of the financial system
stability." Available at: https://www.minfin.gov.ua/news/view/ministr-finansiv-postupove-znyzhennnia-
defitsytu-ie-vazhlyvym-elementom-stabilnosti-finansovoi-systemy?category=bjudzhet
94
2016). Nominal indicators of expenditures grow every year; thus, the state
tries to ensure compliance with all social functions. However, the main
problem, which is addressed by the tasks of the systemic reforms, which are
being implemented now, is the low quality of the state social services
provision. The urgent issue of its solution is the transition from the mechanism
of budgetary supply to ensuring the social sphere development.
In addition, in the structure of social expenditures, the dominant part is
the cost of social protection and social security. Their share in 2015 was 25.9%,
and in 2016 - 30.9%, the target figure for 2017 is 26.5% of the total amount of
the consolidated budget expenditures. Thus, almost a third of the state's main
financial fund is directed to finance social payments in the absence of a
mechanism for targeted provision. In the structure of these social payments in
2016, 57.1% were directed to the social protection of pensioners, and in 2017
for these purposes, it is planned to spend 54.7% of the total expenditure on
social protection and social security.
Now the state spends on social protection and social security 3,4 times
more of budgetary funds than for healthcare, 2 times more than for education,
3,9 times more than for economic activity and 41 times more than for
environmental protection. The growth rate of social security spending also
increases several times faster than the spending on "development." The
growth of the share of social obligations leads to an increase in the burden on
the budget and a decrease in its role as an instrument for regulating the
economic and social processes in the state.
6. Deterioration of the demographic calendar, a reduction/loss of labour
potential in the conditions of unreformed pension system, which causes a
deficit in the income of the Pension Fund of Ukraine and the need to cover it
at the expense of the state budget. Expenses for pension payments currently
make up 10.8% of GDP. This led to formation of a deficit of the Pension Fund
at the level of 5% of GDP, which for a long time remains one of the main fiscal
risks82. In 2016, the state budget expenditures for transfers to the Pension
82
World Bank - Ukraine. Overview Ukraine: Economic Review, April. Available at:
2017http://www.worldbank.org/uk/country/ukraine/publication/economic-update-spring-2017
Fund amounted to 142.6 billion UAH, which is 47.8 billion UAH more than in
2015. In 2017, the share of state budget funds in the structure of the total
income of the Pension Fund of Ukraine will make 141.3 billion UAH or 49.9%,
which is also a significant indicator and puts a strain on the state budget.
World Bank experts note that the current pension system in Ukraine is able to
provide payments that are small but cover too many people, which in its turn
undermines fiscal stability and does not contribute to the adequacy of social
standards. The national pension system is one of the main factors that lead to
fiscal vulnerability of the economy - for example, in 2015 the pension system
"cost" the state 13.4% of GDP83.
7. Incompleteness of the administrative-territorial reform and a high
level of centralization of budgetary funds. Despite receiving positive results of
the budget decentralization reform, the issues of formation and execution of
local budgets remain topical. First of all, this is due to the absence of changes
in the main law of the state - the Constitution of Ukraine, as well as in a
number of laws on administrative and territorial reform and the
incompleteness of the process of the territorial communities’ unification,
which affects negatively the balance and systemic nature of the budgetary
process. The share of inter-budgetary transfers in the structure of incomes of
local budgets in 2015 made up 59.1%, and in 2016 - 53.1%, in 2017 - 56.0%.
Growth rates of own income of local budgets at the expense of additional
provided sources are insufficient. The issue of financing delegated powers,
which are not covered by an additional financial resource, remains unresolved,
which reduces the quality of such services at the local level. In addition, the
implementation of the tasks of the budgetary decentralization reform is
influenced negatively by the incompleteness of the process of voluntary
unification of territorial communities.
8. Inflation-devaluation fluctuations have an impact on formation of the
budgetary indicators. The growth of the state budget revenues is mainly
83
Official site of the World Bank.Available at: http://www.worldbank.org/uk/news/press-
release/2016/04/01/ukarine-economic-update-spring-201
96
provided by inflation and devaluation factors84, which indicates that in 2017

the slow pace of economic growth and fiscal pressure on business will
continue. Practice shows that real inflation is always higher than declared. In
addition, the International Monetary Fund worsened slightly the outlook for
inflation in Ukraine, suggesting that by the end of 2018 it will amount to
12.8%85. Thus, this risk will continue in the next budget period.
9. High energy consumption of the economy and irreversibility of the
need to use energy-efficient technologies and the use of non-traditional
energy sources cause an increase in tariffs for housing and communal services,
an increase in budget expenditures on subsidies for the population and a rise
in the costs of introducing the latest energy-saving technologies. In 2018, the
Energy Efficiency Fund is being introduced. 800 million UAH is expected to be
allocated to the Energy Efficiency Fund from the state budget and in addition,
800 million UAH is expected to be received from the international donors.
These funds will make it possible to take the work on implementation of
energy efficiency measures, initiated in previous years in the private sector, to
a qualitatively new level. The programme of "warm" loans will also continue,
which can reduce household consumption of gas by 12-40%, or on average
from 62 to 189 cu m of gas per month. 400 million UAH from the Energy
Efficiency Fund will be directed to "warm" loans. The key task for its effective
work is the transformation of colossal resources that have been used
ineffectively for many years, into sources of filling the fund and achieving a
reduction in energy expenditure per unit of GDP.
Conclusions. To maintain macroeconomic stability and ensure a gradual
reduction in the debt burden, fiscal policy should be aimed at reducing the
deficit to 2.6 percent of GDP in 2018. Although the fiscal consolidation
measures that were implemented in 2014-15, combined with the increase in
tariffs, allowed receiving positive results, future steps should be focused on
deep structural reforms and elimination of the reasons for significant budget
84The Accounting Chamber of Ukraine.Conclusions on the Draft Law of Ukraine "On the State Budget of
Ukraine for 2017".Available at: http://www.ac-rada.gov.ua/control/main/uk/index
85
The price increase will accelerate: the IMF worsened the inflation forecast in Ukraine. Available at:
https://economics.unian.net/finance/2239751-rost-tsen-uskoritsya-mvf-uhudshil-prognoz-inflyatsii-v-
ukraine.html
risks. To form an effective fiscal policy, it is necessary to improve the efficiency

of tax administration, reform the pension system, create fiscal space for public
investment, and ensure efficiency and effectiveness of expenditures in such
sectors as health, education and social protection. Without systemic
implementation of complex reforms, Ukraine will continue to be a hostage to
the need to increase borrowing, raise tax rates and cut costs, which will have a
negative impact on debt stability, investment attractiveness and reduce the
potential for economic growth.
The unfavourable investment climate in the country, a decrease in world
prices for commodity, a reduction in lending to the economy and worsening of
the global economic outlook for 2017 create additional risks of not achieving
the forecast growth in real gross domestic product86. Despite receiving certain
positive results of reforms and improving the effectiveness of mechanisms for
fiscal policy, a number of problems need to be addressed. The problematic
aspects of fiscal policy will still be concentrated primarily in the sphere of the
state debt management, in the activities of non-budgetary funds in the general
government sector, in managing the budget deficit, which necessitates the
improvement of both tools to generatebudget revenue and budget
management tools. Minimization of budget risks will depend on the
mechanisms for responding to internal and external challenges and risks that
take place in not only the fiscal sphere, but also those, which occur at the
present stage of the state's socioeconomic transformations.
To achieve these strategic objectives, fiscal policy should be aimed at the
integrated implementation of public policies focused on stabilizing the
national economy and reproducing economic potential, carrying out structural
reforms and ensuring an adequate level of social guarantees for citizens.
Under such conditions, the priority tasks for ensuring its effectiveness in the
medium term should be:
1. Reducing the budget deficit and ensuring balancing of the budget
system. Compliance with the fiscal consolidation regime will allow the country
86
The Accounting Chamber of Ukraine.Conclusions on the Draft Law of Ukraine "On the State Budget of
Ukraine for 2017".Available at: http://www.ac-rada.gov.ua/control/main/uk/index
98
to reduce the debt burden and ease inflationary pressures, which is important
for returning investor’s confidence and increasing investment flows.
2. Improving the effectiveness of the state debt management through
the implementation of the Medium-Term Strategy for the State Debt
Management for 2017-2019.
3. Continuing to reform budgetary decentralization, which should be a
catalyst for the implementation of sectoral reforms (educational, medical and
housing and communal services reforms), improving the energy efficiency of
the national economy.
4. Ensuring the effectiveness of intergovernmental fiscal relations, which
will improve the efficiency of using budget funds and ensure their
effectiveness.
5. Increasing the effectiveness of tax incentives for socio-economic
development, the effectiveness of which has been hampered for a long time
by the complexity of tax administration and certain institutional problems.
6. Improving the effectiveness of the budgetary funds use and full
implementation of medium-term budget planning and forecasting in order to
further develop a coherent and clear system of medium-term budget planning.
7. Development and approval of state social standards, which will allow
optimizing the number and structure of budgetary institutions, as well as
ensuring an increase in the efficiency of planning and using budgetary funds of
budgets of all levels.
8. Establishment of an effective verification mechanism and introduction
of a mechanism for targeted provision of benefits to recipients of social
benefits, pensions and benefits from the state, which should ensure the
effectiveness of the system of social protection and maintenance of citizens.
9. Ensuring transparency in the public finance sphere and ensuring
coordinated work of the created relevant electronic services, which will ensure
transparency in public finance.
10. Harmonization of the mechanisms of budgetary and monetary policy
in the context of public financial management to ensure protection of the
national interests of the state, reducing the risks of instability of the official
hryvnia exchange rate in determining the amount of repayment of external

and part of internal debt denominated in foreign currency, as well as certain
budget expenditures carried out in foreign currency.
The budget reform is an important component of modern
transformational changes in the economy and social sphere in Ukraine. First of
all, restoration of the basic institutions of the budgetary system in a new
quality, as well as a consistent solution, based on institutional renewal, of the
contradictions of socio-economic development, should be considered for
further overcoming the systemic crisis.
An important mechanism for ensuring the reform of fiscal policy is the
balancing of the fiscal burden and the state's performance of the functions
assigned to it. Fulfilment of the state's functions (the volume of tasks in the
areas of reducing social inequality and ensuring a quality of life remains
sufficiently high) should be accompanied by obligations on the proper
payment of taxes under transparent controlled procedures and consistent
unshadowing of the economy. In particular, ensuring freedom of
entrepreneurship and competitiveness of markets should be an important
factor. Further deregulation will require a change in regulatory policy
mechanisms. The implementation of the budget decentralization reform is
aimed at ensuring distribution of powers between state authorities and local
self-government and should occur on the basis of their clearly defined
functions and their resource support. Expanding possibilities for the regions to
realize their own development potential must be accompanied by an increase
in their responsibility for development of local infrastructure, and should be
also ensured by institutional guarantees for observing the balance of rights.
This reform is fundamental for a number of sectoral reforms, as it provides
subsidiarity, development of local self-government, financial self-sufficiency of
communities, and responsibility of local governments to society. An important
task of implementation is the formation of such a mechanism of budgetary
regulation that will ensure equal access to budgetary goods and services, as
well as development of incentives for business entities and ordinary citizens.
The target character and transparency of the use of budget funds should be
100
introduced with the establishment of effective control and reporting tools.

The formation of an effective fiscal policy is a key to the economy
stability, ensuring the necessary rates of economic growth and the quality of
public goods and services. Modernization of its components should be ensured
by achieving institutional symmetry, observance of the principles of fiscal
justice and responsibility, which will allow not only balancing the budget flows,
but will also give impetus to restoring the positive social and economic
dynamics of the state development.
PART 2.
ECONOMIC AND MATHEMATICAL MODEL OF ECONOMIC
RECOVERY
102
Tatiana Bludova
Kyiv National Economic University named after Vadym Hetman, Kyiv,
Ukraine
Tatiana Galahova
Kyiv National Economic University named after Vadym Hetman, Kyiv,
Ukraine
ECONOMIC AND MATHEMATICAL MODELLING

OF THE AREA OF THRESHOLD VALUES
OF EXPORT-IMPORTS FLOWS IN REGIONS
Abstract. In the article, the indicators of regional foreign trade and their thresholds are
considered for the analysis of regional export-import flows. The economic and mathematical
model of quantitative analysis of risks and finding boundary limits of foreign trade flows of the
region is developed.The foreign trade flows of two regions of the Carpathian region on the
basis of two-dimensional normal distribution and the definition of the area of the threshold
values of the region’s foreign trade flows from the point of view of economic risks are
modelled.The paper constructs surfaces of differential functions of two-dimensional
distributions of import-export flows in Lviv and Transcarpathian regions.The generalized
method of constructing an ellipse of scattering of the foreign trade flows in the region for
comparative estimation of competitiveness and economic safety of regions, the threshold area
of permissible ellipses of import-export flows in regions, are presented.A rectangular area of a
permissible risk of import-export flows of Lviv and Transcarpathian regions with a probability
of 0.99 is found.Such an area is an important criterion for problems of import substitution and
increasing export potential of the region.Unfavourable events are consideredthose, in which
the values of indicators of export-import flows in the region do not fall into the established
area of a permissible risk.
JEL Classification System: R 580, C 120

Key words: area of threshold values, export-import flows, normal distribution
law, ellipse of scattering, density of two-dimensional distribution
Introduction. The volumes and structure of the state’s export depends

directly on its export potential that influences the state’s place in the world
economy and its impact on global processes, which determines not only the
economic but also the political importance of the state, its authority and the
place of the state in international relations.
The structure and dynamics of foreign trade do not correspond to the
export capabilities of our state. Among the main factors that hold back the
development of export potential are the instability of the legislative
framework; complex customs procedures;a low level of financial sector
development and market institutions. The main priority of development of
Ukraine’sexport potential and an expansion of presence in international
markets is to increase the competitiveness of Ukrainian products. Each region
of Ukraine carries out its export-import activity with varying degrees of
efficiency, and the economic development of all regions of Ukraine is
interconnected.
In this aspect, it is important to develop a scientifically clear regional
export-import policy and ensure its effective implementation, concerning the
improvement of the structure of economic development, modernization and
updating of production capacities, the development and introduction of
achievements of scientific and technological progress into production,
improvement of management organization.
An effective regional export-import policy should consist in achieving a
positive trade balance by creating an innovative economy, which is aimed
more at the domestic market, and by reducing on this basis the dependence of
the region’s economy on negative external economic factors. In Ukraine, the
level of regional export flows is reflected in the ineffective structure of foreign
economic relations and does not correspond to global progressive trends. In
particular, there is a predominance of raw materials; low-tech exports prevail
over high-tech. Thus, the development and implementation of an effective
export strategy, the essence of which is to support those industries and
activities that have definite competitive advantages in the world market, is an
urgent problem.
The assessment of the level of an economic risk of export-import
operations of the region is one of the most important stages of risk-taking in
104
foreign economic activity87. In this context, the study of the quantitative

analysis of a risk and the boundaries of foreign trade flows in the region
arerelevant88. The scheme of the study of a risk of export-import flows in the
region is presented in Figure1.
Figure 1. The scheme of the research of a risk of export-import flows in the

region
Modelling the risks of economic activity of export-
import flows of the region
Identification of risk factors Assessment of the types of risks

with
financial positions for export-
Analysis of risk factors import flows of the region
Development of a set of financial indicators for

quantification of a risk
Identification of a permissible level of a risk
Identification of performance indicators
Risk management
Development of measures and methods for minimizing
89
87
Ventskovskii D. (2009) Method of estimation of the impact of export trade on the state of economic
security of Ukraine. In: Journal of the Academy of the Customs Service of Ukraine. Series: “Economics”, 2.
– p. 35–46.
88
Ischuk S. (2017) Estimation of export-import operations with tolling raw materials (Ukraine and Lviv
region): analytical note. In: State Enterprise Institute of Regional Studies M.I. Dolishni NAS of Ukraine,13
p. – Available at: http://ird.gov.ua/irdp/e20170603.pdf
89
Vlasyuk O. (2011) Economic security of Ukraine in the conditions of market transformations and anti-
crisis regulation. In:DNNU“Acad. Finn. Management”, 474 p.; F.Delbaen, J.Haezendonck Classical risk
theory in an economic environment.Elsevier. Insurance: Mathematics and Economics. Volume 6, Issue 2,
April 1987, Pages 85–116.
An important stage in monitoring the export-import flows of the regions

is the definition of the threshold values of the main indicators. Homeostasis
(the desire of an economic system to reproduce itself) in the system of
economic security may be partial, which is ensured by keeping within certain
limits of partial indices for each component of the system, which makes it
possible to manage the economic system. Different economic and
mathematical methods are used to determine the threshold values of the
indicators. For further development of foreign economic activity of the regions
and improvement of the structure of export-import flows, as one of the
components of economic security of the regions, the indicators of export-
import flows of the regions and their thresholds are proposed. We select
similar indicators of foreign trade of the country (Table 1).
Table 1. The proposed indicators of export-import flows in the regions and

their thresholds
Threshold value
The name of the coefficient Formula of the
coefficient
Coefficient of coverage of imports by EX R KR > 1
KR =
exports in the region IM R
(the ratio of export volume of the region
( EX R )to the total volume of import of the
region ( IM ))
R
Export regional dependency ratio

LR exs =
EX R LR exs > 0,5
(arate of export share of the region ( EX R ) GRP
relative to gross regional product – GRP ).
The coefficient of import regional
LR ims =
IM R LRims > 0,5
dependence GRP
(relation of import of region ( IMR ) to GRP)
Source: compiled by the authors on the basis ofthe research
106
Table 2 shows the regions of Ukraine, for which the indicators of export-
import flows have a minimum and maximum value in the three permitted
ranges of their changes within the period 2014–2016.
Table 2. Regions of Ukraine for which the indicators of export-import flows

have a minimum and maximum value
Indicators of export- The values of the indicators that fall into a certain range of
import flows of values
regions 2014 2015 2016
Min K(0<K<1) Kiev(0.24) Kiev(0.33) Kiev(0.27)
Max K(0<K<1) Ivano-Frankivsk Transcarpathian Chernivtsi region
region (0.99) region(0.98) (0.92)
Min K(1<K<2) Chernihiv region Chernivtsi region Dnipropetrovsk
(1.1) (1.15) region (1.49)
Max K(1<K<2) Poltava Mykolaiv region Mykolaiv region
region(1.97) (1.94) (1.84)
Min K(K>2) Vinnytsia region Poltava region Poltava region
(2.88) (2.12) (2.08)
Max K(K>2) Kharkiv region Vinnytsia region Vinnytsia region
К=3.61 К=4.81 К=4.28
LR exs Ternopil region Ternopil region Ternopil region
Min (
(0.07) (0.09) (0.08)
0 < LR exs < 0, 25 )
Max L
R
exs ( Cherkasy region Odessa region Odessa
0 < LR exs < 0, 25 ) (0.23) (0.23) region(0.25)
Min LR exs Odessa region Poltava region Kiev (0.29)

0, 25 < LR exs < 0, 5 (0.25) (0.29)
LR exs ( Transcarpathian Dnipropetrovsk Poltava region 0.4

Max
region 0.28 region 0.44
0, 25 < LR exs < 0,5 )
LR exs ( LR exs > 0,5 ) Chernivtsi region Zaporizhia region Mykolaiv region
Min
0.63 0.57 0.53
Max L exs ( L exs > 0, 5 )
R R
Luhansk region Chernivtsi region Chernivtsi region
0.66 0.7 0.81
Min LR exs Chernihiv region Sumy region Chernihiv region

0.06 0.05 0.06
( 0 < L ims < 0,25 )
R
Max LR exs ( Vinnytsia region Zaporizhia region Kharkiv region 0.22

0< L R
ims < 0, 25 ) 0.22 0.24
R
Min L exs Mykolaiv region Volyn region Ivano-Frankivsk
0.25 0.25 region 0.25
0,25 < LRims < 0,5
( )
R
L exs Kiev region Kiev region Kiev region
Max
0.49 0.45 0.49
( 0, 25 < L ims < 0,5 )
R
LR exs LRims > 0,5 Volyn region 0.52 Transcarpathian Odessa region
Min (
region 0.59 0.52
)
Max LR exs ( Kiev(1.1) Kiev (0.95) Kiev(1.05)
LRims > 0,5
)
90
As a result of the calculations, it was established that in 2014–2016, the

indicators calculated for most regions are not within the thresholds; therefore,
the foreign trade activity of these regions needs to be adjusted, first of all, due
to changes in the commodity structure and an increase in the share of finished
goods instead of raw materials. Having analysed the indicators of regional
export-import flows, we can conclude that the degree of involvement of
regions in foreign economic activity is different. Significant growth in volumes
of foreign trade flows is not a result of their economic development. When
improving the financial situation of a number of regions, the focus must be on
the export of commodities from metallurgical, chemical and agricultural
sectors.
Let us consider Lviv region, which is characterized by operations with
tolling raw materials. For example, almost one fifth of total import in 2014 and
more than 11% of import in 2015 are the import of tolling raw materials, and
90
Internet resource of the State statistics service of Ukraine [Electronic resource]. – Available at:
http://www.ukrstat.gov.ua, accessed 15.03.2017
108
more than one third of export of Lviv region was the export of finished
products made from tolling raw materials. Exports of goods by enterprises
from Lviv region increased by 51.9 million USD compared to 2015, imports
increased by 226.8 million USD. The negative balance of foreign trade in the
region has maintained and increased to 416.4 million USD. In total, in 2016 the
export of goods by enterprises in Lviv region amounted to 1,258.3 million USD,
while the import amounted to 1,674.7 million USD91.
The largest volumes of products were exported to Poland (24.8% of the
total exports), Germany (12.1%), the Czech Republic (7.4%) and Denmark
(6.5%). Exports of goods to the European Union amounted to 935.9 million
USD, or 74.4% of the total exports of the region, and increased by 8.0%
compared to 2015. Among the goods that Lviv region has exported during
2016, electrotechnical equipment and its parts (24.3% of the region’s exports),
furniture (10.3%), and wood products (10.0%)prevailed.The largest volumes of
products were imported from Poland (27.0% of the total import), Germany
(18.2%) and China (7.9%). Imports of goods from the countries of the
European Union amounted to 1194.3 million USD. (71.3% of the total volume
of import of the region) and increased by 20.5% compared to 2015. Such
goods as electrical and mechanical equipment, plastics and polymer materials
were mostly imported. The share of Lviv region in Ukraine’s exports is
insignificant (3%). The region’s share in exports is less than the share of the
region in industrial production of the state (in 2014 – 2.8%). A growing
negative trade balance defines the foreign trade of the region. At the same
time, the region achieves a surplus in trade in services. CIS countries are the
largest consumers of Lviv region services. Foreign trade of the Lviv region is
characterized by a significant geographical concentration of trade turnover,
especially in imports.
Lviv region is characterized by a significant spatial concentration of
realized exports and imports. Its capital has the largest share in the region’s
91Internet resource of the State statistics service of Lviv region [Electronic resource]. – Available at:
www.lv.ukrstat.gov.ua, accessed 15.02.2017,№26
exports: 2/3 of exports, 93% of imports, as well as 92% of exports and 87% of
imports.
Poland belongs to the strategic trading partners of Lviv region. Starting
from 2012, the trade turnover between Poland and Lviv region is growing. The
share of Poland in the trade turnover of Lviv region rises in exports and is 12%,
while it falls in imports and amounts to 4.4%. The balance of trade with Poland
is negative, while exportsto Poland are dominated by low-grade goods. At the
same time, Poland is the most important service provider for the region.
Let us consider the system of two compatible random variables X and Y
of regional export-import flows. The random variable X is statistically
determined as the ratio of export of the region to its gross regional product
(GRP). Similarly, the random variable Y is statistically determined as the ratio
of import of the region to its gross regional product (GRP).We assume that a
two-dimensional random variable (X, Y) of independent coincident random
variables has a normal distribution law, then random variables X and Y are also
normalized and the differential function of the random variable (X, Y) is equal
to the product of differential functions of the random variables X and Y. It is
worth notingthat such a statement is carried out only for independent random
variables X and Y92.
We want to put forward the hypothesis that time series of indicators of
foreign trade of a certain region are independent and compatible random
variables X and Y and may be subject to normal distribution laws. We have to
note that the values of X and Y are dimensionless and do not depend on the
inflation rate.
We have a sample from the general population (X; Y) for Lviv region for
2011-2016. We find the number of intervals according to the Edgeworth
formula: k = [1 + 3,322 * lg (n)] = [7.392] = 7. We find their numerical
characteristics for the random variables of the import-export flows of Lviv
region (Table 3).
110
Table 3. Random values of import-export flows ofLviv region and their

numerical characteristics
Average Confidence
Random Average
Min Max h square t interval
values selective
deviation for х Г
Х 00.15 00.55 00.06 xв = 0.31 0.082523 2.63637 ( 0.29;0.33)
Y 00.09 00.27 00.03 yв = 0.19 0.03981 2.63637 ( 0.18;0.2 )
The hypotheses about the acceptance of normal laws of distribution of

export and import flows in Lviv regionare carried out. Since the concept of
independence and non-correlation of its constituents is equivalent for the
normally distributed two-dimensional random variable, we check the
hypothesis about the fact that the general correlation coefficient is zero.
The sample correlation coefficient is 0.114357. The observed criterion
value is 1.04. In the table of critical points of Student’s t-distribution by the
level of significance α = 0,1 and the number of degrees of freedom k = n-2 =
82, we find the critical point of 1.663649. Since 0.114357 <1.663649, there is
no reason to reject the hypothesis of a zero general correlation coefficient.
Thus, it is determined that the random variables X and Y of the two-
dimensional distribution (X, Y) are distributed according to one-dimensional
normal distribution laws, namely: imported regional flows, export regional
flows
N (0,19;0, 039) . Moreover, for Lviv region, when accepting the
r =0
hypothesis of zero equality of the general correlation coefficient ( xy ), it is
determined that random variables are independent and compatible.
r = 0,
Consequently, if xy , then a two-dimensional differential function
of the normal distribution of import-export flows in Lviv region has the form:
−
( x − 0 .3 1 )2 − ( y − 0 .1 9 )2
1
f ( x, y ) = e 0 .0 1 2 8 0 .0 0 3 0 4
0 .0 0 6 2 4 π , (1)
then the surface of the differential function of the distribution of import-

export flows in Lviv region, which is expressed by the formula (1) that is
depicted in Figure 2.
Figure 2. The surface of the differential function of the distribution of import-

export flows in Lviv region
For Lviv region, the random variables X and Y of the import-export flows
r = 0, σ ≠ σ ,
are independent xy x y
.Therefore, the equation of the canonical
equation of the dispersion of the random vector (X, Y) has the form:
( x − 0.31) ( y − 0.19 )
2 2
+ = 1,
( λ ⋅ 0.082523) ( λ ⋅ 0.03981)
2 2
(2)
Its main axes of scattering are parallel to the coordinate axes. The
probability density at each point (x, y) of the diffraction ellipse is constant, and
in general, equals to
λ2
1 −
f ( x, y ) = const = e 2
.
2πσ xσ y
(3)
112
We can find the equation of the principal ellipse of scattering random

variables X and Y of import-export flows for Lviv region, if the confidence
probability of the random variables (X, Y) falling into the region that is
bounded by the ellipse is equal to 0,95. We have:
2π λ ρ2 λ2
P ( ( x, y ) ∈ D ) =
1 − −
2π  dφ  e
0 0
2
ρd ρ = 1− e 2
= 0.95
We find the value:

λ2 λ2 λ2
− = 2, 9957
e 2
= 0, 05  − 2 = ln 0, 05  2 
λ = 5, 9 9 1 5 .
2
Thus, the required equation of the main splicing ellipse of the scattering
of random variables X and Y of import-export flows for Lviv region has the
form:
( x − 0.31) ( y − 0.19 )
2 2
+ = 5, 9915
( 0.082523 ) ( 0.03981)
2 2
, (4)
or in the canonical form:
( x − 0.3 1 ) + ( y − 0.1 9 ) = 1
2 2
( 0.0408 02 ) ( 0.0094 96 ) (5)
Many points of the ellipse are an area of permissible risk of import-

export flows of Lviv region according to the data for 2011–2016.
Let us find the equation of the main scattering ellipse, if the confidence
probability of the random variable (X, Y) falling into the region bounded by the
ellipse is 0,99:
λ2 λ2 λ2 λ2
− − − = ln 0,01 = 4,6052
1− e 2
= 0,99  e 2
= 0,01  2  2 
λ 2
= 9 , 2103 .
Then:
( x − 0.31 ) ( y − 0.19 )
2 2
+ = 9, 2103; (6)
( 0.082523 ) ( 0.03981 )
2 2
or in the canonical form:

( x − 0.3 1 ) + ( y − 0.1 9 ) = 1
2 2
( 0 .0 62 72 2 ) ( 0.0 1 45 96 8 ) (7)
If the confidence probability that the random variable (X, Y) falls into an
area bounded by an ellipse, belongs to the interval [0.95,0.99],then the
illustration of expanding the area of permissible risk of import-export flows of
Lviv region, depending on the choice of the confidence probability (external
ellipse: 0.99, internal ellipse: 0.95) is shown in Figure 3.
Figure3. The area of the permissible risk of import-export flows of Lviv region
in the interval of confidence probability [0.95,0.99]
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0 0.1 0.2 0.3 0.4 0.5 0.6

114
Let us consider Transcarpathian region, which in 2016 became the leader

in the export of goods to the countries of the European Union. The region’s
exports to the EU countries in 2016 amounted to 92.5%. According to these
indicators of Transcarpathia, the regions that were close to the EU countries
had significantly lower levels: Volyn region – 77.4%, and Lviv region – 74.4%. In
general, most enterprises of Transcarpathian region exported their own goods
to Hungary (52.1% of total exports), Germany (7.8%), Slovakia (6%), Poland
and Austria (5.2% each), the Czech Republic (4 %). It should be noted that the
advantageous geographical location (Transcarpathia borders with four EU
countries – Poland, Slovakia, Hungary, and Romania) promotes active
economic relations with the European Union. In addition, starting from 2017,
Transcarpathian region continues to display high export performance figures
for the EU countries. The main partners in the import of services in 2016 were
Germany (14.6%), Austria (13.6%), Slovakia (13.4%), Hungary (9.1%), Italy
(8.8%), the United States (7.9%) and Cyprus (5.4%). The basis of the import
structure was transport services – 37.1%, business – 22.6%, services in the
field of telecommunications, computer and information – 13.5%. Compared to
2015, telecommunication, computer and information services increased by 5.7
times, business – by 41.6%, services related to travel – by 10.8% 93.
We have a sample from the general population (X; Y) for Transcarpathian
region for 2011–2016. Table 4 presents random values of import-export flows
and their numerical characteristics.
Table 4. Random values of import-export flows ofTranscarpathian region and

their numerical characteristics
Random Min Max H Average Average t Trust
values selective square interval
value deviation for х Г
Х 0.34 0.94 0.11 xв = 0.64 0.082523 1.98896 ( 0.61;0.67 )
Y 0.3 0.85 0.08 yв = 0.52 0.121193 1.98896 ( 0.18;0.2)
We have interval variation ranks for random variables of the import-

export flows of Transcarpathian region. We emphasize that for both X and Y,
we assume the hypothesis of a normal distribution law. In examining the
hypothesis of a zero general correlation coefficient, we calculate that a
random correlation coefficient equals 0.605116, observation criterion value:
6.88.
In the table of critical points of Student t-distribution, by the level of
significance α = 0,1 and the number of degrees of freedom k = n-2 = 82, we
find the critical point: 1.663649. Since 1.663649> 0.605116, then the
hypothesis on the zero equality of the general correlation coefficient is
rejected. For Transcarpathian region, the hypothesis of a zero general
correlation coefficient is not confirmed, because random variables are
dependent and compatible.
Thus, for Transcarpathian region, random variables X and Y of two-
dimensional distribution (X, Y) are defined according to one-dimensional
normal distribution laws, namely: import regional operations, export regional
operations. It is known that for the dependent, compatible values of X, and Y,
the differential function of the two-dimensional distribution (X, Y) has the
form:
1  ( x−a)2 ( x−a)( y−b) ( y −b)2 
−  − 2ρ +
f ( x, y) =
1
e
( )
2 1−ρ2  σ1
2 σ1σ2 σ22 
.
2πσ1σ2 1− ρ 2 (8)
Or in our case for Transcarpathian region:

1  ( x − 0.64) ( x − 0.64)( y − 0.52) ( y − 0.52) 
2 2
− −1.21⋅ + 
1  
f ( x, y ) =
1.26795 0.0069 0.01743 0.0146
⋅e  
.
π ⋅ 0.03486 (9)
Figure4 shows the density surface of the two-dimensional distribution of
import-export flows of Transcarpathian region, which is presented by the
formula (9).
116
Figure 4. Density surface of two-dimensional distribution of import-export

flows of Transcarpathian region
Thus, with a confidence probability of 0.95, the equation of the ellipse of

scattering will have the form 94.
( x − 0.64 )2 ( x − 0.64 )( y − 0.52 ) ( y − 0.52 )2

− + = 1
0.0156 0.03257 0.0146
(10)
If we consider the probability of 0.99, then the equation of the ellipse of

scattering will look like:
( x − 0.64 )2 ( x − 0.64 )( y − 0.52 ) ( y − 0.52 )2

− + =1
0.0152 0.03182 0.0322
(11)
If the confidence probability that the random variable (X, Y) falls into an
area bounded by an ellipse, belongs to the interval [0.95.0.99], then an
illustration of the expansion of the permissible risk of import-export flows of
Lviv region, depending on the choice of the confidence probability (external
ellipse: 0.99, internal: 0.95) is shown in Figure 5.
Figure 5. The area of the permissible risk of import-export flows of

Transcarpathian region in the interval of the confidence probability [0.95,0.99]
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.4 0.5 0.6 0.7 0.8 0.9
Let us find the intersection of two areas of the permissible risk of import-
export flows of Lviv (Fig. 3) and Transcarpathian regions (Fig. 5) in the form of
crossing of two ellipses with the same probability, choosing the confidence
probability 0.99, which can be considered a common area of the permissible
risk of regional foreign trade operations of two areas of Carpathian region –
Transcarpathian and Lviv regions (Figure 6).
118
Figure 6. Compatible area of permissible risk of import-export flows of Lviv and

Transcarpathian regions with the confidence probability of 0.99
Given that the area resulting from the intersection of two ellipses of
scattering is very complex, we shall describe the area shaded in Fig. 6 in the
form of a rectangle and find its boundaries geometrically.
To bring the boundaries of the area nearer, we use the programme
WOLPHRAM MATHEMATICS 8, defining the functional as:
NSolve[{(x-0.64)^2/0.0156-1.21*((x-0.64)*(y-0.52))/0.01743+(y-
0.52)^2/0.0146==2.261,
(x-0.31)^2/0.00676+(y-0.5)^2/0.007924==9.2103},{x,y}],
We have solutions of boundary points in the complex plane (X, Y):
(0.275428 - 0.490365і; -0.0954468+0.0333736і)
(0.275428 +0.490365і; -0.0954468-0.0333736і)
(0.428495, 0.311225),
(0.561893, 0.623563)
Therefore, we get a rectangle that is around the common area of the
intersection of two ellipses, and which is defined by the following limits:
0.428 ≤ x ≤ 0.562, 0.311 ≤ y ≤ 0.624
(12)
This rectangular area with some degree of error (the area of a figure in a
rectangle) can be considered an area of the permissible risk of import and
export flows in Lviv and Transcarpathian regions with the confidence
probability of 0.99, which greatly facilitates calculations as a result of the
transition from a complex to a simple area that limits the complex (Figure 7).
Figure7. Rectangular area of the permissible risk of import-export flows of Lviv

and Transcarpathian regions with the confidence probability 0.99
Then one can calculate the probability of a two-dimensional random

variable (X, Y) falling into a region representing a rectangle with sides parallel
to the coordinate axes in the form:
P ( ( x , y ) ∈ R ) = P  ( a < x < b )( c < y < d )  =
= P (a < x < b ) ⋅ P (c < y < d ) =
  b − mx   a − mx    d − m y   c − my 
= Φ  −Φ   ⋅  Φ   − Φ   
  σx   σ x     σ y   σy   (13 )
120
In the case of Lviv region, when the normal laws of the import and
export flows are known: N (0,31;0, 08) , N (0,19;0,039) , we have:
P ( ( x, y) ∈ R ) = P ( a < x < b )( c < y < d )  =
= P ( 0.428 < x < 0.562 ) ⋅ P ( 0.322 < y < 0.624 ) =
  0.562 − 0.31   0.428 − 0.31     0.624 − 0.19   0.322 − 0.19  

= Φ  −Φ   ⋅ Φ  −Φ  =
  0.08   0.08     0.039   0.039  
= Φ ( 3.1125) − Φ (1.3875 )  ⋅ Φ (11.12 ) − Φ ( 3.385 )  =
= ( 0.49931 − 0.4177 ) ⋅ ( 0.5 − 0.499 ) = 0.08 ⋅ 0.01 = 0.0008
This is illustrated by the fact that the normal distribution in the region of
a given rectangle falls mainly on its right tail (Figure 8).
Figure 8. Part of the surface of the differential function of import-export flows

for Lviv region, falling into the rectangle (12)

Consequently, having constructed dispersion ellipses for regions of

different types of development, which will be the areas of the thresholds of
these indicators, it will be possible to carry out a comparative assessment of
the competitiveness and economic security of the regions. This will give us a
possibility to conduct a systematic analysis of the region’s economic
development and take measures both at the local level and at the state level in
order to neutralize a number of threats to its economic security.Today,
Ukraine needs to not only increase the volume of export of its own products,
but also attract foreign investment and technology. Ukrainian companies will
succeed if they build partnerships with European companies that are planning
to move their production to Ukraine. Now Ukrainian exporters should actively
seek partners and consumers in the European market. They have all the
chances to become leaders in selling goods and services to the European
Union countries, where not only competition is high, but the rules are
transparent and understandable.
Conclusions. A two-dimensional normal distribution of export-import
flows of foreign trade of Lviv and Transcarpathian regions was carried out. The
study showed that the structure of export and import flows always reflects
significant trends in the economic system development of the region. The
regional aspect of the transformation of the structure of export-import flows is
very important in this context. Thus, the threshold values play an important
role in implementing the comparative assessment of the competitiveness and
economic security of the region. The areas of the permissible risk of export-
import flows of Lviv and Transcarpathian regions were determined. They are
determined by the ellipses of scattering in two-dimensional normal law of the
system of random indexes of export-import flows in each region, which are
important criteria for import substitution problems and for increasing the
export potential of the region.In this case, adverse events will be only those, in
which the values of indicators of export-import flows of the region do not fall
into the established area of thepermissible risk. It is shown that for some
regions, the values of export and import flows are interdependent,
122
and,therefore the differential function of normal distribution for dependent

variables is used.
Thus, the study of the limits and the quantitative analysis of the risk of
regional foreign trade operations consist in the construction of the area of
intersection of the main diffusion ellipses of two-dimensional normal laws of
import-export flows of the regions, particularly in Lviv and Transcarpathian
regions. It is determined that if the calculated indicators for other regions are
not within the limits of the thresholds, then the foreign trade activity of these
regions needs to be adjusted.
The study of an economic risk in regional trade flows will help to provide
information and support for establishing an open market, as well as to
improve the competitive position of the regions.
Andrii Mykhailov
Tetiana Kharchenko
ECONOMIC AND MATHEMATICAL MODELLING

OF INVESTMENT-ACTIVE DEVELOPMENT
OF THE AGRARIAN SECTOR OF UKRAINIAN REGIONS
IN THE CONTEXT OF ATTRACTING FOREIGN INVESTMENTS
Abstract. The importance of investment resources for development ofeconomic sectors,

separate regions and the national economy of Ukraine is proved. The differences between the
regions of the country according to their investment activity are determined. According to the
results of the criterion rating assessment of the investment activity of the agrarian sector of
Ukraine, the regions are divided into four groups: high, sufficient, medium and low level of
investment activity. The influence of the volume of investment resources in the agrarian sector
on the volume of gross value added of the agrarian sectors of the country’s regions is proved.
The economic and mathematical models under optimistic, average and pessimistic scenarios
for forecasting the increase of gross added value of Ukrainian regions according to the volume
of foreign investment resource for 2018–2020 are constructed and solved. It is proved that the
presence of interregional imbalances in the state of investment activity of the agrarian sector
of Ukraine’s regions requires adjusting the existing investment mechanism. The mechanism for
eliminating interregional disproportions of Ukrainian regions with the help of the state of
investment activity of the agrarian sector by means of attracting an internal investment
resource is presented.
JEL Classification System: C54, E22, F21, O13, O16

Key words: economic and mathematical modelling, investment, development,
agrarian sector, agriculture,foreign direct investments
Introduction.In the context of global transformations, each country

seeks to become a fully-fledged partner by enhancing investment
attractiveness, which will enable it to become a participant in the global
124
capital market through attracting foreign investment resources to the country

on the one hand, and, on the other hand, reduce the outflow of its own
investment resources.
Private investment is essential if agriculture fulfils its vital function of
contributing to economic development, poverty reduction and food security.
Agricultural production needs tobe increased by at least 60% over the next 40
years to meet the rising demand for food resulting from the world population
growth, higher income levels and lifestyle changes. Given the limited scope for
net area expansion, agricultural growth will rely mainly on new increases in
productivity, supported, particularly, by private investment in physical, human
and knowledge capital. Thus,agricultural investment is critical for expanding
agricultural production in the context of growing land and water scarcity. It
can also bolster incomes and consumption in rural areas, thereby improving
global food security through enhancing not only food availability but also
access to food and food utilisation95.
Investment resources determine one of the key factors of globalization,
according to Mayorova T.V. and co-authors of the publication. In their view,
globalization should be considered from the standpoint of the process of world
development, under the influence of which there is the formation and
establishment of an effective mechanism for the functioning of the world
capital market, which is part of investment resources. The most competitive
struggle between influential international players is precisely the sphere of
influence on management of investment resources96.
Based on this reference, the development strategy of Ukraine should be
based on the position of achieving the status of an equal partner of European
countries, which will ultimately ensure the country’s access to world
investment resources. Obviously, it is possible to achieve certain positive
changes and intensify investment processes only if the key positions that are
most promising in attracting investment resources are identified.
95
OECD. Policy Framework for Investment in Agriculture, OECD Publishing, 2014. URL:
http://dx.doi.org/10.1787/9789264212725-en(Last accessed: 22.09.2017)
96
Mayorova T., Diba M., Onyshko S. Activation of the investment process in Ukraine: collect. monograph
/ science ed. M. I. Diba, T. V. Mayorova; Ministry of Education and Science, Youth and Sports of Ukraine.
DVNZ "Kiev. nats econ Un-t named after Vadim Hetman ". Kyiv: KNEU, 2012. P. 7.
One of the most important factors apart from the decision to invest is
the position of the country in international ratings. Exploring this issue,
Markevich K.97notes, that the stable investment position of the country in
international ratings is a guarantee of macroeconomic stability. Agreeing with
the above statement, we note that as a result of our research, we detected a
significant impact of investment resources involved in the agricultural sector of
the regions on the formation of positive dynamics of macroeconomic
indicators of the regions. To realize a reasonable dependence with the use of
correlation-regression analysis methods, we have constructed and solved
econometric models of the impact of inserted capital investments in
agriculture, forestry and fisheries on the gross added value of rural, forestry
and fisheries in each of the studied regions of Ukraine.
Further description of the results of the research, activities (agriculture,
forestry and fisheries), which are part of the section “A” classification of
economic activities should summarize how the agricultural sector functions98.
As a result indicator, the gross value added of the agrarian sector of a
certain region – a separate region of Ukraine, million UAH, is determined, and
the explanatory factor is the volume of capital investments inserted in the
agrarian sector of the region, million UAH.
The distribution of areas by the level of investment activity of the
agrarian sector provides for a qualitative modelling of investment and active
development of the agrarian sector of the regions of Ukraine. The modelled
indicators will design the volumes of gross value added of the agrarian sector
of Ukraine’s regions with high, sufficient and average level of investment
activity of the agrarian sector, formed by attracting a foreign investment
resource. To calculate the projected gross value added of the agrarian sector
of Ukraine, we use the equations presented in Table 1.
Using calculated results of the criterion rating estimation of investment
activity of the agrarian sector of Ukraine, it was grouped according to the level
97
Markevich K. Priority of Investment Attractiveness in UK's Sustainable Economic Growth Policy
International Economic Policy. 2014. No. 2 (21), p. 52-77 URL:
http://iepjournal.com/journals/21/2014_3_Markevich_Yurchishyn.pdf.
98
List of codes of types of economic activity by the national classifier.State Fiscal Service of Ukraine. URL:
http://sfs.gov.ua/dovidniki--reestri--perelik/pereliki-/128651.html. (Last accessed: 19.05.2017)
126
of investment activity of the agrarian sector into four groups. The first group
with a high level of investment activity in the agrarian sector included Kyiv,
Poltava and Vinnytsia regions.
The second group of regions with a sufficient level of investment activity
in the agrarian sector includes Kirovohrad region, Cherkasy region,
Dnipropetrovsk region and Khmelnytsky region.
Table 1. Output data for the modelling of investment and active development
of the agrarian sector of Ukraine’s regions
The equation of the gross
value added of the agrarian
Level of investment
The region of sector from the volume of
activity of the agrarian
Ukraine capital investments
sector of the region
invested in the agrarian
sector of the region
Kiev у=13,54х-421,15 High level of investment
Poltava у=4,72х+1900,99 activity of the agrarian
Vinnytsia у=9,92х+254,66 sector
Kirovohrad у=3,10х+345,41
Sufficient level of
Cherkasy у=21,18х0,772
investment activity in
Dnipropetrovsk у=16,45х+2220,69
the agrarian sector
Khmelnytsky у=28,14х0,745
Chernihiv у=2,48х+639,40
Ternopil у=4,13х+332,61
Average level of
Ivano-Frankivsk у=16,67х+432,41
investment activity of
Kharkiv у=196,3х0,615 the agrarian sector
Kherson у=4,08х+227,30
Sumy у=3,457х+906,08
Zaporizhia у=9,56х+1244,76
Mykolaiv у=5,78х+1294,04
Odessa у=237,4х0,586
Lviv у=23,81х+1478,87
Donetsk у=212,1х0,704
Zhytomyr у=5,73х+610,63
Source: authors’ own calculations
The third group of regions with an average level of investment activity in

the agrarian sector is the most numerous and it has Chernihiv region, Ternopil
region, Ivano-Frankivsk region, Kharkiv region, Kherson region, Sumy region,
Zaporizhia region, Mykolayiv region, Odessa region, Lviv region, Donetsk
region and Zhytomyr region.
Volyn region, Chernivtsi region, Rivne region, Luhansk region and
Transcarpathian region entered the group of regions with low investment
activity.
As seen from the Table 1, at the first stage of modelling, the projected
gross value added formed by attracting a foreign investment resource does
not include areas with a low level of investment activity in the agrarian sector.
The proposed algorithm for modelling involves the calculation of optimistic,
average and pessimistic scenarios.In accordance with the substantiated nature
of the changes, we will determine the estimated parameters of the sub-indices
of the Index of Economic Freedom (IEF) in each scenario, using data to
calculate the investment absorption rate of the agrarian sector and calculate
the investment acceptance ratio of the agrarian sector KQN. by the formula 1:
K QN =  qi × N xi , (1)
Where:KQN–coefficient of investment susceptibility of the agrarian
sector;
qi–partial factors of weight of sub-indexes of the economic freedom
index(IEF);
128
Nxi– changing the value of the sub-indexes of the economic freedom

index (IEF)of Ukraine.
The results are presented in Table 2.
Table 2. Estimates of the optimistic, average and pessimistic scenarios of the

investment susceptibility of the agrarian sector
Pessimistic
Sub-Indexes of Optimistic scenario Average scenario
scenario
Economic parameters
parameters
parameters
The nature
The nature
The nature
Estimated
Estimated
Estimated
Freedom Index
change
change
change
of the
of the
of the
(IEF):
Index of
Increase No Decrease
property rights 0,12 0,03 0
by 5 p. change value
protection
Index of
Increase Increase Increase
Freedom from 0,12 0,06 0,06
by 5 p. by 3 p. by 3 p.
Corruption
Index of tax Increase Increase Decrease
0,06 0,03 0
burden by 5 p. by 1 p. value
Public
Increase Increase Decrease
Expenditure 0,4 0,4 0
by 5 p. by 5 p. value
Index
Index of
Increase Increase Decrease
business 0,5 0,5 0
by 5 p. by 5 p. value
regulation
Index of
Freedom of Increase Increase Decrease
0,06 0,03 0
Labour by 5 p. by 1 p. value
Relations
Index of price Increase Increase Decrease
0,06 0,06 0
freedom by 5 p. by 5 p. value
Index of trade Increase Increase Decrease
0,06 0,03 0
freedom by 5 p. by 3 p. value
Index of
No Decrease
investment No change 0,125 0,125 0
change value
freedom
Financial Increase No No
0,12 0,03 0,03
freedom index by 5 p. change change
The coefficient
of investment
susceptibility of 1,625 1,295 0,09
the agrarian
sector, KQN
Formation of
the volume of
foreign
Reduction
investment
Growth
Growth
resource for
implementation
in the agrarian
sector of
Ukraine
Based on the design parameters of sub-indexes presented in Table 2, the

coefficients of investment attractiveness of the agrarian sector (KQN) are
defined in each investigated scenario.
We need to underline, that the significance of KQN not only characterizes
the level of investment attractiveness of the agrarian sector, but also forms
part of the modelling of investment and active development of the agrarian
sector of Ukraine’s regions, as it serves as an indicator of the projected volume
of foreign investment resources for the implementation in the agricultural
sector of Ukraine.The KQN qualitative values and design parameters are
presented in Table 3.
130
Table 3. Qualitative characteristics of the coefficient of investment

susceptibility of the agrarian sector of Ukraine and calculation parameters for
modelling
Procedure for calculating the
ValueKQN Qualitative characteristic estimated volume of foreign
investment resources
Indicates the possibility The volume of direct foreign
of attracting foreign investments attracted to the
More than 1,0 investment resources to agrarian sector of the country
the country’s agrarian of the base year is multiplied
sector by the size of the coefficient
There is no positive
dynamics in the growth The volume of direct foreign
of the possibility of investments attracted to the
1,0 attracting a foreign agricultural sector of the
investment resource to country of the base year
the agricultural sector of remains unchanged
the country
Indicates the possibility The volume of direct foreign
of attracting a foreign investments attracted to the
Lessthan 1, but
investment resource to agrarian sector of the country
more0,7
the country’s agrarian of the base year is multiplied
sector by the size of the coefficient
Indicates the lack of The volume of direct foreign
opportunities to attract a investments attracted to the
Less than 0,7 foreign investment agricultural sector of the
resource to the country’s country of the base year is
agrarian sector halved
Using the proposed procedure for calculating the projected volume of

foreign investment resources (Table 2) and results of the coefficient of
investment susceptibility of the agrarian sector, given in Table 1, we will
determine the projected volumes of foreign investment resources within each
scenario, which will be presented in Table 4.
Table 4. Projections of foreign investment resources for financing the

agricultural sector of Ukraine in the context of scenarios for the period 2018–
2020, million US dollars
Optimistic Average Pessimistic
Indicators
scenario scenario scenario
The coefficient of investment
susceptibility of the agrarian 1,625 1,295 0,090
sectorKQN
The base amount of foreign
investment resource, million US 500,1
dollars
Estimated volume of foreign investment resource, million US dollars:
2018 812,66 647,63 250,5
2019 1320,57 838,68 -
2020 2145,92 1086,09 -
It should be noted that the substantiated algorithm of investment and

active development of the agrarian sector of Ukrainian regions (Figure 1)
suggests the presence of several cycles; therefore, it is proposed to carry out
the simulation for the three-year period (2018–2020).It is suggested that
certain trends in changes in the values of the sub-indexes of the Economic
Freedom Index (IEF) are persistent, since in the course of substantiating the
nature of the changes for each scenario, we used an array of data for 1995–
2016, respectively, the coefficients of the investment susceptibility of the
agrarian sector (KQN) for the forecast period.
The data presented in Table 4 indicate that modelling under the
pessimistic scenario for a foreign investment resource is limited to a one-year
cycle and does not provide for further reinvestment in regions with low and
average investment activity, so the modelling under this scenario will be
limited exclusively to 2018.
Based on the results of calculations,the following things are determined:
132
− projected volumes of foreign investment resources to finance the

agrarian sector(Table 4);
− equations for which the calculation of the projected volumes of the
formation of the gross value added of the agrarian sector by regions will be
carried out directly(Table 1).
The last important component for conducting the modelling of
investment and active development of the agrarian sector of the regions of
Ukraine is the procedure of the distribution of a foreign investment resource
between regions in terms of investment activity of the agrarian sector. In the
first cycle, forty percent of the projected investment resources will be directed
at a group of regions with a high level of investment activity in the agricultural
sector, at a group of regions with a sufficient level of investment activity of the
agrarian sector – 30.0%, respectively, the group of regions with an average
investment activity – 30.0%.In accordance with the obtained result (estimated
gross value added of oblasts of Ukraine), in the first cycle, the percentage of
the groups in subsequent cycles may be changed.
Taking into account that the calculation of econometric models of
dependence of the gross added value of the agricultural sector on the volume
of investments in the agricultural sector of the regions was made in UAH, we
will convert the projected volumes of the foreign investment resource into
UAH equivalent at the official NBU rate as of January 5, 2017; the obtained
results are presented in Table 5.
The data presented in Table 5 show that the volume of the foreign
investment resource in the context of scenarios is evenly distributed between
groups with sufficient and average levels of investment activity in the agrarian
sector. The largest volume of foreign investment resources was directed at
Kyiv region, which, according to the results of the criterion rating, turned out
to be an excellent reference.
Table 5. Distribution of the projected volume of foreign investment resources

between regions, according to the level of investment activity of the agrarian
sector in the context of scenarios for 2018, million UAH
Group by the level of Estimated volume of foreign
investment activity of Percentage to investment resource, million UAH
the agrarian sector / total,% Optimistic Average Pessimistic
Oblast scenario scenario scenario
Total for Ukraine: 21689,09 17285,24 6685,85
High level: 40,0 8675,64 6914,10 2674,34
Kiev 16,0 3470,26 2765,64 1069,74
Poltava 13,0 2819,58 2247,08 869,16
Vinnytsia 11,0 2385,80 1901,38 735,44
Sufficient level: 30,0 6506,73 5185,57 2005,76
Kirovohrad 8,0 1735,13 1382,82 534,87
Cherkasy 8,0 1735,13 1382,82 534,87
Dnipropetrovsk 7,0 1518,24 1209,97 468,01
Khmelnytsky 7,0 1518,24 1209,97 468,01
Average level: 30,0 6506,73 5185,57 2005,76
Chernihiv 3,0 650,67 518,56 200,58
Ternopil 3,0 650,67 518,56 200,58
Ivano-Frankivsk 3,0 650,67 518,56 200,58
Khariov 3,0 650,67 518,56 200,58
Kherson 3,0 650,67 518,56 200,58
Sumy 3,0 650,67 518,56 200,58
Zaporizhia 2,0 433,78 345,70 133,72
Mykolaiv 2,0 433,78 345,70 133,72
Odessa 2,0 433,78 345,70 133,72
Lviv 2,0 433,78 345,70 133,72
Donetsk 2,0 433,78 345,70 133,72
Zhytomyr 2,0 433,78 345,70 133,72
Consequently, using the data obtained when making calculations, we

simulate the forecast value of the gross value added of the agricultural sector
of the regions formed by the introduction of a foreign investment resource in
2018. The obtained results are presented in Table 6.
134
Table 6. Results of the simulation of the gross value added growth of the
agrarian sector in the context of scenarios for 2018, million UAH
Group by the level of Estimated gross value added of the agrarian sector of
investment activity of the region, million UAH
the agrarian sector / Optimistic Average
Pessimistic scenario
Oblast scenario scenario
High level: 27616,78 68649,17 85697,38
Kiev 14063,13 37025,62 46566,17
Poltava 6003,43 12507,21 15209,41
Vinnytsia 7550,23 19116,35 23921,80
Sufficient level: 17373,52 37959,74 46227,71
Kirovohrad 2003,51 4632,15 5724,31
Cherkasy 2704,79 5631,15 6709,50
Dnipropetrovsk 9919,46 22124,70 27195,74
Khmelnytsky 2745,77 5571,74 6598,16
Average level: 35304,57 68127,29 80815,12
Chernihiv 1136,84 1925,43 2253,06
Ternopil 1161,01 2474,26 3019,88
Ivano-Frankivsk 3776,08 9076,81 11279,08
Kharkiv 5114,78 9173,22 10547,20
Kherson 1045,67 2343,03 2882,03
Sumy 1599,49 2698,74 3155,45
Zaporizhia 2523,12 4549,65 5391,70
Mykolaiv 2066,94 3292,19 3801,29
Odessa 4182,46 7297,24 8335,29
Lviv 4662,74 9709,99 11807,17
Donetsk 6658,60 12995,26 15246,79
Zhytomyr 1376,85 2591,49 3096,19
The results obtained in Table 6 indicate that the qualitative introduction

of a foreign investment resource will ensure the predicted growth of gross
value added of the agricultural sector of Ukraine’s regions. The results of the
calculation according to the pessimistic scenario indicate that the further
reduction of the foreign investment resource will lead to irreparable
consequences for the agrarian sector, as, when there is a constant trend
towards the coefficient of investment attractiveness of the agrarian sector, the
volume of the foreign investment resource should be halved, which will lead to
a critical reduction of the possibilities for the formation of gross value added of
the agrarian sector of Ukraine.
It is quite evident that the importance of reforming in Ukraine will
increase the country’s position in international rankings; since, having the
same procedure of calculation, a larger projected volume of foreign
investment resources creates conditions for increasing the projected gross
value added of the country’s agrarian sector.
Studies have shown that there is no need for modelling for 2019–2020
under a pessimistic scenario; the negative effects of lowering the position of
Ukraine on the sub-indexes of the economic freedom index (IEF) are clear, the
further reduction of foreign investment in the agrarian sector of Ukraine will
have negative consequences for the formation of gross added value of the
country.
The estimated gross value added, which was generated solely by the
growth of foreign investment resources involved in the agricultural sector of
Ukrainian regions in the average scenario was lower than gross value added in
the base year (2016) by 10241.6 million UAH.In the optimistic scenario,the
studied parameters exceeded the base year to 27762.4 million UAH. Due to
the growth in gross value added, one may form internal investment resources.
The results of economic and mathematical modelling indicate the need
for correcting the existing inter-sectoral disproportions, including in the part of
investing in the agrarian sector. Given that the average intersectoral ratio of
the agrarian sector in the structure of capital investments, according to our
136
calculations, is 0.08, it is possible to calculate only a small amount of funds for

reinvestment, namely 2220.99 million UAH. In the second cycle (2019), it is
possible to reinvest funds by increasing the internal resource only in the
optimistic scenario.
Let us modulate the projected gross value added of the agricultural
sector of the regions, formed by introducing a foreign investment resource in
2019, in the average scenario and by introducing a foreign investment
resource and an internal investment resource in the optimistic scenario. It is
worth noting that the domestic investment resource will be distributed equally
among the regions with medium and low levels of investment activity in the
agricultural sector.
The results of the projected gross value added of the agrarian sector of
Ukraine's oblasts will be presented in Table 7.
Тable 7. Results of simulation of the gross value added growth in the agrarian
sector in the context of scenarios for 2019, million UAH
Estimated gross value added of the agrarian sector of the
Group by the level region, million UAH.
of investment Average scenario Optimistic scenario
activity of the (foreign investment Domestic
Foreign investment
agrarian sector / resource, million investment
resource, million
Oblast UAH) resource,
UAH
million UAH
High level: 88388,89 138178,82 -
Kiev 48072,36 75935,78 -
Poltava 15636,05 23527,94 -
Vinnytsia 24680,48 38715,10 -
Sufficient level: 47523,14 71127,25 -
Kirovohrad 5896,74 9086,42 -
Cherkasy 6874,94 9760,68 -
Dnipropetrovsk 27996,36 42806,46 -
Khmelnytsky 6755,10 9473,69 -

Average level: 82787,13 118144,48 31661,85
Chernihiv 2304,79 3261,70 963,41
Ternopil 3106,03 4699,59 872,19
Ivano-Frankivsk 11626,82 18058,93 2610,35
Kharkiv 10753,89 14217,47 3929,41
Kherson 2967,14 4541,41 760,35
Sumy 3227,56 4561,44 1357,74
Zaporizhia 5524,68 7983,80 2493,77
Mykolaiv 3881,69 5368,48 2049,20
Odessa 8490,90 11078,75 4125,92
Lviv 12138,37 18263,02 4589,65
Donetsk 15589,38 21460,07 6550,61
Zhytomyr 3175,89 4649,82 1359,25
Low level: - - 14691,77
Volyn - - 2172,92
Chernivtsi - - 1647,17
Rivne - - 2072,43
Luhansk - - 3552,15
Transcarpathian - - 5247,11
The data presented in Table 7 indicate that the attraction of investment

resources to the agrarian sector of Ukraine’s regions had positive dynamics in
terms of increasing the forecast value of gross value added of the agricultural
sector of the regions in the context of the investigated scenarios. We will
conduct a comparative estimation of the results obtained with the base period
in terms of areas (Table 8).
138
Table 8. Comparative characteristics of the basic indicators and results of

modelling the gross value added of the agrarian sector of Ukrainian regions
Actual gross value Estimated gross value added
added of the agrarian of the agrarian sector of the
Group by the level of sector of the region, region, million UAH (2019)
investment activity of formed by attracting
the agrarian sector / capital investments and
Average Optimistic
Oblast foreign direct
scenario scenario
investment, million
UAH (base year)
High level: 40070,00 88388,89 138178,82
Kiev 24359,10 48072,36 75935,78
Poltava 8337,90 15636,05 23527,94
Vinnytsia 7373,00 24680,48 38715,10
Sufficient level: 41272,10 47523,14 71127,25
Kirovohrad 4057,10 5896,74 9086,42
Cherkasy 4485,80 6874,94 9760,68
Dnipropetrovsk 25919,90 27996,36 42806,46
Khmelnytsky 6809,30 6755,10 9473,69
Average level: 84507,00 82787,13 118144,48
Chernihiv 3550,20 2304,79 4225,11
Ternopil 3827,50 3106,03 5571,78
Ivano-Frankivsk 9609,30 11626,82 20669,28
Kharkiv 11246,70 10753,89 18146,88
Kherson 3107,40 2967,14 5301,76
Sumy 3663,00 3227,56 5919,18
Zaporizhia 7794,30 5524,68 10477,57
Mykolaiv 5989,90 3881,69 7417,68
Odessa 9983,50 8490,90 15204,67
Lviv 13386,50 12138,37 22852,67
Donetsk 8304,30 15589,38 21460,07

Zhytomyr 4044,40 3175,89 6009,07
Low level: 19128,70 - 14691,80
Volyn 6166,80 - 2172,92
Chernivtsi 2789,20 - 1647,17
Rivne 4334,20 - 2072,43
Luhansk 2060,10 - 3552,15
Transcarpathian 3778,40 - 5247,11
The obtained results thatare shown in Table 8 confirm the validity of the
proposed algorithm for investment and active development of the agrarian
sector of Ukraine’s regions and the feasibility of the proposed approach to
economic-mathematical modelling. The actual volumes of gross value added of
the agrarian sector of a group of regions with a high level of investment
activity amounted to 1202.1 million UAH less, than a group of areas with a
sufficient level of investment activity.
Compared to the simulated indicators, it can be reasonably argued that a
group of regions with a high level of investment activity has a significant
potential for increasing the gross value added of the agricultural sector, which
is not used in full. A group of regions with a low level of investment activity in
the agrarian sector should be given considerable attention from local
authorities in terms of attracting foreign investment resources through
international investment projects and adjusting investment policy in
accordance with regional conditions.
In general, the results indicate that the investment potential of the
agrarian sector of Ukraine’s regions is not used properly. Taking into account
that the volume of direct foreign investments aimed at the agrarian sector of
the country decreased in 2016 compared to 2014 by 35.6%, the effective use
of foreign investment resources and the increase in the share of capital
investments in the agricultural sector in the general structure are important,
which can be achieved through the correction of inter-branch disproportions.
140
Theobtainedresultsofthemodellingofthegrossvalueaddedinthe
averageandpessimisticscenariosin 2019
showanincreaseintheinvestigatedindicatorsincomparisonwiththeprojectedgros
svalueaddedoftheagrariansectorofUkrainein 2018.
Using the above methodology, we calculated the potential volume of the
domestic investment resource for reinvestment into the agrarian sector of the
regions of Ukraine in 2020. In the average scenario, the chain increment of the
projected gross value added in 2019 amounted to 43963.0 million UAH. Taking
into account the average weight of the industry in the structure of capital
investments (0.08), the projected amount of funds for reinvestment will be
3517.04 million UAH. According to the optimistic scenario, a similar figure will
be 9176.83 million UAH.
We have to indicate, that the partial ratio of the domestic investment
resource directed towards the agrarian sector of the regions, is equilibrium.
The obtained results show that the qualitative distribution of foreign
investment resources between the regions of Ukraine guarantees an increase
in the gross value added of the agrarian sector. In addition, by reinvesting the
share of gross value added growth, it is possible to adjust interregional
economic asymmetry, since the state's influence on the choice of a foreign
investor is limited, but the domestic investment resource can be directed
towards depressed and underdeveloped regions.
To confirm these dependencies, we will present the results of modelling
the possibilities of increasing the gross value added of the agrarian sector of
Ukraine in terms of scenarios and compare them with the actual ones (Table
9).
As can be seen from the data presented in Table 9, the attraction of
foreign direct investments and capital investments into the country’s agrarian
sector in the amount of 43502.67 million UAH ensured the formation of the
gross value added in the agrarian sector of Ukraine in the amount of
184977.80 million UAH.
Thus, the share of the investment resource in the structure of the gross
value added of the agricultural sector of Ukraine in the base period is 23.5%.
The proposed approach to modelling involves the formation of the gross
value added by attracting a foreign investment resource in the first year.
Table 9. Characteristics of the main indicators of modelling the possibilities of

increasing the gross value added of the agrarian sector of Ukraine in the
context of scenarios
Base Forecast years
Indicators period
2018 2019 2020
(2016)
Actual data:
Volume of investment - - -
resources directed towards
43502,67
the agrarian sector of
Ukraine, million UAH:
- foreign investment - - -
13347,67
resource (FDI);
- domestic - - -
investment resource 30155,00
(capital investment).
Volume of gross value - - -
added of the agrarian
184977,80
sector of Ukraine, million
UAH.
Simulated data: - - -
Pessimistic scenario:
Projected volume of -
directed towards the 6685,9 - -
agrarian sector, million
UAH:
- foreign investment - - -
6685,9
resource;
- internal investment - - -
resource.
Projected gross value -
added of the agrarian 80294,87 - -
sector, million UAH.
Average scenario:
142
directed towards the 17285,24 22384,39 32504,74
UAH:
- foreign investment -
17285,24 22384,39 28987,7
resource
- internal investment -
3517,04
resource
added of the agrarian 174736,20 218699,20 338393,97
Optimistic scenario: -
directed towards the 23707,08 39485,99 68471,44
UAH:
- foreign investment -
23707,08 37265,00 59294,61
resource
- internal investment - -
2220,99 9176,83
resource
added of the agrarian 212740,20 373804,18 640768,17
In the second and third years, additional attraction of the domestic

investment resource formed by the increase in the gross value added that is
obtained due to the effective implementation of the foreign investment
resource in the regions of Ukraine is possible.This modelling direction was
chosen based on the existing integration and globalization processes that
Ukraine is involved in, as well as the significant interest of the Government in
raising the country’s place in international ratings and, accordingly, its
readiness to take certain steps towards attracting a foreign investment
resource. That is why the Index of Economic Freedom (IEF), which is also
considered an indicator of the national economy development and is one of
the main tools for assessing the investment climate in the country’s
agricultural sector, has been selected in the context of scenarios99.
In the first period (2018), the projected gross value added in the
pessimistic and average scenarios did not exceed the base period value. In
addition, due to a significant reduction in the projected volume of foreign
investment resources, the projected gross value added of the agrarian sector
of Ukraine in the pessimistic scenario significantly decreased too. Positive
dynamics were noticed in the optimistic scenario, which provided the
opportunity for the formation of funds for reinvestment.
In the second period (2019), an increase in the projected volume of
foreign investment resources resulted in an increase in the projected gross
value added and provided an opportunity for the formation of funds for
reinvestment in the average and optimistic scenarios. It was established that
attraction of reinvested funds into the agrarian sector of regions with average
and low levels of investment activity also had a positive tendency towards the
formation of the gross value added of the agrarian sector of the regions.
Let us compare the growth dynamics of the projected volume of the
investment resource and the projected gross value added of the agricultural
sector of Ukraine in the average scenario with the actual data.
In 2019, the volume of the projected investment resource is lower by
49.0% from the actual indicator, but the projected gross value added increased
by 18.2%. Similar trends are observed in 2018–2019 under the optimistic
scenario and in 2020 – in the average scenario. The increase in the projected
volume of the investment resource by 1.6 times in 2020 in the optimistic
scenario, resulted in an increase in the projected gross value added of the
agrarian sector by 3.5 times. Based on the projected gross value added of the
agricultural sector of Ukraine, it can be argued that the proposed modelling
approach was more efficient. The obtained results indicate that there is a need
to take into account a qualitative component in the implementation of
investment resources in the agricultural sector of the regions, which is
99
Mykhailov A. Methodical approaches and the system of indicators of investment climate determination
in the agrarian sector of the economy. Economics of agroindustrial complex, 2016. No. 12. P.76-83. URL:
http://eapk.org.ua/contents/2016/12/76(Last accessed: 07.07.2017)
144
expressed through the formation of the gross value added of the agricultural
sector of the regions.
Conclusions. The existence of interregional imbalances in the state of
investment activity of the agrarian sector of Ukraine’s regions requires
adjusting the existing investment mechanism. It is obvious that regions with
high and sufficient levels of investment activity in the agrarian sector are more
competitive and attractive for investment to a foreign investor.At the same
time, the calculations show that there is potential for increasing the gross
value added of the agricultural sector and in the regions with average and low
investment activity and the ability to direct the domestic investment resource
in these regions.
It should be noted that the economic and mathematical modelling of
economic processes is a prerequisite for the efficient allocation of investment
resources by regions and should be constantly carried out at the state level,
since the economic growth of the national economy depends directly on the
economic growth of the regions.
An indicator of the economic growth of the region and the state as a
whole is its gross value added, which in its turn is formed from the gross value
added of industries. Therefore, an effective prediction of the prerequisites
forthe national economy growth is possible only if the growth of gross value
added of industries in the regional aspect is projected.
The Ukrainian government hopes that by forming the positive image of
Ukraine in the international community it can stop foreign capital outflow and
develop new partnerships to attract foreign investment resources.That is why
the tendency to intensify investment processes in the agrarian sector of
Ukraine’s regions is stronger than ever before.In the context of these
transformations, the removal of interregional imbalances in the regions of
Ukraine in terms of the investment activity of the agrarian sector is a
prerequisite for the economic growth of the regions and the formation of a
positive investment climate for the Ukrainian agrarian sector.
Olga Mnykh
Nadiya Lyubomudrova
Ruslan Brytskyi
National Aviation University, Kyiv, Ukraine
PROBLEMS OF CAPITALIZATION OF THE UKRAINIAN ECONOMY

AND MODELLING OF MARKETING
DECISIONS ON THE PROSPECTS OF FORMATION
THE ENTERPRISE VALUE
Abstract. The article outlines reasons for inhibiting the processes of capitalization development
in Ukraine and capitalization reducing of the economy. It is shown that with low quality of the
institutional environment, in particular, the stock market, access to external sources of
financing through the issue of securities is becoming more complicated, which is very
important for enterprises in terms of deepening the crisis.
It is proved that at the stage of the preparation of Ukraine for joining the EU and Ukrainian
business globalization, it is necessary to expand the spatial and temporal horizon of planning
and search for rational decisions of investors and managers in the system of value-oriented
management.
The paper describes the methodological provisions based on mathematical modelling and the
combination of financial, marketing and system levers for the purpose of forming the
enterprise value and assessing the effect of the new sources of its creation. The economic
interpretation of the indicators considered as factors of an influence on the market value of the
enterprise has been carried out, and the interaction of these factors in the unstable market
environment has been emphasized.
JEL Classification System: C40; C 50; E 22, М 21, М 31;O 20

Keywords: value, market value, capital, source of value formation, model,
effect of financial leverage, effect of operating lever, effect of system lever
146
Introduction. The management of capitalization processes of the

economy and the company’s value formation requires the application of
modern marketing concepts, adequate information display, progressive
analytical technologies, and a wider use of methods of economic and
mathematical modelling100.Such factors as the increased scope of fictitious
capital and corruption schemes for the distribution of cash flows, the passivity
of marketing activities of issuers on both consumer and stock markets, and
their ignoring of requirements regarding the publicity of their financial
information for potential investors became the reasons of low capitalization of
the Ukrainian economy and deterioration of its investment climate101.
The problems of the economy capitalization at the macro- and
microlevels cannot be considered separately from the financial dependence of
Ukraine on monetary policy, implemented by the international financial
institutions (IMF, EBRD, SB), which significantly reduces the degree of
economic freedom of the state and corporate structures in their selection of
strategically important projects and increases currency and business risks at
different stages of their life cycle102.As a result, discounting rates of the future
cash flows (one of the key indicators in assessing the market value of
companies) are rising, and alternatives to decisions in the value formation
policy of an enterprise and in the management of capitalization processes at
macro and micro levels are reducing103.
The destructive policy of privatization of enterprises is accompanied by
the phenomena of artificial bankruptcy of business entities and the
interruption of contracts of business partners. This leads to a decrease in the
100
Mnykh, O.B., Brytskyi, R.M. (2015) Marketing analysis of capitalization processes and development of
information technology modeling of market value of the enterprise, based on the method of fuzzy sets
[collective monograph] / Integration of economic and informational processes: the current state and
prospects of development. Dnipropetrovsk, Gerda, 282–294.
101
Mnykh, O.B. (2014). Changing the paradigm of capitalization processes managing: the role of
innovative environmental solutions in logistics and marketing strategies for value formation. Actual
Problems of the Economy, (6), 240–246.
102
Mnykh, O.B. (2016). The crisis of transport engineering in Ukraine and the marketing approach to the
formation of the market value of machine-building enterprises.Actual Problems of the Economy, 183(9),
77–86.
103
Mnykh, O.B. (2009). Marketing in shaping the market value of a machine-building enterprise.
Monograph, NU “Lviv polytechnic”.
return on investment of technologically related business entities. The growing

volumes of speculative operations on financial markets, the participation of
offshore companies in the share capital of domestic enterprises and their
control over cash flows generate new sources of risks and threats to ensure a
competitive national economy. A Draft Law on Tax Sovereignty of Ukraine and
Offshore Companies, which was registered in April 12, No. 4380, was never put
into effect.
The highest level of capitalization of the Ukrainian economy was
achieved in 2007, when the world’s second highest growth rate was registered
at 130%. The main reason for this growth was financial and marketing
speculation for getting quick profits, the domination of short-term goals of
economic development, high pace of the introduction of Internet trading, stiff
competition for the right to manage the enterprise and to strengthen the
processes of redistribution of market power. At the same time, the growth of
capitalization of the economy practically did not affect the market value of the
first 20 energy companies from the number of “bluechips”104.
Such phenomena as an imperfection of the system of legal protection of
investors’ interests and the mechanism for corporate governance in Ukraine,
corruption schemes for generating cash flows and the absence of real
economic reforms that would stimulate the attraction of innovative tools for
the purposes of long-term value formation of economic entities, short-term
objectives of operational and financial and economic activity, become a valid
reason for prolonging the time lag of innovation projects or their full
suspension that negatively affects the image and the value of the national
brand. Thus, according to the British consulting company Brand Finance, in
2015 Ukraine entered the list of 5 national brands with the worst dynamics of
development (the value of the national brand has fallen by 45% during a year
and constituted 44 billion dollars compared to 80 billion dollars in 2014)105.
104
Liachovets, O.O. (2012).Dynamics of capitalization of the Ukrainian stock market. Available
at:http://lib.chdu.edu.ua/pdf/naukpraci/economy/2012/189-177-6.pdf
105
The consulting firm Brand Finance has ranked the national brands. Available at:
https://tsn.ua/groshi/naydorozhchi-nacionalni-brendi-infografika-513367.html
148
Administrative methods of narrowing artificiallythe listing instruments

are the main reason for the reduction of market capitalization and the
accelerated transformation of public joint stock companies into private
companies or limited liability companies (from May 2016 till February 2017,
more than 260 public joint stock companies were transformed)106.
The potential domestic investor in a civilized world is a company, while
in Ukraine, the state actsas a “system-forming enterprise” on the stock
market; the total debt of our state in 2017 exceeded the critical threshold of
60% and amounted to 80% of GDP, while transactions with domestic
government bonds (T-bills) in 2016 amounted to 94% of the total trading
volume of securities in the organized market. The over-saturation of the stock
market of the state with “junk” securities is particularly disturbing: in 2016,
there were securities of only 11 issuers (at the end of 2014, the listing included
shares of 172 companies).107
The “index basket” of the most active stock exchange – the first stock
trading system (FSTS), in 2017, consists of shares of only 20 issuers108. Such
low quality of the Ukrainian stock market complicates the search for external
financing sources and worsens the conditions for the survival of domestic
businesses, especially at high loan capital rates (12–13% for foreign currency
loans for Ukrainian business, compared to 2–3%, for which foreign investors
receive funds). In particular, it is possible to explain the high rates of the
construction of infrastructure and real estate in Ukraine at the expense of a
private foreign investor, which creates value for their companies, provides
high rates of capital increase, using the cheap labour of local builders.
The refusal to publicisefinancial information in 2016 became an
important factor in reducing the capitalization of listing companies of the
Ukrainian stock market to 700 million USD and, as of December 31, 2016, their
capitalization amounted to only 19.64 billion UAH, and since 2014, it has
decreased by as much as 20 times! For comparison, we provide the data on
106
The EBRD is worried about slowing down of reforms in Ukraine after a successful issue of Eurobonds.
Available at: http://interfax.com.ua/news/economic/450130.html
107
Since 2014, the capitalization of listing companies in Ukraine has fallen by 20 times. Available at:
https://business-journal.com.ua/finansy/item/455-chao-rynok
108
The first stock trading system. Available at: http://www.pfts.ua/uk/indexes/
the average market capitalization of companies that have fallen into the Top
100 ranking: as of March 31, 2014, this figure was 150 billion USD. An
important thing is the fact that the highest growth rates of capitalization
among the world’s companies for 2009-14 were characteristic of technological
and financial companies, and the threshold of entry into this list during this
period has doubled. A number of industrial companies was still relatively small
compared with the representatives of the technological and financial
sectors109.
In the context of European integration and globalization of Ukrainian
business, it is necessary to expand the spatial-temporal horizon of diagnostics
and search for rational decisions of investors and managers in the system of
value-oriented management110.Such decisions should ensure rapid adaptation
to changes in the situation on the market and stimulate the development of
business behaviour models and measures to reduce the unjustified risk of
marketing and entrepreneurial activity111.
Ukraine, in the context of European integration, is at a new stage of
international relations development, and its economy can benefit from the
effective use of marketing potential, the application of marketing concepts in
the management of the enterprise’svalue, the development of business
models with predictive estimates of future cash flows of enterprises, which are
drivers of economic growth112.
As the foreign practice shows, an efficient system of cost-oriented
management of a company should be a stone in building a country’s economy
and increasing its capitalization113. The problem of finding new sources of the
value creation becomes relevant because since September 2017, Ukraine has
109
Top 100 of the world's largest market capitalization companies. Available at:
https://www.pwc.com/ua/uk/survey/2014/assets/global-top-100-2014-ukr.pdf
110
Mnykh, O.B. (2014). Actual problems of the market value managing of international companies.
Strategy of economic development of Ukraine: a collection of scientific works of Kyiv National Economic
University named after V. Hetman. K. – KNEU, 13–19.
111
Copeland, T. (2007). Cost of companies: evaluation and management. Moscow, ZAO “Olymp-
Business”, 156–159.
112
Allaire, Y. (2000) Strategic thinking. (In Polish: Allaire Y. Myśleniestrategiczne/ Y. Allaire, E.Firsirotu
//przekladJ. Anusz.–Wyd. Naukowe PWN, Warszawa,2000/-s.408)
113
Damodaran, A. (2007) Investment valuation: tools and methods for valuing any assets. Moscow,
“AlpinaBusinessBooks”, 706–709, 870.
150
entered a free trade area with the EU countries, and the strategic goal is its
entry into the European Union. In this context, the following phenomena and
processes play an important role for the purposes of forming the
company’svalue and assessing the effect of its new sources of creation:
− diversification of the markets and marketing activities of Ukrainian
enterprises in the European economic space114;
− the use of export potential and more active use of the marketing
potential of the domestic market of Ukraine in order to increase the
profitability of operating activities;
− coordination of marketing and financial strategies based on indicators
of marketing and financial levers (leverage);
− research of the effect of “marketing leverage” (formula 1), which is
integrated into the logistic model of marketing management:115
L m = V k/ Vf, (1)
Vf = 1/ f + bc – R ,
where:
L m– marketing leverage as the ratio of revenue from the sale of goods
(services) by the given enterprise Vf and the competitor –V k ; R – advertising
costs.
In the given formula (1), the system leverage is formalized in the form of
the following mathematical model:
L sys = L o Lf L m , (2)
where:
114
Grudzewski, W.M. (2006). Knowledgemanagementsystemsareaprerequisiteforgoodwill (InPolish:
GrudzewskiW. M. Systemyzarządzaniawiedzą warunkiemwsrostuwartości firmy
/W.M.GrudzewskiW.M.,I.K. Hejduk I.K. // Współczesne źródła wartości przedsiębiorstwa//Praca
zbiorowa pod redakcją naukową Barbary Dobiegały-Korony i Andrzeja – Warzsawa, Difin.– 2006, 449s., s.
257)
115
Derkach, I.O. (2005). Complex of economic-mathematical models of enterprise management on the
basis of the concept of leverage.The dissertation abstract for the degree of the candidate of economic
sciences.9–10.
Lsys, Lo, Lf,Lm– respectively, the system lever, the operating lever (the
ratio of marginal revenue to the profit from sales), the financial leverage (the
ratio of borrowed funds to the company’s own funds).
Although the marketing leverage serves as one of the variables in the

cost management system of an enterprise, it is worthwhile presenting a wider
interpretation of the indicator (R), namely, the total marketing costs, the part
of which will be spendings on advertising.
The effect of the operating leverage (Lo) reflects the ratio of constant
and variable costs. In addition, in an indirect form (Lo) shows the efficiency of
the operational (technological) management of business and reflects the
peculiarities of the system of employee bonus according to performance
indicators, because the salaries of management are related to relatively fixed
costs. It is known that a bonus of top managers of the joint-stock type
corporate structures in recent decades has depended significantly on the share
price and the rates of capitalization of companies, the shares of which were
quoted on the European and World stock exchanges. The tool to implement
such a bonus system for managers is, in particular, the option to buy shares –
it is the right granted to a manager to buy shares of the company at a fixed
price within a certain period. In case of an excessive market price of shares
compared to a fixed price within the term of the option implementation,
managers buy them and receive their income from the growth of the
company’s capitalization. Since 2007, in conditions of deepening of the crisis,
the control of the budget and bonus payments to top managers have become
more rigorous in the business world, especially in those international
companies that received state financial support for the conquest of foreign
markets.
The level of theoperating lever (Lo) will be different for large and small
businesses. The possibilities of a company to create marketing and logistic
assets, obtain licenses for various types of economic activity, their influence on
the level of market prices and the creation of barriers for potential
competitors in access to raw materials and intellectual and informational
152
resources (asymmetry of information), etc., lead to a change in the volume

and structure of the margin income.
The indicators of themarketing leverage (L m) are determined by the
market power, the share capital of each of the co-owners and the activity of
political capital, which contributes to the “self-growth” of capital. The strength
of such influence on the size of the systemic leverage will depend, among
other factors, on the factors of subjective and organizational nature – the
changes in the composition of the supervisory board, the number of co-
owners of the equity capital, the political power of business partners that
create a collective monopoly, the scale of the use of informal relations to
improve the competitive positions as well as on the presence of companies
registered in the offshore areas, policies protecting important marketing
assets – intellectual property, including know-how. This complicates the
comparative assessment of the complex integrated (L sys ) for the same type of
enterprises in a particular industry. It should be noted that the market share
and its comparison with a competitor might be disproportionate, given the
problem of access to financial information of various economic agents and the
dispersion of shares of the joint-stock company’s co-owners.
Financial leverage is one of the most important indicators that reflects
the enterprise’s access to credit resources, and, as the practice of machine-
building enterprises shows, the volume of loans does not correlate with net
income, profit, authorized capital, asset liquidity, and their innovative
attractiveness. Even the same value of (L sys) for different combinations of
conjugates (a quantitative aspect of the formula 2 given above) is not
equivalent in terms of the strategic value of an operating business to a society
and the time horizon of previously taken marketing decisions, including those
relating to branding or rebranding projects from different lag of return. An
economic interpretation of (L sys ) raises interest to the value of “living” time.
Even at a high value of (L sys ) at the level of the microeconomic system, the
vector of movement of the economic system at the macro level may not be in
line with the innovative model of development and the goals of increasing its
capitalization in case of the low-quality institutional environment, when
intangible assets are not transformed into capital, but by their nature remain
just the resources.
Thus, the driving forces of the value formation act indirectly through
motivation systems, incentives for the development of innovation and the
interaction of different types of capital (institutional, financial, intellectual,
industrial, etc.). Since the strategic goal of Ukraine is the development of the
European integration processes and real membership in the EU, modern
business management models and cost-management approaches need to be
improved. The system of formation and management of valuecannot be better
than the people who create it. There must be an appropriate motivation for
the full use of intellectual work in capitalization processes. Therefore, we
consider it sensible to introduce into the model (2) two more variables, one of
them: K1 – that is the ratio of the average salary of highly qualified staff (Z n) to
the average salary of the workers of the investigated segment in the European
market (Z ewr). The growth of strategic degrees of enterprise freedom and the
area of intellectual capital developmentwill depend on the level of skills and
technological knowledge of the skilled workers. The second variable, that
complements formula (2), is the ratio of the growth rate of the value of
innovation products (ΔI) to the growth rate of salary of the high-skilled
employees (Δ K2):
L sys str= L o Lf L m K1 К 2, (3)

where :
K1 = (Z n ) / (Z ewr) ; К 2 = (ΔІ) / (Δ К2). (4)
The indicator (L sys str ) is called the system and strategic lever (leverage).
We believe that such components as K1 and K2 give a more complete
and meaningful characteristic of the systemicity of the decisions of top
management and enterprise activity as a system, since without the intellectual
work motivation it will be impossible to form an effective combination of all
other types of leverage – financial and operational ones (under conditions of
the competitive environment in the labour market, goods and capital).
154
The highest value of (L sys str) among enterprises of the same type will
determine the strongest competitive advantages of such a producer as a
prototype of the prospects for value formation. With the introduction of the
principles of socially responsible business and the effective regulation of the
activities of monopolists, marketing becomes more active in the process of
value formation.
In the knowledge economy, when the e-commerce and IT technology are
being actively implemented, the “value centres” or “core” of value formation
can be shifted, regardless of geography, that is, the location of real assets.
Management options can quickly change the scope of practical application of
the intellectual work of managers and become “working strategic assets” in
other companies – the phenomenon of “brain drain”.
If the specific weight in formula (4), which is on the product of the
indicators K1 and K2becomes higher, then centripetal power of intellectual
energy and human capitalcan be considered stronger, the rate of
transformation of intellectual resources, which are “in the heads of workers”,
in ready-made innovative products becomes higher and the risk of “brain
drain”lowers. Corporate structures expand the scope of activity for new
options and indirectly affect future transaction costs associated with the
protection of databases, software products, unpatented know-how, investing
in aggressive marketing, and so on.
With different effectiveness of marketing management (Lsys str ) and in a
different institutional environment, the external effects of the system and
strategic leverage will be different, that is, the components of the enterprise
value – the forecast and post-forecast period (or residual value) will also be
different in size and their specific weight.
In the context of the structural-functional and financial crisis in Ukraine,
the imperfections in approaches to assessing the effectiveness of investment
projects, which are limited to private business and the goals of maximizing
value for majority shareholders,will be noticedto a greater extent. Currently,
the existing equity capital is a manifestation of the interests of the oligarchic
multicapital, which searches for beneficial bankrupt enterprises or the

enterprises brought to such a state during the crisis.
Marketing management methods, as shown bythe results of domestic
and foreign practice, are still “not structurally embedded” in the system of
integrated strategic management of an enterprise116.Below there are shown
the approaches to assessing the quality of the process of the value
formationof an enterprise (CV), which in varying degrees are related to
marketing activities:
− on the basis of the system and strategic leverage – L sys str (here in the
implicit form, one takes into account the profitability of the operating activities
NOPLAT and return on investment ROIC – due to the need to attract additional
sources of financing, that is, through the effect of the financial leverage);
− based on the evaluation of the technological efficiency of a functioning
business (L ef ) and the construction of clusters for a specific segment of
machine building, in particular, the DEA method (Data Envelopment Analysis);
technological efficiency is seen as an indicator of the use of the potential of
intellectual capital – IC; partly its value is shown in the form of non-material
assets (NMA) in the balance sheet assets as irreversible means – F); at the
same time, technological efficiency is one of the essential factors in reducing
the gap between the balance value and market value of equity capital – R E;
− based on the synthesis of a macroeconomic analysis on the
microeconomic basis; it is expedient to use the fuzzy set method to evaluate
the quality of value formation processes (L Q) for the time period (T) of
different durations: in quarterly subperiods – for an unstable economy; for a
stable economy – taking into account the expected payback period of a
strategically important innovation-investment project.
Thus, in general, the influence of the absolute and relative indicators on
the company’s value (CV) can be shown in the form of such a model:
116
Mnykh, O.B. (2005).Formation of the integrated system of strategic management of enterprise
development. Bulletin of Kiyvsky NTEU, (1), 104–111.
156
CV= f (F, ІК, FCFF, L sys str, L ef, L Q, ROIC, T, R E) (4)
The market and sellers of public values are interested in real cash flows
(FCFF), as a result of operating profitability and accumulation of depreciation
funds. To minimize the impact of the tax burden on the value of FCFF, it is
advisable to use the EBIDTA indicator, which allows:
− carrying out a comparative assessment of the possibilities of
compensation of expenses in operational activities for economies of different
countries with different tax rates;
− selecting attractive sectors and explaining the reasons for the migration
of investment resources between different types of economic activities and
sectors of the economy.
Therefore, a model (5) with a wider combination of factor variables is
presented below:
CV= f (F, ІК, FCFF, EBIDTA, L sys str, L ef, L Q, T, R E ) (5)
This list of factor characteristics will depend on markets monopolization

and access to financial information, industry specificity, cyclicity of enterprises,
rates of development of innovative products, etc. The possibility of extending
the cost of a CV will essentially depend not only on the availability of options
for financial and real assets – as the potential of an enterprise, but also on the
competencies of management and their ability to accumulate intellectual
capital.
The higher quality of the institutional environment will create the
preconditions for the transformation of assets into capital and the growth of
intellectual capital (IC). The indicator (R E) will play a more important role in
the dynamics of CV in the process of the evolution of such phenomena and
processes:
− establishing effective stock market activities, in particular, improving

the quality of valuation techniques for so-called “junk” securities that were
used as a contribution to authorized capital;
− increasing the responsibility of asset management companies, which in
recent years have been artificially fuelled by the attractiveness of various
securities;
− recapitalization of profits in the strategy of the enterprise
development;
− increasing dividend payment rates;
− improvingstart-up reserve capital and rates of its increase; dispersion
of equity to protect against a possible takeover.
Thus, the value of an enterprise is a category that can be evaluated only
over a long period, since the multiplicity of capital is reflected in the process of
implementing the overall strategy of an enterprise and its marketing potential.
The level of its use depends on the cycles of capital reproduction under certain
resources, time constraints and current environmental and social standards.
The financial analysis of so-called pro-environmental investments in the
context of the formation of the enterprise’s valueis considered, in particular, in
the work of K. Pera117.
The formalization of the model (5) enhances the practical interest of
enterprise managers in the processes of interaction between different stages
of business cycles in various sectors of the economy and life cycles in the
activities of potential partners. Such cycles include the system of relations
between enterprises, consumers (clients) and investors such as “B2B” “B2C”
“В2I”. The development of those relationships contributes to the
harmonization of their commercial interests and the growth in the volume of
the equity capital of the producer.
117
Pera, K. (2004). Investments in environmental protection and the value of the company.(In Polish: Pera
К..Inwestycjeochrony środowiskaawartość przedsiębiorstwa// Wartość przedsiębiorstwa –
zteoriiipraktykizarządzania / TomV, Płock - Pekin – Łódź, 2004)
158
The results of the research on the value of 200 companies with annual
turnover not less than 1 billion UAHin 2014 are quite interesting. For these
studies, data from Bloomberg, ARTA investment companies and Concorde
Capital for 2013–14 years were used118.When assessing the companies, four
criteria were analysed: income, profit, assets and the value of the enterprise.
The cost of companies was derived using estimated multipliers based on
country and regional risks. It should be noted that for metallurgy (Metinvest
and Southern Mining and Processing Plant) there was no dependency between
profit and estimated value. For example, Metinvest with a profit value in the
amount of 2512 million UAH in 2014 was estimated at 33 557 million UAH, and
the Southern Mining and Processing Plant with a profit of 6773 million UAH– in
2002, 3 million UAH.
Here, a significant factor that determined the estimated value of
Metinvest was an income that was almost 17 times higher than an income of
the Southern Mining and Processing Plant.
In addition, in the field of telecommunications, a more significant factor
influencing the estimated value of companies MTS Ukraine (Vodafon) and
Kyivstar (3rd and 4th place in the rating) with almost the same value of assets
of 13 billion UAH was not an income, but a profit, which for both of these
companies, respectively, was 2195 million UAH and 3759 million UAH. The
financial estimated values of Kyivstar and Vodafon companies at almost the
same sum of points (1024 and 1020) were 22660 million UAH and 29154
million UAH respectively.
The greater the equity capital of an enterprise is, the better the policy of
protecting it from the effects of threatening factors becomes. The losses of an
enterprise can be coveredat the expense of own capital. The greater the
equity capital of an enterprise is, the higher its creditworthiness and
investment attractiveness becomes, the higher its long-term financing
potential remains. The growth of the company’s own capital creates the basis
for trust from investors and suppliers of factors of production. The value of the
118
200 largest companies. Available at: http://forbes.net.ua/ua/ratings/3
equity of each company is influenced not only by the level of profitability of

operational and financial activity, but also by the policy of asset financing,
including NMA, the risks of marketing activity by types of economic activity
and the type of asset-financing policy chosen – aggressive, compromise or
conservative ones, the level of currencyrisks on various foreign markets, buy-
back policies of own shares, coordination of interests of shareholders,
producers and their strategic clients.
Let us summarize the results of studying the problem of the value formation
and business valuation by an example of the company “Ukrainian International
Airlines” (a monopolist in the field of air traffic), the income of which in 2014 was
in the amount of 6894 million UAH and losses werein the amount of 158 million
UAH. In the ranking of the above-named 200 companies, it almost took the 170th
place in total points of the company’s value and was evaluated with a negative
index (432 points). The same amount of points was given to the airline
“Windrose” with an income of 1497 million UAH (which is 4.6 times less than
“UIA” and 3.6 times less assets). It is likely that the assets of the UIA, including
non-materialist assets (NMA), were not transformed into capital, although their
book value for 2008-16 grew in geometric progress, as can be seen from Figure 1.
Figure 2 shows the diagram according to the data of PJSC “Ukrainian
International Airline” for 2008–2016.
160
Figure 1. Trend towards changes in the value of intangible assets for PJSC
“Ukrainian International Airlines” for 2008–2016 (in thousand UAH)
119
Figure2. Trend towards the accumulation of undistributed profit and reduction of

the equity capital of PJSC “Ukrainian International Airlines” for 2008–2016
120
119
Stock market infrastructure development agency of Ukraine [Electronic resource] – Available
at:https://smida.gov.ua/db/emitent/year/xml/showform/98863/165/templ
The growth of the intangible assets value is an important indicator of the

investment attractiveness of an enterprise. However, the company’s low ability to
generate the effect of using investment negatively affects net cash flows. This is
evidenced by the dynamics of indicators of PJSC “Ukrainian International Airline”,
shown in Figure 3 and Figure 4.
Figure3. Dynamics of the net cash flow from operating, investment and financial
activities of PJSC “Ukrainian International Airlines” for 2010–2016
1200000
1000000
800000
600000
400000
2000000
-200000
-400000
-600000
-800000
-1000000
2010 2011 2012 2013 2014 2015 2016
net cash flow from
financial 39509 40909 60166 -51560 -185156 -153244 -735107
activities, thousand UAH
net cash flows from
investing 4821 -16684 -25607 -100858 -54426 -181832 -300212
net cash flow from
operating -64260 -28286 -32745 160804 402268 446847 1010296
Source: compiled by the authorson the basis of the research
An operating profit is related to the work efficiency of the whole staff and
investment capital. The sources of involved funding must be consistent with the
marketing strategy of the PRT in different markets. In operational activities, there
are great opportunities for using such production factors as capital and living
labour. These factors of production are elastic.
120
Stock market infrastructure development agency of Ukraine [Electronic resource] – Available
at:https://smida.gov.ua/db/emitent/year/xml/showform/98863/165/templ
162
Figure 4. Dynamics of the net cash flow of PJSC “Ukrainian International Airlines”
for 2010–2016
200000 y = -8831,x3 + 99184x2 - 29812x + 23679
R² = 0,793
150000
100000
50000
-50000
2010 2011 2012 2013 2014 2015 2016
net cash flow , thousand
16221 -4061 1814 8386 162686 111771 -25023
UAH
Source: compiled by the authorson the basis of the research
Obviously, the financial strategy of this enterprise was not organically

consistent with the operational activities and marketing strategy of the
development of new markets, since the costs of sales for 2016 increased by 47%,
and income – by only 36%; financial expenses on debt servicing amounted to
110.997 million UAH in 2016. In addition, insufficient attention was paid to
improving the efficiency of the operating activity – an important indicator of the
impact on the company’svalue, because in 2015–2016 the share of operating
expenses in total operating expenses fluctuated within 77–78%! , and in 2016,
their amount exceeded 18 billion UAH. It should be noted that “other operating
expenses” include, in particular, the costs of research and development in
accordance with the Accounting Standards 8 “Intangible assets for the purchase
of foreign currency and losses from operating exchange differences, the amount
of uncollectible receivables, etc.”
On the example of those companies, it can be generalized that it is not the
volume of sales and the size of assets, but the effectiveness of management in
different types of areas– operational, financial and investment ones, which has a
more significant impact on the value of companies. At the same time, in the
context of the deepening of the financial crisis, more attention should be paid to
solving problems in the “risk management” sphere while devising general and
functional development strategies that will improve the quality of the
management of value formation processes and the search for new sources of its
creation in the domestic and foreign markets. Under conditions of depreciation of
the Ukrainian hryvnia, special attention should be given to the increase of other
operating expenses on the most of other industrial enterprises, especially for
import-dependent enterprises. In such situations, it is necessary to investigate the
dynamics of financial, marketing and operational levers and determine the
pressure on the possibility of choosing managerial decisions from the critical
factors of production. This will encourage the reduction of the economic space of
the value consumption in the field of production and sales.
The financial indicators of the domestic enterprises performance reflect
the consequences of the use of traditional views on the value formation in the
economy and the use of factors of production. They were focused on the
concentration of material assets (labour, capital and land). However, the
competitive environment and market requirements did not match the
production capabilities of enterprises, therefore, the level of profitability of
the operating activity of the company in 2016, which was only 4.2%, was not
sufficient to solve the problems of business development while attracting
external sources at the rate of the currency loan capital 10–12% (and in
hryvnia currency – more than 20%)121.
We consider it expedient to emphasize the special role of intellectual
capital in modern processes of assets transformation into capital and
development of employees’competencies at the stage of constructingthe
information economy in Ukraine. Intellectual capital serves not only as a
source of added value, but also reflects the strategic vision of top managers as
to the future business prospects, and employees are not seen as a cost object
but as an object of important investment in cost-oriented management
models.
121
Profitability of operating activity of enterprises by types of economic activity in 2016. Availableat:
http://www.ukrstat.gov.ua/
164
In order to detect the “hidden” impact of intellectual capital on the

financial results of operating activities of enterprises (an important variable in
the cost model of an enterprise), the following productive function can be
used:
Y =А Х1 αX2βeλt, (6)
where:
Y–gross income growth index;
Х1 – asset growth index;
X2– index of wage fund growth;
X3 = e λt – cumulative, integrated impact of other factors – growth rates
of NTPs, changes in the efficiency of the use of intellectual capital, the quality
of marketing management, etc. Such models extend the space of application
of mathematical models for quantifying the impact of individual factors on the
results of an enterprise. It is proved that the period of active formation of cost
and value for a society depends on the development of such phenomena and
processes:
− concentration of efforts of top management on key competencies –
technological, innovative, organizational;
− amotivation system for management, which is closely connected with
changes in the marketing lever;
− possibilities for all employees to own shares in the share capital of the
firm and their access to information and innovation resources;
− a competitive position, which is expressed through the relative share in
the market, the relative quality of the product, the patents, as well as the
range of customer service.
This becomes possible due to innovations of enterprises’ operating on
the principles of marketing and logistics, and determination of the role of
innovations in the general strategy as a generator of the long-term market
value of an enterprise.
Conclusions. It is possible to summarize that in the system of corporate
management of an enterprise, after 26 years of development of the
independent state, there are new systemic tasks that affect not only the
problems of the economy capitalization, but also the responsibility of top

management of state-owned enterprises and private companies for socio-
economic performance indicators. Large production and management systems
that had been created in the privatization process did not lead to an increase
in the level of capitalization of the Ukrainian economy and the social effect.
The reforms initiated in the economy are not systemic and do not correspond
to the functions of stimulating the development of intellectual capital and the
effective use of intangible assets, which undermines the system of social
values and motivation to widespread use of modern analytical technologies
and computer programmes for ensuring flexible management of business
processes. It will be impossible to increase the social-economic indicators of
enterprise development without an appropriate transformation of resources
into capital and search for new sources of the value creation. This, accordingly,
requires the expansion of the scope of economic and mathematical modelling
methods at different levels of economic systems management.
166
Olga Ilyash
International University of Finance,
National Technical University of Ukraine
“Igor Sikorsky Kyiv Polytechnic Institute”, Kyiv, Ukraine
Volodymyr Getmanskyy
SoftServe Company, Lviv, Ukraine
Vladyslava Kornilova
International University of Finance, Kyiv, Ukraine
APPROBATION OF FUNCTIONAL DEPENDENCIES

TO MEASURE THE EFFICIENCY OF
TRADE ACTIVITIES OF NATIONAL ECONOMIC ENTITIES
Abstract. The article gives the basic interpretations of the concept of sales enterprises’
functioning efficiency. In the article, the division of opinions on efficiency of trade activity, depending
on the relation of an effect (result), point estimation of every enterprise’s index, expert estimation,
the level ofachieving maximal possibilities curve etc., are found. In addition, the dependence of an
effect on a resource is considered, the use of a trade activity functionisoffered, and the constituent
of time and scale is added to it. Such a constituent will take into account economic changes or
changes of return, define their recurrence and depth of their influence. As a result, a balance model
that is suggested consists of three parts: trade activity functions, an additive model of commodity
turnover, and functions of the sum of demand for goods of thenational economic entities under
study.
JEL Classification System: C300, C520, D 610

Keywords: efficiency, input/output resources, specification, parametrisation,
trade activity function, diminishing marginal product.
The transition of the Ukrainian economy from centralized planning to

market principles caused radical restructuring of the forms and methods of
functioning of the national economic mechanism. This led to a reorganization of
methods for analysing economic activity, based on the widespread use of

theoretical statistics, probability theory and linear programming.
For a modern manager, the use of basic methods of presentation and
explanation of commercial information, which underlie the formation of the
image and strategy of effective growth of many trade enterprises, become more
and moreimportant. Methods of data representation contribute to a better
understanding according to the form as well as the content. Qualitative
information generates the right decisions; at the same time, it significantly
increases its own priority and importance due to competent use and
representation of data. Therefore, for today's managers, the ability to receive,
represent and explain data becomes crucial.
The basic principles of constructing a model for measuring the efficiency of
functioning of trade enterprises were formulated. Apparently, the optimal variant
was the logarithmic function of the form:
Q=a*logb(c*X1+d)+e*logf(g*X2+h)+…+s*logt(u*Xn+v)+k, (1)
where Q – sale of goods;

X1, X2, …, Xn – input resources (or costs);
a, b, c,….., v, k – coefficients that determine the return on resources, their
substitution, the industry affiliation of an enterprise, the minimum number of
resources required to start functioning, etc. (parameterization of the function).
On the basis of these coefficients, the effectiveness of financial and
economic activity is determined, and, considering the inclination of the above-
defined function or its first derivative, one can detect the effect of the law of
diminishing marginal returns. One can notice, that the return or elasticity of an
income of trade enterprises in relation to trade factors decreases with an
increasing volume of factors.
Consequently, the tendency of the marginal product of labour or any other
type of resource (income growth to a change in the volume of attracted labour)
towards a decline, if it is in sufficient quantities, is such a customary phenomenon
168
that it is often referred to as a law. The law of diminishing returns argues that if
the values of individual factors are fixed, then the marginal product of any
variable factor (for example, labour) after a certain amount of sales will decrease
while costs of this factor increase122.
In fact, in our opinion, the law of diminishing marginal product can be
detected not only by other fixed factors (except for the investigated one).
According to an American economist T. Carver, the declining nature of the
economic result (using empirical data) of management is explained primarily
by the peculiarities of the modern micromarket of sales (the manifestation of
the economic result – both income and profit), and only then, the
disproportionate involvement of factors in the trade process.In the scholar’s
interpretation, the essence of this law consists in the fact that when using
labour, land and capital, the number of goods will grow as soon as possible, if
resources are used optimally and proportionally.
Therefore, in accordance with the requirements of this law, for making
right decisions on rational choice (utility and cost comparison), the marginal
costs in each case must equal the marginal income. In other words, resources
should be invested until the effect of the last invested unit of resource is equal
to the return.Hence, investment is profitable until the marginal utility, or
marginal revenue, exceeds the marginal costs. It is possible to hire a new
worker only if the value of the marginal product produced by them exceeds
the cost of additional wages.
Estimating efficiency of trade enterprises by traditional methods of
analysis of simple multiplicative/multiple models does not allow
evaluatingfully the efficiency of functioning of trade enterprises, determininga
huge number of indicators, evaluating techno-technological, social,
environmental, adaptive and other characteristics of enterprises that cannot
be carried out clearly.
122
Fisher S. Economics: Per. from english from 2nd ed. / S. Fisher, R. Dornbusch, R. Schmalenzi. - M.: The Case
LTD, 1995. - P. 140.
That is why we suggest evaluating the efficiency of enterprises with the

help of logarithmic models of using resources that demonstrate both return
(productivity/profitability) and its elasticity, which will reflect the dynamic
(potential, dynamic) efficiency of a trade enterprise in 2010–2015.
We want to add that defining the logarithmic model of dependency of a
net income of trade enterprises on operating expenses presupposes taking
into account the fact that only the additive model reflected such dependency
in the majority of enterprises. In this regard, it is necessary to find the average
value according to the sample, which will reflect the value of all enterprises
with a rather low error. The found logarithmic dependence reflected the
additivity of the economic result and costs, and its description y =
924322.53*Ln(x) – 11458207.13, showed the determination coefficient at the
level of 83%, and the graph was close to a straight line. This necessitated
employing the equationof pairwise linear regression to reflect the dependence of a
net income of enterprises on operating costs. Thanks to the method of least
squares123it is possible to find out, that each hryvnia of a net income contained
99.5 kopiykas (equation y = 0.99*x - 14316.91, r2 = 1.00) of operating expenses
and the common thing for the sample was the fact that for starting their
activity, enterprises needed on average 14316,91 thousand UAH of one-time
expenses that did not bring any income. As we can see, indeed, the linear
model describes the additive dependence of a net income and operating costs
better than the logarithmic one:
123
Greene W. H. (2000) Econometric analysis . - N. Y. : Macmillan. - 31 p.
170
Figure 1.. A range of data determined in pairwi

pairwise regression concerning
operating costs and a net income of investigated trade enterprises
4000000,00
3500000,00
3000000,00
2500000,00
2000000,00
1500000,00 y = 0,99x - 14316,91

1000000,00
R2 = 1,00
500000,00
0,00
-500000,0 0,00 500000,0 1000000, 1500000, 2000000, 2500000, 3000000, 3500000, 4000000,
0
-500000,00 0 00 00 00 00 00 00 00
The correlation coefficient 0.99971 indicates an extremely high

correlation (according to the Chaddock’ss table) between operating expenses
and a net income of trade enterprises,
ises, as we can see in Figure1.
Having grouped certain logarithmic functions of dependency of a net
income on the average annual value of non non-current assets with their statistical
characteristics, we obtain the following dependencies (Table 11):
Table 1. Functional dependencies of a net income on non

non-current assets of
investigated enterprises for the investigated period (without taking into
account economic development)
Evaluating significance of the
(Ftab = 10,13 for the level
Coefficient of correlation
income on non-current
(Ttab = 2,78 for the level of

dependency of a net
evaluating adequacy
of significance 0,05)
correlation coefficient
Student’s criterion /
Ficher’s criterion/
Log equation of
significance 0,05)
determination
Coefficient of
Enterprise
assets
“Desiatka” LTD y = 29033,36Ln(x) 0 0,952 0,000 20,168

- 326893,92
Elvo-Market y = 43340,88Ln(x)
0,46 0,728 2,556 3,091
LTD - 460867,73
Trade Company
y = 168573,62Ln(x)
“Intermarket” 0,69 0,838 6,677 5,639
- 2178434,49
LTD
TMC y = 40290,72Ln(x)
0,53 0,697 3,383 2,713
“Lvivholod” LTD - 451217,07
y = 21604,01Ln(x)
LLC Fozzy-Food 0,94 0,984 47,000 61,467
- 237233,61
Ukrainian trade y = 64344,08Ln(x)
0,94 0,984 47,000 61,856
networks LTD - 813549,52
“Continuum- y = 14363,87Ln(x)
0,46 0,679 2,556 2,524
Trade” LTD - 139250,76
y = 16624,96Ln(x)
“Vopak” LTD 0,64 0,806 5,333 4,610
- 178773,49
LLC “Trading
y = 145305,90Ln(x)
network 0,56 0,738 3,818 3,234
- 1801304,53
“Barvinok”
y = 41533,35Ln(x)
Furshet CJSC 0,66 0,893 5,824 8,780
- 482564,24
Taking into account that the usual logarithmic model does not take into
consideration economic rises and falls, which are caused by an unexplained
factor, the determination coefficients for almost all the enterprises under
study, with the exception of LLC Fozzi-Food and Ukrainian Trade Networks
LTD, are rather low. For example, the income of“Desiatka” LTD is largely
dependent on the value of non-current assets (correlation coefficient is 0.952).
However, taking into account the recession in 2009, when the non-current
assets almost did not change, and the income decreased rapidly, it turns out
that the presented model reflects badly the impact of their changes onthe
efficiency of functioning of the enterprises under study.As we see from the
relationship between non-current assets and a net income, the largest number
of passive (one-time) non-current assets is held by Trade Company
“Intermarket” LTD and LLC “Trading Network “Barvinok” (-2178434,49 and -
172
1801304,53 respectively). At the same time, the efficiency of use and

implementation (a lower influence of the law of diminishing marginal returns)
is higher in Trade Company “Intermarket” LTD (each hryvnia spent on non-
current assets will bring an average of 86 UAH of a net income (168573.62^
(1/2.71)).The obtained indicators differ significantly from those calculated by
the traditional method, since the measurement of effectiveness of non-current
assets did not take into account the primary expenses (losses) of assets, which
are reflected in this model. Regarding the worst use of non-current assets, we
can assume that the capital productivity ratio in «Continuum-Trade” LTDwas
much lower than in other enterprises, but we need to consider the adequacy
of the function as to the data under study. Relying on the determination index
and Fisher’s criterion, this dependence does not completely correspond to the
facts due to crisis phenomena (Figure 2).
Figure 2. Dynamics and a logarithmic trend of dependence of a net income on

non-current assets in investigated trade enterprises
45000,00
40000,00
35000,00
30000,00
Revenues
25000,00
20000,00
y = 14363,87Ln(x) - 139250,76
15000,00 2
R = 0,46
10000,00
5000,00
0,00
0,00 50000,00 100000,00 150000,00 200000,00 250000,00 300000,00
FA

To describe such economic changes, it is advisable to choose a

model,adaptedfor economic development, in order to measurethe efficiency
of enterprises functioning. The next group of investigated indicators of the
trade enterpriseefficiency is the efficiency of using current assets (Table 2).
Table 2. Functional dependencies of a net income on current assets in terms of

enterprises for the investigated period (without taking into account economic
development)
Student’s
criterion/
Ficher’s
evaluating
criterion/
significance of
Log equation of Coefficient Coefficient evaluating
the
dependency of a of of adequacy
Enterprise correlation
net income on determination correlation (Ftab = 10,13
coefficient
current assets for the level
(Ttab = 2,78
of significance
for the level of
0,05)
significance
0,05)
y=
“Desiatka”
16645,53Ln(x) - 0,97 0,992 97,000 127,397
LTD
174108,35
y=
“Elvo-Market”
26976,74Ln(x) - 0,18 0,481 0,659 1,253
LTD
259844,57
Trade
y=
Company
164282,97Ln(x) 0,95 0,968 57,000 30,691
“Intermarket”
- 2187517,25
LTD
TMC y=
“Lvivholod” 75927,75Ln(x) - 0,89 0,936 24,273 15,140
LTD 957518,56
y=
Fozzy-Food
12998,11Ln(x) - 0,45 0,737 2,455 3,222
LLC
104117,92
Ukrainian y=
trade 16337,16Ln(x) - 0,75 0,787 9,000 4,135
networks LTD 166968,60
y=
“Continuum-
26274,46Ln(x) - 0,9 0,934 27,000 14,657
Trade” LTD
300509,42
y=
“Vopak” LTD 48303,51Ln(x) - 0,88 0,942 22,000 16,715
579783,23
174
LLC “Trading y=
network 53396,13Ln(x) - 0,88 0,938 22,000 15,699
“Barvinok” 667904,36
y=
Furshet CJSC 36833,36Ln(x) - 0,88 0,940 22,000 16,205
437002,39
The data in Table 2 indicate that the link between a net income and the
volume of current assets is closer than between a net income and non-current
assets. This is evidenced by higher than 0.7 (close connection according to
Chaddock) correlation coefficients between the sales volume and current
assets.
We want to note that the content of the obtained dependencies (assets
→ sales) in terms of the basic law of diminishing marginal product, allows
expanding its basic principles for long-term periods. All models can be
described by functions with decreasing nature of dependency and high
indicators of model quality (high Fischer’s criterion and statistical estimation of
the significance of the correlation coefficient). That is why, the Clark’s law is
effective for all entities of the market (transition) economy, regardless of the
variability of the parameters of activity (short or long-term operating
cycle).According to the author, its influence is due to fluctuations in all the
markets (goods, material resources, labour, and capital) that are related to a
company and their disproportionality (inaccessibility to a certain (qualitative or
quantitative) extent), etc.
It should be noted that the aforementioned simple models of efficiency
(productivity) of assets utilization do not give a complete picture, even about
static efficiency of trade enterprises, since they do not determine the
contribution of all resources to the performance indicator. For example, we
parameterize a three-factor functional simple model (without economic
development) of returns on assets (non-current and current) and sales
staff.Since the data fitting process is time-consuming, we will try to simplify
the three-factor function. As it was said above, under the influence of the
Clark’s law, all input resources are characterized by decreasing returns.
Logarithmic and power functions124show diminishing returns in economic

systems the best. For a power function, it is necessary to provide the condition
of subtraction for the main parameter (degree), then the best option for us
will be a logarithmic function.For a single-resource efficiency model (that is,
for a one-factor model), it is easier to specify a function, whereas for n-factor
models, it is more difficult to do this because we do not know multicollinearity
between resources, their dependence, substitutability, etc. In our case, the
three types of resources under study are weakly multicollinear and have a
synergistic (cumulative) effect on income. This forces us to reject the multiple
model and optimize the multiplicative and additive models.
To select the best option, we describe these models in the math
software Maple 12125:
Figure 3. Graphic representation of a multiplicative function

>plot3d(ln(x)*ln(y)+100, x=-1000 .. 100000, y=-1000 .. 10000)
124
King G . Production, Growth and Business Cycles I : the Basic Neoclassical Model / G. King, I. Plosser, S.
Rebelo // Journal of Monetary Economics. - 1990. - № 21. - Р. 195-232.
125
Maple 7: The Basis of Practical Application / M.O.Hirnyk, A.V. Kostenko, M.V. Luchko, M.I. Plesha. -
Lviv: VNTL-Classics, 2002. - 174 pp.
176
Figure 4. Graphic representation of an additive function

>plot3d(ln(x)+ln(y)+100, x=-1000 .. 100000, y=-1000 .. 10000)
We want to note that the obtained models differ only in the magnitude
of the return (the applicate) by approximately 1.5 times, while the return of
the multiplicative model on profitability of assets and labour is higher. In fact,
the return onresources of the investigated enterprises will be calculated only
after the model is parameterized, so we can assume that the choice of the
multiplicative or additive model is not important. To simplify the equation, we
will select the additive model, since knowing the property of the logarithms:
z= ln(x)+ln(y)+ln(t)+C=ln(x*y*t)+C, (4)
we will have the opportunity to simplify and accurately fit empirical data.
The above-mentioned reasoning allowed consideringfunctional
dependencies of profitability of assets and profitability of employees of the
investigated enterprises. This enables us to determine the contribution of
capital and labour resources to the process ofmaking a profit and the
efficiency of their use, as well as predict the absolute result of the enterprise
activity, depending on changes in the assets and number of employees in the
sales area, which will provide an opportunity to manage efficiency. In fact, the
content of the phrase “efficiency management” has no meaning, but in our
case it means nothing else than resource management to change efficiency.
To extrapolate existing data to a two-factor logarithmic function, we will
collect data with the help of the application Origin 8.5 Pro and solve the
simplified equations in the system Maple 12. The number of parameters in a
specific model:
NetIncome= a*ln(Xassets+b)+c*ln(Ytrade_workers+d)+e (5)
will have to be reduced to three for its final parametrization, since the
number of parameters should be less than the number of empirical constants
(series) (we have 5 of them because the study period is 5 years):
NetIncome= a*ln(Xassets)+b*ln(Ytrade_workers)+c (6)
After parameterization of functions, we see that, on average, according

to the sample, the coefficients of determination of the received functions are
directed at 0.73 or 73%, showing a high level of coverage of factor changes by
models, although,the Fisher’s criterion in most cases indicates the inadequacy
of the model. Since, the first independent variable is the size of the
enterprise’s assets, additional capital investment almost in all enterprises
leads only to a decrease ina net profit, which again shows the influence of the
law of diminishing marginal returns.
178
Table 3. Functional dependencies of a net income, the size of assets and

number of sales personnel of enterprises for the period under study
Ficher's
Log equation of
dependence of a net criterion/evaluating
Coefficient of
income on the size of adequacy
Enterprise determination
assets (x) and the (Ftab = 19,00 for the
number of employees in levelof significance
the sales areas (y)
0,05)
z = -406.6854Ln(x) +
“Desiatka” LTD 8215.0968Ln(y) - 0,998 714,667
41415.444
z =6492.5997Ln(x) +
“Elvo-Market” LTD 11815.335Ln(y) - 0,783 5,369
156429.13
z = -3397.2616Ln(x) +
Trade Company
6775.1482Ln(y) - 0,193 0.239
“Intermarket” LTD
11212.961
z = -2915.341Ln(x) +
TMC “Lvivholod”LTD 42161.742Ln(y) - 0,804 4.118
314126.72
z = -4617.1462Ln(x) +
Fozzy-Food LLC 11704.881Ln(y) - 0,674 2.073
35260.805
z = -5765.6597Ln(x) +
Ukrainian trade
7035.3093Ln(y) + 0,973 37.050
networks LTD
12365.106
z = 8401.2744Ln(x) -
“Continuum-Trade” LTD 1324.9456Ln(y) - 0,338 0.511
80691.032
z = -2309.6689Ln(x) +
«Vopak” LTD 3737.0759Ln(y) - 0,594 1.464
1815.3028
z = -5232.0633Ln(x) -
LLC “Trading network 0,862 16.284
68.109398Ln(y) +
“Barvinok”
60354.462
z = -1134.3568Ln(x) +
Furshet CJSC 5038.7924Ln(y) - 0,995 220.994
21257.261
However, for the enterprises that are at the initial stage of the life cycle
(“Continuum Trade” LTD) and enterprises that sell a specific product (“Elvo-
Market” LTD), additional investment is desirable, which confirms the

conclusions from the analysis conducted in the previous paragraph according
to the methodology that is standard for the domestic economic science.The
decreasing nature of the additional product due to additional capitalization
(reduction of the marginal product because of additional and excessive
investment in assets) is primarily connected with market volatility
(extensification does not bring tangible benefits), crisis phenomena and the
impossibility of changing the market segment, since the market is currently
covered by 95–99%! In this case, it is common practice to apply innovative
technologies and technologies of STA for sales, create the image of unique
products and identify new preferences and needs, etc.
Regarding the second independent variable, the coefficient of
profitability of employees is negative in the enterprises that are mainly
involved in wholesale trade (LLC “Trading network “Barvinok”, “Continuum
Trade” LTD). This coefficient shows negative changes in staff structure over the
last 5 years (the additional staff do not bring the expected effect, do not have
the appropriate qualifications or do not invest in distribution (passive
personnel). As for the profitability of staff, the “most profitable” personnel are
at TMC“Lvivkholod” LTD, Trade Company “Intermarket” LTD,“Elvo-Market”
LTD, “Desiatka” LTD, confirming the results of the efficiency analysis
conducted in the previous section.
The final stage of analysing the obtained functions is the value of the
constant c (6). It shows synergy and sufficiency of given resources for making a
profit.Almost in all investigated enterprises, it is negative, while at TMC
“Lvivkholod” LTD this constant is the smallest, which indicates a significant
amount of investment, low payback and negative safety margin (the
availability of all the resources under study will not be enough for profitable
activity–the necessary minimum (volume of capital)*(number of employees) is
314126,72 man-UAH). At the same time, the two companies have a positive
synergetic effect – Ukrainian Trade Networks LTD and LLC “Trading Network
“Barvinok”, for which expanded reproduction of non-current assets was
recommended, which is also the conclusion from the obtained dependencies.
180
Considering the specifics of entrepreneurship of any economic activity, it

is possible to prove the influence of the law in the long-term periods by
studying a certain volume of the macromarket. In addition, we will try to
determine quantitative efficiency of an enterprise (productivity) in terms of
the structure of assets. For this purpose, it is necessary to narrow down the
empirical data on the size of the balance sheet total of all enterprises to the
base year (2010) and depict all sets of a net income (the sales volume without
exterior taxes and fees) for the corresponding amounts of non-current (x) and
current assets (y) in Figure5.
Figure 5. A set of dependencies (along the lines of Scatter) of an income and

non-current and current assets within the investigated enterprise sample for
the period under study
4e+06
3.5e+06
4e+06
3e+06
3.5e+06
2.5e+06
3e+06
2e+06
2.5e+06
1.5e+06
2e+06
1e+06
1.5e+06 500000
1e+06 0
500000 35
30 000 0
0 25 0 000 0
20 00 0
00 0 15 0 000 0
00 00 0 10 0 00 0
30 0 00 00 50 0 00 0
25 0
00 00 00
20 5 00 00
0
0 0
1 0
1 50
In this case, one need to normalize them with the help of standardized
vectors, parameterize the logarithmic function (analytic tools Origin 8.5 Pro)
and determine the statistical criteria by using the Farrar-Glauber stepwise

algorithm126.
Therefore, we obtain the equation z = 730402,13*Ln (x) + 260932,41*Ln
(y) – 10150915, where X is the size (value) of non-current, Y – the size (value)
of current assets. The determination coefficient is 0.697, the Fisher’s
coefficient Fstat = 54.106 (Ftable <3.5), the maximum absolute error of the
dependent variable is 474157.13 UAH and is typical only for large volumes of
sales, as shown in the figure (Figure6).
Figure 6. The defined logarithmic two-factor dependence of sales volumes on

the size of the current and stock capital of the investigated trade enterprises
for the period under study
The slope of different parts of the surface, as well as the difference in

coefficients 730402.13 and 260932.41 do not indicate higher productivity
(return) of non-current assets, as can be deduced from the trivial one-factor
analysis conducted in the previous paragraph. By contrast, it shows almost
126
The same.
182
three times bigger effect of the value of non-current assets on income rather
than the value of current assets. -10150915 is the so-called safety margin. In
this case, the margin of safety is negative, which shows, first of all, the lack of
assets for doing business and barriers to the entry into the industry, etc.
However, we will try to draw from this dependence the conclusion and
make a forecast on efficiency of enterprises, as well as detect the impact of
the Clark's law (diminishing marginal product) and determine the peak of
efficiency. An experienced analyst, immediately, from the above-mentioned
graph, will expertly identify all necessary indicators. Let us define a pure
function of efficiency asEfficiency (x, y) = f (x, y, z), and show it graphically.It
should be noted that according to the definition and the base model, we
would present the model of efficiency (productivity) of the applied assets of
enterprises, as:
Efficiency(x,y)= (730402,13*Ln(x) + 260932,41*Ln(y) – 10150915)/(x+y) (7)
and it will be as follows:
Figure 7. Graphic representation of dependence of capital productivity ratio

and return on current assets on their size in trade enterprises

This function is characterized by a declining character (not by diminishing

return, which was characteristic of the previous logarithmic functions); when
the extensive factor grows (input resource – assets), the efficiency of this
resource (return on assets) reduces. That is, according to the law of
diminishing marginal product, each next monetary unit of assets provides less
and less revenue (sales), as we see in the figure. The impact of the law or the
degree of an efficiency decrease, due to the expansion of the sizes of assets of
the enterprises under study, can be found by using the first derivative of our
productivity function (7), which will reflect the marginal return on resources.
Let us calculate the derivative in the Maple 12 package:
Diff((730402.13*ln(x)+260932.41*ln(y)-10150915)/(x+y), x,y);
Let us depict the received function, which shows the marginal return on
assets,that is the degree of changes in assets productivity due to their
alteration at a certain point:
The slope of different parts of the surface, as well as the difference in
coefficients 730402.13 and 260932.41 do not indicate higher productivity
(return) of non-current assets, as can be deduced from the trivial one-factor
analysis conducted in the previous paragraph. By contrast, it shows almost
three times bigger effect of the value of non-current assets on income rather
than the value of current assets. -10150915 is the so-called safety margin. In
this case, the margin of safety is negative, which shows, first of all, the lack of
assets for doing business and barriers to the entry into the industry, etc.
184
Figure 8. Graphic representation of dependence of the elasticity of

productivity on the absolute change in the assets of trade enterprises
As we see, the marginal product (elasticity) of the return on assets is

constantly negative, and it reaches the extremum at the point (144407;
68025,26; 1,01277 * 10-10) and is positive in the range of non-current assets
from 8951.398 to 39748.44 thousand UAH and current assets from 4649,711
to 30660,544 thousand UAH. This suggests that in this interval of the assets
value, an increase in capital productivity ratio is possible due to the growth of
extensive factors. “Desiatka” LTD, “Continuum Trade” LTD, and “Vopak” LTD
operate within this range.Further extensive growth of assets without taking
into account market changes and economic cycles can lead to an increase in
assets productivity for these enterprises. In all other enterprises and for all
other ranges of assets value, the capital productivity ratiowill lower more and
more, depending how far it isfrom the extremum point.
Conclusions.Dynamic conditions of formation and functioning of the
market economy result in defining efficiency as an economic category, which
reflects the quality of achieving the main mission of an enterprise, a certain

dependence of the proportionality between resources and the end product.
The process of evaluating the effectiveness of trade activity on the basis of the
implementation function sets an objective of its specification and
parametrization, taking into account the law of diminishing marginal product
and the search for an optimal variant of a model, namely, the n-factor function
of financial and economic activity of a trade enterprise in terms of economic
development.Systemic barriers and lack of methodological tools for evaluating
efficiency pose the problem of devising a comprehensive universal algorithm
for evaluating the efficiency of functioning of a trade enterprise under
conditions of economic development. The implementation of this algorithm
determines that the greatest impact on reaching conclusions concerning the
results of evaluating the efficiency of trade enterprises is made by three
factors: defining the sources of information, determining the technology of
activity of a trade enterprise, identifying expectations from the evaluation of
the enterprise activity efficiency.
Thus, having specified and parametrized the function of trade activities
of an enterprise, one can evaluate not only static efficiency of trade activity,
but also the impact of the law of marginal diminishing product on the results
of the enterprise’s activity, which will allow determining the optimal limits of
doing business and the most effective margins of resource changes to achieve
the best value indicators.
186
Dmitriy Antoniuk
Zaporizhzhia Chamber of Commerce and Industry, Zaporizhzhia, Ukraine
Katerina Antoniuk
Zaporizhzhia National Technical University, Zaporizhzhia, Ukraine
Juliia Poliakova
Lviv University of Trade and Economics, Lviv, Ukraine
SYSTEM-DYNAMIC MODELLING OF
ENTREPRENEURIAL ACTIVITY EFFICIENCY IN THE REGION
Abstract. The necessity of modernization of the institutional infrastructure of entrepreneurship

(IIE) for increasing the entrepreneurial activity in the regions is substantiated. Enterprise
entrepreneurship is presented on the basis of a systematic approach. System-dynamic
modelling is carried out taking into account the fact that the investigated system of
entrepreneurship and the IIE of the region is characterized by uncertainty of development
dynamics, the presence of fuzzy ties, incompleteness of information, inconsistency,
unpredictability of changes and incoherence of individual factors. The interrelation of material
and information flows in the region's entrepreneurship has been investigated on the basis of
determining the efficiency coefficient relying on the aggregate value of an income and
expenditure of SME entities. The simulation results confirm the possibility of controlling the
efficiency of entrepreneurial activity in the region on the basis of indicators that characterize
the degree of development of the IIE, employment, external economic activity of enterprises, in
particular with the EU countries, current and future costs of SMEs.
JEL Classification System: C610, M210, O170.

Key words: regional economy, entrepreneurial activity, institutional
infrastructure for entrepreneurship, system-dynamic modelling.
Introduction. The increase of business entities activity, an

improvement of investment and innovation attractiveness, promotion of
regional markets capacity are possible only if there is a formed infrastructure
to ensure the interests of enterprises and socio-economic development of the
region.
Structural and institutional transformation of the Ukrainian economy,

accelerated by signing the Association Agreement with the EU, requires the
modernization of the entrepreneurship infrastructure, taking into account the
possibilities of its integration into the infrastructure of mega-regional
economic entities. We emphasize the necessity tominimize time of the
transformational cycle for the adaptation of the regional entrepreneurship to
the requirements and standards of the EU Joint Implementation in this sphere.
The assessment of the state and trends of the infrastructure
development of the regional entrepreneurship under the influence of external
factors, as well as the effectiveness analysis of the institutional infrastructure
for entrepreneurship (IIE) in the regions, institutional factors for its
modernization in the process of European integration require the
development of methodological grounds for the study.
The theoretical analysis 127, 128, 129, 130 of methodological approaches
for the formation of the IIP in a region leads to feasibility of using a systematic
approach to the modelling. It is assumed that the infrastructure meets all the
features of the system, interacts with the external environment, has a
structure and hierarchy, its elements perform specific functions and
participate in the achievement of common goals. Taking into account the
considerable number of components, the interrelationships between them at
different levels of the hierarchy, the institutional infrastructure of
entrepreneurship in the region should be investigated in the context of the
network structure.
The development of the IIE system of the region in the process of
European integration is characterized by such features:
127
Antoniuk, D.A. (2015): Development of the institutional infrastructure of regional entrepreneurship in
the process of European integration: monograph. Lviv: IER, 341
128
Antoniuk, D.A. (2014):Conceptual aspects of the entrepreneurships institutional
infrastructure,Sustainable development of the economy,2, 177–182
129
Antoniuk, D.A. (2014): Methodology for assessing the level of infrastructure development of
entrepreneurship in the regions, Bulletin of the Volyn Institute of Economics and Management, 8, 31–39
130
Antoniuk, D.A. (2014)Theoretical and methodical aspects of modelling the entrepreneurships
institutional infrastructure of the regions of Ukraine in the conditions of European integration, Actual
problems of international relations: Collection of scientific works,122, 96-108
188
– the appearance of complex and weakly programmed situations, for

which it is impossible to apply analytical methods because of the complexity
and intensity;
– the necessity to model the development of the system in
unstructured situations;
– the complexity of the correct tracking of real economic processes due
to their time duration and the need for control through acceleration or
deceleration of the economic process during its simulation;
– the fuzziness of interconnections and intersubjective relations with
the mega-regional integration environment;
– the complexity and multilevel structure in the conditions of nonlinear
negative feedback relationships.
A significant lack of information and uncertainty in system
development, constant variability, structural heterogeneity, unpredictability
and non-correlation of certain factors cause the use of system-dynamic
modelling 131, 132; 133; 134 of the institutional infrastructure of regional
entrepreneurship in the process of European integration. System-dynamic
modelling can create a model of a complex system of two network structures,
one of which reflects the process of movement and accumulation of material,
financial and information flows, and the other one presents a management
process for these flows.
It is difficult to solve the problem of modelling, primarily because of the
number of parameters that characterize the infrastructure of
entrepreneurship in the region. This involves the implementation of a large
amount of statistical data. It is possible to reduce the parameters number for
the system of equations with the help of special mathematical methods of
analysis, such as: a differential factor analysis of the particle significance for a
131
Mikhalevich V.S., Volkovich V.L. (1982): Computational methods for studying and designing complex
systems. Moscow: Nauka, p. 38
132
Skurikhin V.I., Shifrin V. B., DubrovskyV.V. (1983): Mathematical modelling. Kiev: Technic, p.96
133
ForresterD. (1974):Dynamics of city development. Moscow: Progress, 281
134
Poluektova N.R. (2015): Methods and models of management of information systems development of
enterprises: monograph. Zaporizhia: ZGIA, p.156-176
particular parameter, aggregation of parameters based on the correlation

connection or the method of the main components 135; 136.
Significant uncertainty about the development of the IIE system in the
region, the information incompleteness, the dynamics of changes, structural
heterogeneity, the unclearness of connections, and the non-correlation of
individual factors determine feasibility of system-dynamic modelling of
interconnections, as well as material and information flows in the system of
entrepreneurship in the region.
The system-dynamic approach is a kind of simulation, which, according
to the determination of Yu. Karpov 137, represents the development and
modelling of a system that reflects the structure and operation (behaviour) of
an object in time. Simulation modelling has significant advantages over
analytical simulation methods, when the connections between components
are nonlinear, the model contains stochastic components and the visualization
of a dynamic model is required.
The construction of a system-dynamic model involves qualitative and
quantitative stages 138. The first one contains the description of the system
components and determination of their interaction characteristics. In this
case, the concept of direct and inverse relationships is used: positive relations,
which lead to a system element change in the same direction as the changes
that have been observed before, and the negative ones, which lead to the
changes in the opposite direction. The concepts are based on the notion of
inverse relationships of N. Wiener 139 and were developed in the works of J.
Forester140. The first stage is realized through the creation of casual or
causative diagrams.
135
Mikhalevich V.S., Volkovich V.L. (1982): Computational methods for studying and designing complex
systems. Moscow: Nauka, 288
136
Skurikhin V.I., Shifrin V. B., DubrovskyV.V. (1983): Mathematical modelling. Kiev: Technic, 270
137
KarpovYu. (2005):Simulation of systems. Introduction to Modeling with AnyLogic 5. Saint-Petersburg:
BHV, p.21
138
Poluektova N.R. (2015): Methods and models of management of information systems development of
enterprises: monograph. Zaporizhia: ZGIA, p.158
139
WienerN. (1983): Cybernetics or control and communication in the animal and the machine. Moscow:
Nauka, 344
140
ForresterD. (1974):Dynamics of city development. Moscow: Progress, 281
190
At the second stage, the implementation of the casual model is carried out
with the help of one of the modern tools of simulation (AnyLogic), as well as a
check of the model quality according to the known data.
The conducted analysis showed the presence of dynamics and feedback in
the system of entrepreneurship and the regional IIE, the impact of which can
be investigated with the help of system-dynamic modelling methods.
The system-dynamic model (Figure 1), which describes the efficiency of
business activity in the region, is based on the following assumptions.
1. The efficiency of entrepreneurial activity in the region is determined by
the coefficient of efficiency based on the total value of income and expenses
of SME subjects by the formula:
dohod − vitrati
Effect = , (1)
vitrati
wheredohod means a total income (a volume of sold products and

services) of SME subjects in the region, million , UAH;
vitrati means total expenses of SME subjects in the region, million , UAH.
2. The total income (a volume of sold goods and services) of SME subjects
in the region at a certain time t depends on the amount of an income already
received before the previous moment of time (t-1), as well as on how much an
income is obtained per unit of time. Taking into account the available
statistical141, 142, 143 data on volumes of realized products and services, the
dependence of the current cumulative income can be calculated by linear
regression from factors that take into account the quantitative and qualitative
characteristics of the regional development:
141
Regions of Ukraine.StatisticalCollection (2014). Kiev: State Statistics Service of Ukraine, 299
142
Capital investment in Ukraine for 2013 (2014). Statisticalbulletin. Kiev: State Statistics Service of
Ukraine, 41
143
Investments of foreign economic activity of Ukraine for 2013.StatisticalCollection (2014). Kiev: State
Statistics Service of Ukraine, 47
191
Figure 1. The system-dynamic model of entrepreneurial activity in the region
Source: developed by the authors
19
1
192
d ( dohod )
= -3908,458 + 3,872 ⋅ KPR - 4087,152⋅ ZEMO - 26,628 ⋅ ECZ + 42,084 ⋅ ZAN +
dt (2)
+ 9,459 ⋅ EXPT - 0,474 ⋅ IMPT - 40,582 ⋅ EXPP + 177,997 ⋅ IMPP
whereKPR is a number of SMEs in the region, units.;
ZEMO is an area of land resources of the region per capita (ha) calculated
according to the formula (3):
ZEM
ZEMO = , (3)
NAS
whereZEM is an area of the region, ha;

NAS is population, thousand people;
ECZ is current expenses of enterprises, organizations and institutions in the
region on protection and rational use of natural resources, million UAH;
ZAN is population employment in the region, thousand people;
EXPT is a volume of goods export from the region, million USD;
IMPT is a volume of goods import to the region, million USD;
EXPP is a volume services export from the region, million USD;
IMPP is a volume of services import to the region, million USD;
3. The number of small and medium enterprises in the region is
determined by the linear dependence (4) on the integral indicators of the
development of institutional infrastructure components of entrepreneurship
in the region.144:
Z 1 = −3,865 − 0 ,021Y1 + 0 ,0556 Y3 + 0 ,090Y4 + 0 ,115Y5 + 0 ,165Y6 ;

R 2 = 0 ,956 (4)
where Z 1 means the number of SMEs, integral indicators of information and
consulting components (Y1), a financial and credit component (Y2), an innovation
component (Y3), a component of enterprise infrastructure for the representation
144
Antoniuk, D.A. (2015):Development of the institutional infrastructure of regional
entrepreneurship in the process of European integration: monograph. Lviv: IER, p.125
and protection of interests (Y4), an expert-technical component (Y5), a component

of the infrastructure for the promotion and transfer of products (Y6).
4. Population employment in the region (ZAN) is an average value
determined on the basis of the dependence on integral indicators of the
institutional infrastructure components of entrepreneurship development in
the region and the linear regression of the population and labour force
indicators145, 146, 147:
ZAN = ((-436,76 + 0,06 ⋅ NAS - 0,005 ⋅ BEZR + 26,55 ⋅ VAK - 1,677 ⋅ PRAC +
0,174 ⋅ SZPL) + (-56,232 - 0,033 ⋅ IPIKK - 0,07 ⋅ IPFKK + 0,119 ⋅ IPIK + , (5)
+ 1,092 ⋅ IPPZI + 1,895 ⋅ IPETK + 3,079 ⋅ IPPPP))/2
whereNAS is population in the region, thousand people;

BEZR is an unemployment rate in the region, thousand people;
VAK is a need of enterprises for the workforce to replace vacancies, thousand
people;
PRAC is employment of registered unemployed, thousand people;
SZPL is an average monthly nominal salary, UAH;
IPIKK is an integral indicator of information and consulting components of the
IIE in the region148];
IPFKK is an integral indicator of a financial and credit component of the IIE in the
region, determined on the basis of dependence149;
IPIK is an integral indicator of an innovation component of the IIE in the region,
determined on the basis of dependence150;
IPPZI is an integral indicator of a component of the enterprise infrastructure for
the representation and protection of interests, determined on the basis of
dependence151;
145
Regions of Ukraine.StatisticalCollection (2014). Kiev: State Statistics Service of Ukraine, 299
146
Analytical report on the state and prospects of development of small and medium enterprises in
Ukraine. Availableat: http://www.dkrp.gov.ua/info/3226
147
UkraineinFigures 2013. Statisticalcollection (2014). Kiev: State Statistics Service of Ukraine, 240
148
Antoniuk, D.A. (2015):Development of the institutional infrastructure of regional entrepreneurship in
the process of European integration: monograph. Lviv: IER, p.122
149
The same.
150
The same.
194
IPETK is an integral indicator of an expert-technical componentof the enterprise

infrastructure, determined on the basis of dependence152;
IPPPP is an integral indicator of a component of the infrastructure for the
promotion and transfer of products, determined on the basis of dependence153.
5. The total costs of SMEs in the region at time t depend on how much
costs have already been incurred according to the previous period (t-1), as well
as on the amount of expenditure per unit of time. Taking into account
available statistical data on total costs of enterprises, the dependence of
current expenses of the SME sector is calculated according to the formula (6):
d (vitrati) 0,08 ⋅ (Oper + KapInv + OplPr + Innov)

= , (6)
dt 1000
whereOper means operating costs of enterprises in the regions, thousand

UAH;
KapInv means the volume of capital investments of enterprises in the regions,
thousand UAH;
OplPr means labour costs of enterprises in the regions, thousand UAH;
Innov means financing costs for innovative activities, thousand UAH; this
indicator, in its turn, is calculated on the basis of linear regression:
Innov = 21193.357 - 2821.67 ⋅ KVTP + 2033.97 ⋅ KVIP +

, (7)
+ 5242.47 ⋅ KPNT + 3815.16 ⋅ IPIK
whereKVTP means the number of new technological processes introduced

at the enterprises in the region, units;
KVIP means the number of implemented innovative products at industrial
enterprises out of the region, units;
KPNT means the number of new technologies acquired, units;
151
Antoniuk, D.A. (2015):Development of the institutional infrastructure of regional entrepreneurship in
the process of European integration: monograph. Lviv: IER, p.123
152
The same.
153
The same.
IPIK means an integral indicator of the innovation infrastructure component

of entrepreneurship.
The coefficient 0.08 in formula (6) defines the costs of SME sector
subjects in the total set of costs for the enterprises in the region, calculated on
the basis of the sector contribution into the overall structure of the sales
volume in the region.
The proposed system-dynamic model allows investigating the dynamics
of the entrepreneurial activity efficiency in a certain region, predicting the
impact of quantitative changes of the individual IIE components on the
indicators of entrepreneurship development in the region.
The results of modelling (Figure 2) prove the possibility of control over
the entrepreneurial activity efficiency in the region due to the impact on the
indicators of the IIE development degree in the region, employment, external
economic activity of enterprises in the region, including the EU countries,
current costs and expenses of future periods.
The modelling, which was carried out on the example of Zaporizhzhia
region, for the fixed number of IIE objects throughout the time, indicates the
ineffectiveness of their functioning at the initial stage - up to 20 months, the
efficiency coefficient of entrepreneurial activity is reduced from 0,9 to 0,7.
As a result of accumulation of SME revenues in the region and their
excess over the total amount of expenditures, the IIE objects of the region are
beginning to influence in a positive way, as evidenced by the growing nature of
the curve. However, after 48 months, the intensity of growth is reduced, the
angle of an inclination of the business efficiency curve decreases.
To analyse the modelling results, a series of simulation experiments
was conducted, and it allowed determining the effect of changes in individual
parameters of the regional IIEs’ components on the efficiency of
entrepreneurial activity.
196
Figure 2. Results of modelling the efficiency of entrepreneurial activity in the

region (along the axis of abscissa - time, along the ordinate axis – a coefficient
of the entrepreneurial activity efficiency)
Efficiency of entrepreneurial activity in the
region (Ке)
Time (t)
We selected each one of the studied components, namely the number

of business centres, information and consulting institutions, non-bank financial
and credit institutions, public associations of entrepreneurs, subjects of
valuation activity, because they are the key indicators for the variation.
Modelling (Figure 3) shows that when the parameters change, the nature of
the business efficiency curve stays the same in general, only the angle of an
inclination varies depending on the growth of the variable parameter and the
time at which the excesses occur, namely the changes associated with the
excess of incomes over expenses.
The nature of the efficiency curve is also affected by the initial value of
the variable parameter and the rationality of its increase to a certain limit.
After all, from the point of view of mathematical modelling, this will increase
the efficiency of entrepreneurial activity in the region, but there may be an
effect of over-saturation of the region by the type of organizations of a certain

IIE component.
The given results of simulation modelling show that with the increase
of absolute and relative parameters, the efficiency of entrepreneurial activity
is improved, the nature of the relationship is determined by a mathematical
function, which is incorporated into the model; in our case, it is linear and
determined on the basis of a regression and correlation analysis. By changing
the functional relationship between the characteristics under study, it is
possible to improve the accuracy and efficiency of the simulation.
Figure 3. Increasing the efficiency of entrepreneurial activity, when simulating

an increase: business centres, information and consulting institutions, non-
bank financial and credit institutions, public associations of entrepreneurs,
subjects of valuation activity
Efficiency of entrepreneurial activity in
the region (Ке)
Time (t)
Conclusions.In general, the internal patterns of functioning of certain

IIE components in the region, their impact on entrepreneurial activity,
exogenous and endogenous factors and other factors determine the impact of
198
incomes and expenses on the efficiency of entrepreneurial activity. The

established interconnections between certain indicators of IIE components in
the IIE region, their quantitative and qualitative values should be used for the
predictive assessment of the operational effectiveness of individual objects of
IIE components in the region.
PART 3.
MECHANISMS FOR COUNTERING ECONOMIC CHALLENGES
200
Anatoliy Mokiy
Denys Mykhailyk
Lev Vlasenko
Olesya Datsko
Lviv National Academy of Arts, Ukraine
THE CONCEPTUAL FRAMEWORK OF METHODOLOGY

FOR DETERMINING COMPREHENSIVE NATIONAL POWER IN THE
CONTEXT OF POSITIONING OF UKRAINEIN INTERNATIONAL
RELATIONS WITH THE PEOPLE'S REPUBLIC OF CHINA
Abstract. In the article, differences between Chinese and classical Western concepts of defining
and calculating comprehensive national power were analysed. The definition and
particularities of soft and hard power were outlined. Criticism of a Chinese model of
comprehensive national power by Indian scientists was highlighted. By calculating
comprehensive national power, an index of Ukraine’s position among strategic partners of PRC
was outlined. The model of possible further development of bilateral and multilateral
cooperation of Ukraine with PRC and other economic and geopolitical leaders was provided.
JEL Classification System: F60, F140, F52

Key words: comprehensive national power, economic security, international
relations, international trade, the People’s Republic of China, India, Ukraine.
Introduction. During 2008-2017, the People's Republic of China (PRC)

has transformed from a mega-regional state into one of the centres of the
global economy with a unique concept of socio-economic organisation, theory
and practice of international relations. Because of this, the necessity of
developing a sui generis strategy for conducting bilateral relations between
Ukraine and PRC has emerged in the context of ever-increasing economic
cooperation.
The prospects of bilateral relations between Ukraine and the People's
Republic of China are covered in the works of Ukrainian scientists, namely O.
Kikitenkо, O. Bilokon. Conceptual provision of comprehensive national power
was a subject of research of Chinese scholars, namely Chin-Lung Chang, Huang
Shuofeng, Yan Xuetong, and Indian scholars, namely Malay Mishra and Manoj
Joshi. However, methodological particularities of a Chinese model of
measuring national power and consequently the position of Ukraine in the
existing hierarchy of international relations of the People's Republic of China
are not sufficiently addressed in the works of Ukrainian scholars.
The purpose of the following paper is to analyse the evolution of the
theoretical and methodological particularities of comprehensive national
power in order to substantiate the forward-looking state policy of bilateral
international relations of Ukraine and the People's Republic of China.
Over the past three decades, the People's Republic of China has been
steadily increasing its economic potential at an extremely fast pace. In 2010,
PRC surpassed Japan in terms of nominal GDP and now it is second only to USA
in terms of nominal GDP. In 1960, the volume of the nominal GDP of the USA
exceeded the GDP of the People's Republic of China by 89% (correspondingly,
543.3 and 59.18 billion US dollars), in 2015, the difference was only 39.45%
(17.95 and 10.86 trillion US dollars). At the same time, during 2010-2015 the
average annual growth rate of GDP in China was 13.76%, in the United States –
only 3.72% 154. According to V. Levkivskyi, if this trend continues, the share of
China's GDP in the global economy will increase to 20% in 2020155.
154
The World Bank Group. // Availableat:http://www.worldbank.org
155
Levkivskyi V. (2013). Ukrainian-Chinese economic cooperation in the context of foreign economic
security / V. M. Levkivskyi//Scientific bulletin of Chernihiv National Institute of Economy and
202
The strategic objectives of China were set during the XIX Congress of
the Communist Party of China (CPC), held on October 18-24, 2017. In his
speech, the General Secretary of the Central Committee of the CPC, Xi Jinping,
articulated the following main goals: building a middle-income society and full
eradication of poverty by 2020; China’s rise to the level of innovative
countries, a reduction of the gap in income levels, including the gap between
urban and rural residents; elimination of threats to environmental security by
2035. It is determined that by 2050, PRC will assume its place as one of the
leading countries in the world in terms of national power and an international
influence156.
In 2011, close bilateral relations equivalent to strategic partnership
were formed between Ukraine and PRC. However, judging from the level of
effectiveness of foreign economic cooperation and potential threats to
Ukraine's economic security from expanding and deepening ties with the PRC,
the quality of existing cooperation with this country cannot be considered
satisfactory. The reason of this inefficiency is the faults of the national strategy
of relations with the People's Republic of China and other countries in the
region of Eastern Asia.
Over the past decade, the PRC’s international economic policy was
based primarily on a unique national school of international relations
developed by Chinese scholars as an alternative to American, English, French
and other existing schools of international economics157. It should be noted
that in the world political environment, China is a major advocate of peaceful
growth of the national economy and it urges countries to avoid any use of
military or aggressive measures that can be perceived as a threat by other
leading countries158.
Management: Economy. – 2013. – Vol. 2 –P. 95-103. //

Availableat:http://nbuv.gov.ua/UJRN/NvChdieu_2013_2_15
156
Renmin Ribao Newspaper Online. ‘Xi Jinping declared that studying and implementing the spirit of XIX
Congress of CPC is a ‘political priority number one’ // Available
at:http://russian.people.com.cn/n3/2017/1022/c31521-9283261.html
157
Korolev A. (2010) . International Relations Theory with Chinese Characteristics: State of The Art and
Tendencies of Development / A. Korolev // Problems of Far East. – 2010. – Vol. 3. – P. 96-110.
158
Kikitenko O. (2016). Soft Power of China./ Center for contemporary china "Tianxia link". // Available
at:http://www.tianxia.link/uk/article/4756-m-iaka-sila-kitaiu-na-28-mistsi-u-svitovomu-rieitingu
The Chinese school of international economic relations is based on:

diplomatic experience; researches of Chinese scholars on the subject of theory
of international relations; other foreign theories of international relations;
unique cultural traditions of Chinese civilization; distinctive features of the
historical development of China which are not related to the characteristics of
European historical development; the projection of Marxist theory on
international relations.
As opposed to Western theories, the systemic characteristics of the
Chinese school are related to the scope of research, such as integration of PRC
into the global economy and the formation of a full-fledged actor of
international politics through the growing influence on the system of
international relations, the transformation of PRC into an independent
regional leader and gravity centre in geo-economics and geopolitics159. To
meet these challenges, it is necessary for PRC to provide the dominant growth
of national power.
National power is defined as the ability of a nation to attain its strategic
objectives by directed actions. The use of such power is based on the overall
national vision, aspirations of the people and the capability of the leadership
to fulfil them160. In other words, it is the mobilization of strategic resources to
meet national interests.
Methodological basis for the quantification of national power is
strongly associated with the evolution of the concepts ‘state’, ‘national power’
and ‘superpower’ under the influence of Western theories and only recently, it
was supplemented by the alternative concept provided by Chinese scholars.
The Western concepts of power are strongly influenced by the ‘realistic
theory’ of international relations, according to which, the distribution of power
in the international environment is an antagonistic game, when one state
accumulates power at the expense of others. Hence, the power of the state
includes military and economic components. An Indian expert on globalization
and national security, Lieutenant Colonel Malay Mishra categorizes all existing
independent states as ‘Superpowers’, ‘Great-Powers’, ‘Middle-Powers’ and
159
Kozinec A.I. (2016) Development factors of contemporary Chinese approaches in the international
relations theory / A.I. Kozinec // Bulletin of ZabGU. – 2016. – Vol. 1. – P. 66-76.
160
Bhonsle R. (2016). Strategies for Enhancing India’s Comprehensive National Power / R Bhonsle //
Vivekananda International Foundation. // Available at:http://www.vifindia.org
204
‘Regional-Powers’ 161.After the collapse of the USSR and emergence of a

‘unipolar’ world, the concept of national power was neglected in Western
theories of international relations, but Asian, especially Chinese scientists in
1990-2014 developed and modernized the concept of national power in
accordance with the challenges of the global economy.In 1987, Chinese
scientists began the development of their own methodological provisions of
the analysis of national power. During the leadership of Deng Xiaoping, a
special research and analytical centres were created to study the problems of
globalization and national power162. Their objectives were to highlight and
underline the differences in national power between the People's Republic of
China and the United States.
The Chinese academic community and politicians were guided by the
principle that the victory in the modern war of nuclear states was determined
by an ensemble of components of national power, including civilian and
economic indicators. According to Chinese scientists, the USSR made a
strategic mistake by paying too much attention to the military power and
neglecting other dimensions of national power, which led to economic
stagnation and low quality of life of common USSR citizens. To prevent this
mistake, Chinese scholars included economic components and non-economic
institutional dimensions in their methodology of calculating the national
power index163.
The totality of research methods involving national power is focused on
identifying the advantages of leading countries and predicting the winners in
possible military confrontation. At the same time, national power is used to
estimate the potential of strategic partners and opponents. Modern
widespread methodology for assessing the comprehensive national poweris
usually perceived as a unique Chinese concept that has no direct connection to
Western international political economy, Marxism-Leninism or pre-XX-century
161
Мishra М. (2017). Unique Approach to Comprehensive National Power through the Lens of Kautilya’s
Arthashastra / M. Mishra // Journal of the United Service Institution of India. – Vol. CXLVII. – No. 607. –
January-March 2017. // Available at:http://usiofindia.org/
162
Deng Xiaoping, quoted in Renmin Ribao (People's Daily), February 26, 1990, quoted in Huang
Shuofeng, Zonghe guoli lun (On comprehensive national power) (Beijing: Zhongguo shehui kexue
chubanshe, 1992), 7.
163
Chuwattananurak W. (2016). China's Comprehensive National Power and Its Implications for the Rise
of China: Reassessment and Challenges / W. Chuwattananurak // CEEISA-ISA 2016 Joint International
Conference, Ljubljana;Manoj J. 2017. Comprehensive national power / J. Manoj // Observer research
foundation. // Available at:http://www.orfonline.org/research/comprehensive-national-power/
Chinese socio-economic teachings.It should be noted that there is no unified

methodology for estimating the national power index. Official PRC documents
usually utilize the approaches developed by the Chinese Academy of Social
Sciences (CASS) and Chinese Institute of Contemporary International Relations
(CICIR). Alternative models and methods of calculating the national power
index were developed by separate scientists, analytical centres and
universities (see Table 1).At the present stage of the global economy
development, the concept of nationalpower becomes more popular and
widespread, especially in the context of the haphazard emergence of the
meta-system of the new ‘world order’. According to experts from the Strategic
Studies Institute, in the context of modern globalization, expansion no longer
involves direct occupation of the foreign territory; economic, political and
cultural components are main contemporary factors of expansion.
During his speech in the U.S. Academy of Military Science in 2000, Chinese
Military Science expert Wu Chinqiuclaimed that: ‘…Victory without war does
not mean that there is not any war at all. The wars one must fight are political
wars, economic wars,science and technology wars, diplomatic wars, etc. To
sum up in a word, it is a war of comprehensive national power164.
For past decades, the challenges and threats associated with modern
‘information warfare’, the usage of computer and information networks as
elements of trade wars and political confrontation have been taken into
account by the PRC government. In 1986, the ‘Project 863’ was introduced as a
state programme of high technology development with an objective to ensure
the national technological and informational independence165.
164
Wortzel, Larry M. and Army War College (U.S.). Strategic Studies Institute. The Chinese armed forces
in the 21st century / edited by Larry M. Wortzel Strategic Studies Institute, U.S. Army War College
Carlisle, PA 1999
165
Wu, Hequan (2002-08-06), "The progress of communication technology subject of hi-tech research
development plan of China", International Conference on Communication Technology Proceedings, 2000
(Beijing) Т. 1: 3–4, ISBN 0780363949
Table 1.Comparison of CNP index models

Institutions & Scholars Iranian
Western methodology Chinese methodology
methodology
№
Chin- Hu Angang, Hua Liao, Weihua
F.C. M. Small, Huang Yan M.R.
M. Mattos Lung CASS CICIR Honghua Dong, Huiping Liu
CNP Indicators German J.D. Singer Shuofeng Xuetong Hafeznia
Chang Men Yuejing Ge
‘Hard power’ indicators.
1. Population: total size, the number of workforce
✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
population, etc.
2. Territory: total land area, arable land area, forest
area, etc. ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
3. Mineral resources availability and utilization: iron

deposits, production of steel, aluminum, etc.
✓ ✓ ✓ ✓ ✓ ✓
4. Energy resources: coal, oil, natural gas, hydropower ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

5. Economic growth: GDP growth rate, consumption
✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
capability, production capability, etc.
6. Foreign trade and activity: exports, imports,
✓ ✓ ✓ ✓
international and gold reserves, foreign debt, etc.
7. Military power: number of military personnel,
military expense and budget, number of nuclear ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
warheads, etc.
‘Soft power’ indicators.
8. Science and technology potential: the number of

scientists and engineers, spending on R&D, number ✓ ✓ ✓ ✓ ✓ ✓
of patents, etc.
9. Education and culture: expenses on education,
✓ ✓ ✓ ✓ ✓ ✓
literacy rate, etc.
10. Health care: expenditure on health care per capita,
✓ ✓ ✓
the number of physicians per 1000 people, etc.
11. Political power and stability, national leadership,
✓ ✓ ✓ ✓ ✓
integrity.
12. Diplomatic power: status and role in international
✓ ✓ ✓ ✓ ✓ ✓ ✓
affairs.
Source: systemized data from researches of various scholars
206
For many years a Chinese approach to the Internet control and

perception of Chinese-language segment of the Internet as a part of national
borders, where a national law system is executed was perceived by Western
countries only as an instrument of censorship and control over the information
space, which became especially relevant for CPC after the anti-government
riots in Tiananmen Square in 1989.
Only after the dramatic increase of the role of an information factor in
the globalized economy and the growing Internet's influence on socio-political
processes, ranging from coordination of protests during the Arab Spring 2011
and ending with the controversial 2016 presidential elections in the United
States, first cautious Western publications appeared regarding the fact that
the Chinese perception of the Internet as part of national sovereignty may be
justified166.
As predicted by Chinese analysts a new type of warfare is now being
formed, warfare that will include and already includes psychological, legal, and
media components. In this case, the extra-economic, or indirectly, economic
components of the so-called ‘soft power’ of the state acquire a special
significance.
It is believed that the first concept of ‘soft power’ was outlined by an
American political scientist Joseph Nye, however, some elements of this
concept can be seen in the writings of Brazilian General Carlos de Meira
Mattos, who argued that: «…National Power as the integrated expression of all
capacities, which a nation possesses at a considered moment for promoting
internally and externally the achievement of national objectives, in spite of
whatever challenges to it»167.
According to Joseph Nye, in the concepts of national power, ‘hard’ and
‘soft’ components of power can be distinguished. ‘Hard power’, such as
military coercion, economic sanctions and other forms of direct pressure is
used to control and enslave an opponent. On the other hand, ‘soft power’
166
Denyer Simon (23 May 2016). "China’s scary lesson to the world: Censoring the Internet works". The
Washington Post. Retrieved 5 September 2017.
167
Mattos, M.; Viana, L. A Geopolítica e as Projeções do Poder; Biblioteca do Exército: Rio de Janeiro,
Brazil, 1977.
208 MODELLING OF THE MECHANISMS TO RESTORE THE NATIONAL ECONOMY
includes the use of diplomacy, cultural values, ideology to achieve political

goals. At the same time, Nay believed that economic resources and military
potential could be related to both ‘hard’ and ‘soft’ powers, thus the distinction
between these forms of state power is not clearly defined and is the subject to
discussion 168. In 2015, Chinese scholars Hua Liao, Weihua Dong, HuipingLiu
and Yuejing Ge attempted to merge ‘soft’ and ‘hard’ power into a single
indicator169.
Some Western methods of national power measurement recognize the
existence of ‘soft power’, but its importance, weight and proportion in the
composition of the national power index is significantly lower than respected
proportion of ‘hard power’. Chinese and Asian scholars claim that Western
concepts of national power follow several false assertions such as:
- Western methodological approaches to measuring national power
focus exclusively on ‘hard power’ components, which are based on economic
and military parameters and thus do not represent the comprehensive nature
of national power;
- Western scientists regard national power as a ‘container’ for
measuring resource potential without taking into account aberration factors
and non-economic parameters that significantly affect national power.
Chinese scientists have expanded the methodology for measuring CNP
beyond the conventional military and economic indicators and invented the
concept of comprehensive national power (zōnghé guólì, 综合国力).
Comprehensive national power (CNP) in Chinese interpretation represents the
idea of ‘soft power’, ‘peaceful development’ and the desire of the Chinese
nation to avoid geopolitical, external and internal conflicts. CNP includes
following humanitarian indicators: a number of implemented technologies; a
number of books per person; quality of education, etc. Developed by Chinese
academic and political-ruling elites, this concept was proposed primarily to
neutralize the likelihood of a conflict scenario as a result of the socio-economic
168
Nye, J. Notes for a soft power research agenda. In Power in World Politics; Routledge: Oxford, UK; New
York, NY, USA, 2007; pp. 162–172.
169
Liao H, Dong W, Liu H, Ge Y. Towards Measuring and Visualizing Sustainable National Power—A Case
Study of China and Neighboring Countries. ISPRS International Journal of Geo-Information. 2015; 4 (3)
:1672-1692.
growth of the People's Republic of China. According to this concept, PRC is a

‘Semi-Superpower’ that is situated in-between the USA and its geopolitical
opponents170.
According to the director of the Centre for contemporary China
‘Tianxia link’ O. Kikitenko, Chinese ‘soft power’ is composed of: cultural
products (books, movies, music, etc); 24-hour Chinese television and radio
broadcasting; education, including students transfer and participation in such
regional organizations as the Association of Southeast Asian Nations (ASEAN);
humanitarian aid to other Asian countries. Clever uses of following
instruments led to an improvement of the national image of PRC in Eastern
Asian and simultaneously an increase in the Chinese influence in the region.
The growth of the geo-economic power and geopolitical influence of
PRC in Eastern Asia caused increased attention to the methodology for
calculating the CNP index because this indicator represents the uniqueness of
the Chinese model of the role of geopolitics and the strategy of China’s
‘peaceful rise’ to the position of leaders in the global geo-economics. This
attention was intensified after series of publications by scientists from Eastern
Asian countries, especially from India and Thailand. The authors of these
publications criticized the very concept of CNP in its contemporary
interpretation by Chinese scholars and performed a critical analysis of the
existing methods for CNP calculation. In particular, it was noted that the
estimation methods used in China, focused on quantitative indices, in which
PRC had an absolute advantage (population and nominal GDP) and ignored
factors, where PRC ranked as a Third World country (health expenditures per
capita, GDP per capita, etc.). The majority of these critical comments were
systematized in the works of a Thai expert in Social sciences Wuttikorn
Chuwattananurak171. From our point of view, criticism by Indian and Thai
scientists represented in the works of Mr. Chuwattananurak do not properly
take into account the specifics of the Chinese socio-economic macro system:
170
Taran M.A. (2015) Ascension of China: creating harmony or spawning conflict?/ M.A. Taran // The
World of the Orient – 2015. – Vol. 2. –P. 131-139.
171
Same as 170.
1. Indian scientists believe that the growth rates of the population in

India and the People's Republic of China and the existing demographic policy
of these countries can ensure that in 2025, India will surpass PRC and have a
larger reserve of cheap labour. Comparing the growth rates of India and the
People's Republic of China and the demographic policy of these countries,
critics do consider that ‘one family-one child’ system will never be applied to
the whole territory of the People's Republic of China, and because of this, the
population of some regions of China (Tibet, Inner Mongolia and others) may
start to grow rapidly with positive changes in economic conditions. In addition,
the systematic violations of the law led to the creation of a separate category
of unregistered inhabitants of the People's Republic of China (hēiháizi,
黑孩子), their exact number is estimated to be at least 13 million people,
which is a significant unregistered reserve of cheap workforce172.
2. Critics rightfully point out the imbalance in the development of
various regions of the People's Republic of China, emphasizing the difference
in the standards of living between urban and rural population. However, they
do not take into account the existence of a complicated system of registration
of households at the place of residence (hùkǒu, 户口), which prevents
spontaneous internal migration. In addition, the territory of China has more
climatic zones and regions comparing to India, and effective economic
development of some areas is impossible due to the complexity of living and
working conditions (part of the Autonomous Regions of Tibet and Inner
Mongolia)173.
3. Considering the quality of education, critics of the Chinese CNP
model argue that the level of literacy of the population of the People's
Republic of China is significantly inferior to some underdeveloped countries
(Mongolia, Cuba, and the Philippines). This statement does not take into
account the difference between the logosyllabic and alphabetical writing
172
Galperina M. (2014). What will happen to China's undocumented "ghost children" after the one-child
policy ends? // Available at:http://www.hopesandfears.com/hopes/now/politics/216761-china-one-
child-policy-ghost-children
173
Sheehan S. (2017). China's Hukou Reforms and the Urbanization Challenge / The Diplomat // Available
at: https://thediplomat.com/2017/02/chinas-hukou-reforms-and-the-urbanization-challenge/
systems and the fact that two systems require a different number of hours to
be mastered at least on the basic level of literacy. For example, in PRC the
minimum level of literacy involves mastering at least 1500 Chinese logosyllabic
characters, while in Mongolia or the Philippines literacy involves learning only
35 and 28 alphabetical units respectively 174.
4. Indian scholars claim that the English language proficiency is an
indisputable positive indicator that has a significant impact on integration into
the global environment. However, they do not take into account the existence
of dialects of the English language, and the gradual transformation of ‘Indian
English’ into a macaronic language with its own grammar. The widespread use
of such macaronic languages does not improve the development of an
international trade and diplomatic understanding; and in theory, it may even
be an obstacle in cultural exchange175.
5. Wuttikorn Chuwattananurak points out that China's military
spending is deliberately underestimated and evaluated with bias. At the same
time, it is not taken into account that there is no universal method of
calculation of a military budget. The final numbers presented in military
spending of each country are defined by the interpretation of the financial
statement and thus can be easily manipulated according to the principles of
national policy (some countries want to overestimate their military budget,
while others want to remain as secretive as possible about their military
potential)176.
6. Critics express doubts about China's nuclear potential because of the
fact that this country does not have any deployed nuclear warhead ready for
immediate use. The conflict revolving around the DPRK nuclear programme in
2015-2017 and the fact that even this country has developed its own means of
delivering nuclear weapons clearly indicate that the reluctance of the People's
Republic of China to have their own deployed nuclear warheads is not a
174
Sarangi J. (2004). "Indian Variety of English: A Socio-Linguistic Study" / In Mohit Kumar Ray. Studies in
ELT, Linguistics and Applied Linguistics.Atlantic Publishers & Distributors. – P. 50.
175
Same as 24
176
Stockholm International Peace Research Institute, SIPRI. // Available at: https://www.sipri.org/
consequence of technological backwardness, but an important element of a

consistent policy of a ‘peaceful rise’.
In our opinion, the main methodological mistake of the most active
critics of the Chinese methodology of the CNP evaluation is the substitution of
the concepts. By claiming that CNP is not ‘comprehensive’, critics emphasise
comprehensive threats and risks, and not comprehensive opportunities. By
doing this, they practically replace the indicator of comprehensive national
power with a peculiar indicator of comprehensive national vulnerability that
serves an entirely different purpose – to determine the economic, military or
political vulnerability of the country.
Excessive complication of the methodology for calculating CNP can also
lead to false results. For example, the modern economy of Central Africa and
South America confirms that the presence of significant volumes of natural
resources does not necessarily mean their effective use. On the other hand, an
example of Iran during the reign of Shah Pahlavi proves that diplomatic
recognition and a universal acclaim of a country in the international political
environment does not guarantee its internal political stability. At the same
time, the nuclear arsenal is undoubtedly linked to the scientific and
technological potential, industrial power, but not always tied with the stable
economic growth.
The most complex CNP indicator was proposed in 2015 by a group of
Chinese scholars and based on the modification of the model created by an
Iranian scientist Mohammad-Reza Hafeznia177. This method consists of 39
interconnected parameters and some of them, especially in the dimension of
‘soft power’, are highly controversial.For example, the method utilizes vague
or subjective parameters such as ‘good governance’ and “gender equality”;
cultural potential in the following method includes a number of Olympic
champions, while a number of Nobel laureates is not taken into account; it is
also proposed to include the number of produced full-length movies as a
reflection of the ‘cultural strength’ of a country without considering quality or
177
Hafeznia M.R. , Zarghani S.H., Ahmadipor Z., Eftekhari A.R. (2008). Presentation a New Model to
Measure National Power of the Countries./ M.R. Hafeznia, S.H. Zarghani. Z. Ahmadipor, A.R. Eftekhari //
Journal of Applied Sciences. – Vol. 8. – P. 230-240.
international recognition of the produced movies (for example, Nigeria is the

second producer of full-length movies in the world and, clearly, it is not a
contributing factor to its international cultural influence178). At the same time,
this method ignores such extremely important parameters as a number of
Internet users, quantity of websites in the national language, availability and
control over social networks, cyber security, etc.
A much more reasonable approach was proposed by an expert of the
United Service Institution of India, Malay Mishra. Mr. Mishra has not only
conducted an analysis of Western and Chinese methodological approaches to
the CNP measurement, but also offered his very own concept of national
power based on an ancient Indian treatise on statecraft, economic policy and
military strategy ‘Arthashastra’ written by an Indian philosopher Chanakya
(Kautylia) in 2nd century BC. The idea of national power proposed by Mr.
Mishra can be described as an antithesis to the Chinese model that is based on
classic works of Confucius and Sun Tzu and at the same time, as an attempt to
create a new unique model of CNP that will include specific features of Indian
national mentality such as strict hierarchy, the caste system and by using
them, modernise the very concept of national power according to the
challenges of the modern global economic and political environment179.
The constructive approach of Malay Mishra and his associates proves
that Indian scholars are struggling to create their own school of international
relations with related terminology, and thus actually repeating the path of
their Chinese predecessors: they are considering the tools and theories that
China – as the present regional leader – is using, and trying to understand the
causes of India’s backwardness by adapting these theories and methods to the
specifics of its national mentality and economy. At the same time, the main
difference between the Indian approach and the Chinese one is the perception
of CNP as an independent utilitarian element of the national state policy,
which necessarily requires practical implementation.
178
United Nations Educational, Scientific and Cultural Organization, UNESCO // Available at:
https://en.unesco.org/
179
Same as 8
This lengthy discussion is of considerable interest to Ukrainian scholars

because both Ukraine and India face similar asymmetry of power and related
threats to national security while dealing with neighbouring regional leaders.
According to the expert on national security of India, Manoj Joshi: «…The
Chinese challenge is not about guns and submarines, though the disputed
border and the Sino-Pak nexus signify the need to up our guard. It is about
CNP, for which, the military is an important element, but not the only one. We
need a compound national strategic effort to enhance all the CNP elements.
…It means a society working at a much higher level of efficiency than the one
we have now. It means a different kind of the military, not the World War II
kind of force we have today. Nevertheless, more importantly, we need socially
cohesive India, led by people with a constructive and forward-looking agenda.
The most importantly, we need to understand that there are no shortcuts.
What you see in China is what began 30 years ago» 180.
This understanding of the impossibility of an open asymmetric
confrontation with China is a reason of increased attention of the Indian
academic and political-ruling elites to the role of ‘soft power’ parameters in
the methodology of measuring CNP.The main goal of studying the different
existing theoretical concepts of CNP is not to create an index that a specific
country woulduse to achieve a higher rank in the existing hierarchy, but to gain
an understanding of existing imbalances of power between a specific country
and its geopolitical partners and opponents. This is why the utilization of CNP
can help to determine Ukraine's position in the Chinese hierarchy of
international relations, and will provide important data, which can serve as a
basis for development of an effective strategy of bilateral communication
between Ukraine and PRC.
Among the most commonly used and suitable methods for determining
CNP are the model proposed by Chin-Lung Chang in 2004, that includes three
modified methods originally developed by Ray Cline 181:
180
Same as 11
181
Chin-Lung Chang. A measure of national power. // Available
at:www.analytickecentrum.cz/upload/soubor/original-measure-power.pdf
(CM + ES + MS) ENGYK

CNPK = L Q×S W,
3 ENGYV
(1)
POPUK AREAK
CMK = S W × 100 + S W × 100 ,
POPUV AREAV
(2)
GNPK
ESK = S W × 200 ,
GNPV
(3)
MSK = ] ` × 200,
ME^
ME_
(4)
where CNP – comperhensive national power; CM – critical mass;

POPUK –total population of a country i; POPUV – world’s total population;
AREAK – total area of a country i; AREAV – world’s total area; ES – economic
strength; GNPK – gross national product of a country i; GNPV – world’s total
gross national product; MS – military strength; MEK – military expenses of a
country i; MEV – world’s total military expenses; ENGYK – energy consumption
per capita of a country i; ENGYV – world’s average energy consumption per
capita.
The energy consumption ratio reflects the consumption of oil per
capita, military costs are estimated according to the Stockholm Institute for
the Study of Peace (SIPRI). It should be noted that in some cases this might
lead to a discrepancy between the data of international organisations and the
official national statistics. In the following models, a numerical value (200) is
used for the convenience of calculation. When added to the critical mass, it is
distributed equally to its two components: territory and population (by 100).
One must note that the calculation of global indicators is biased by
limitations of international statistics. As mentioned above, there is no reliable
method for determining the actual size of the military budgets of different
countries and regions in comparable values (for example, in US dollars),
national statistic reports are often scrutinized by authorities and cannot be
verified using the mirror analysis method. Similar difficulties may arise in
determining other involved indicators such as energy consumption per capita
and GDP.
To avoid divergences related to the conversion of national currencies

into US dollars, adjusted by inflation, world prices, the following calculation
was made by using data from open sources of international organisations such
as the World Bank.
The methodology for evaluating CNP is also characterized by certain
limitations that must be taken into account when considering relations with
each individual country. For example, the EU countries partially delegate
national security to NATO and common institutions of the EU, thus their CNP
index may be lower than in certain countries of Africa or South America
(mainly because each country of the EU does not have separate armed forces
and thus contributes part of its CNP to NATO).
Because of these limitations, the CNP index cannot be used as the only
indicator that defines the level of strategic cooperation and economic security.
It is appropriate to combine CNP with other methods of an econometric
analysis. Nevertheless, the results of the calculation of CNP (see Table 2 and
Figure 1) and its dynamics correspond to the basic trends in the development
of the global economy and are a reliable way to measure the rank of a
particular country or megaregion in the global geo-economic and geopolitical
meta-system.
The results of the calculation are divided into the following groups:
Superpowers and regional leaders (CNPK ≥ 5); Powerful regional states (CNPK ≥
2); Developed countries (CNPK ≥ 1); Stable states (CNPK ≥ 0,5); Micronations
and failed states (CNPK ≤ 0,5).
Table 2. The comprehensive national power index of Chinese strategic

partners, 2015
Group Country (Comprehensive National Power, CNP)
І. Superpowers The USA (152.8); the Russian Federation (23.83); Canada (17.95);
and regional Australia (12.06); Germany (10.28); France (9.08); the Republic of
leaders Korea (7.9); Great Britain (7.14); UAE (5.15)
ІІ. Powerful Brazil (4,38); Italy (3.79); India (3,37); Spain (2.62); Kazakhstan
regional states (2.54)
Mexico (1.94); Argentina (1.57); Turkey (1.47); Poland (1.43); the

ІІІ. Developed
Republic of South Africa (1.36); Indonesia (1.21); Venezuela
states
(1.05); Malaysia (1.07); Thailand (1.03)
Algeria (0.88); Ukraine (0.8); Chile (0.77); Denmark (0.7); Nigeria
ІV. Stable states
(0.65); Greece (0.51), Angola (0.22)
Turkmenistan (0.49); Portugal (0.42); Pakistan (0.41); Ireland
(0.39); Afghanistan (0.33); Vietnam (0.29); Peru (0.28); Belarus
V. Micronations
(0.27); Uzbekistan (0.24); Serbia (0.13); Laos (0,1); Myanmar
and failed states
(0.09); Sri Lanka (0.06); Mongolia (0.4); Cambodia (0.03);
Kyrgyzstan (0.03); Tajikistan (0.01)
182
Source: authors’ own calculations based on the World Bank statistics .
As of 2015, Ukraine (CNPbcd = 0.8) is part of a group of stable states, which

also includes Algeria (CNPefg = 0.88), Greece (CNPhdi = 0.51), Denmark
(CNPejc = 0,7), Nigeria (CNPjhg= 0.65) and Chile (CNPikl= 0.77).
However, for Ukraine, there exists a negative tendency towards the
decrease in CNP: over the past 24 years, the Ukrainian CNP index has fallen by
1.28 points. This caused the change of the position of Ukraine in international
relations with China. In 1990, PRC considered Ukraine to be a strong
megaregional state; in 2015, Ukraine is regarded by PRC as an irrelevant
Eastern European country. If this trend continues, Ukraine will be ranked as a
‘failed state’ in the nearest future. It needs to be noted that PRC views failed
states solely as a source of cheap raw materials. If Ukraine falls to this position,
any prospects of a strategic partnership with PRC will be impossible 183.
182
See 1
183
Chen Jun (2014).China's foreign trade policy in globalization.// Electronic scientific edition "Effective
Economy". – 2014. – Vol. 11. //Available at: http://www.economy.nayka.com.ua/?op=1&z=3555
Figure 1. Interconnection between the total bilateral trade with PRC and
comprehensive national power (CNP) of the most important strategic partners
of PRC, 2015
184
Source:authors’ own calculations based oninternational trade statistics data .
It can be argued that a certain interconnection exists between

openness in a bilateral trade with PRC (total trade turnover) and
comprehensive national power (CNP), which is particularly noticeable in case
of Canada, Russia and the USA (see Figure 1). An exception to this trend is
Vietnam, Indonesia, Malaysia and the Republic of Korea. These countries have
common borders with China and are part of the regional trade and economic
blocs (ASEAN + 3) or have concluded free trade agreements with PRC. In the
light of this, it can be assumed that PRC effectively uses the components of the
comprehensive national power index in shaping its foreign trade policy. Hence,
it is expedient to use the CNP index as one of the auxiliary indicators in
evaluating the efficiency and security of trade relations with the People's
Republic of China.
184
International Trade Center. //Availableat: http://www.trademap.org
Conclusions. The systematization, synthesis and analysis carried out in

this paper allow us to propose conceptual provisions of the model of
contemporary cooperation with the People's Republic of China. The main
parameters of this proposed model are the intensity of bilateral trade between
Ukraine and PRC and the ranking of Ukraine in the Chinese hierarchy of
international relations.The model is based on the assumption that because of
the political and economic confrontation with Russia, Ukraine’s Eurasian
integration is no longer possible or purposeful. On the other hand, full-scale
European integration is postponed to a remote perspective. This is why
currently Ukraine desperately requires equilibrium in relations with the major
centres of geo-economics, especially in the aspect of international trade.
Ukraine has unique ‘intermediate’ position in-between superpowers,
semi-superpowers and regional states in the geographic, economic, and
ideological dimensions. According to the proposed model, the position of
Ukraine in the global environment should be determined by an established
rationally expedient distance to countries, which are now considered
geopolitical ‘gravitational centres’ (the USA, the EU, Russia, and China). This
model will ensure Ukraine’s economic and political security because, in the
situation, when one of the ‘gravitational centres’ tries to reduce the
established distance, this may automatically lead to the reaction of others. The
transit-transport potential of Ukraine has special significance in the strategic
equilibrium model because it will transform Ukraine into the main transport
artery between PRC and the EU and, accordingly, it will strengthen the stability
and security of international relations of our country. It should be noted that
this does not deny, but even reinforces the need for a sound and rational
external economic policy of cooperation with other countries.
Yurii Hrytsiuk
NationalTransportUniversity, Kyiv, Ukraine
Artem Labuta
National Transport University, Kyiv, Ukraine
THE CONCEPTUAL BASIS OF INTEGRATED

STRUCTURES OF THE TRANSPORT ENTERPRISES
FORMATION BY PARTNERSHIP DEVELOPMENT
Abstract.The formation and development of the market economy in Ukraine led to radical
changes in the transport industry of our country in general, and in the passenger transport in
particular. Consequently, a problem of situational inconsistencies of the carrier’s requirement
with the maintenance of vehicles, quality, safety and environment, occured. The problem is
caused by the following reasons:most road transport enterprises have fewer than five units of
vehicles;they could not independently provide all the necessary processes of maintenance and
repair of motor vehicles and maintain the appropriate production and technical base;
employees, without proper training, are engaged in repairing and maintenance of vehicles in
such companies (in practice, in most cases, the drivers ofvehicles do this);routine work
regarding maintenance and repair is notcompletely performed and is not done in time;the
procedures of examining driversbefore departure and technological review of vehicles are
disrupted;there is a progressive wear of vehicles;a significant increase in the operating costs of
vehicles;an absence of a perfect control and administrative influence system in the field of
vehicles service and repair.
The outcomes of the problem are an increase of accidents with fatal ending, the poor
service quality level of passengers’ transportation, a transportation cost increase, the lack of
possibilities for reproducing the fixed assets of transport enterprises and park updating,
environmental pollution, violation of the law by the carriers. In these circumstances, there is a
need to find and implement strategic decisions regarding the problems solving. The article
considers one of such solutions, which consists in the introduction and development of
integration and co-operation processes in motor transport, that is, joiningthe efforts of
business entities for conducting economic activity, exchanging goods and services on a
permanent, long-term, mutually beneficial basis.
JEL Classification System: D25, D51, L14, L25, L91

Keywords: road transport enterprises, partnership, maintenance, repair, motor

vehicles, production and technical base.
Introduction. To determine the optimal form of road transport

enterprise (RTE) integration, the analysis of the advantages and disadvantages
of integration formations on the basis of185is conducted.By the way, according
to the different conditions of functioning, the features of the enterprises
integration formation could be negative and positive at the same time. In
addition,the integration formation could be characterized by the types of
organizational forms, the terms of relationship, the ability to leave the
Association and the existence of a unified development strategy for all
Association participants. Based on the conducted analysis, it was revealed that
the best type of unification for RTE in the development of the systems of
Motor vehicles (MV) maintenance (M) and repair (R) is a partnership, which
allows using the strategic advantages, each partner resources and key
competencies. The majority of disadvantages, inherent in partnership, are
usually covered by a big advantage – the emergence of a synergy effect, which
provides the achievement of a RTE profits increase due to the increased
amount of provided services and the reduction of the specific cost at
redistribution and maximum concentration of MV R and M services within
enterprises. Partnering enterprises are becoming more spread not only in
Ukraine, but also throughout the world. The essence and features of the
strategic interaction of enterprises are mentioned in the works186. The
attention is accented on the definition and evaluation of synergy effects,
which appear in the process of partners’ interaction. Hrebeschkova O.M. and
Mahova H.V. consider the conceptual formation basics of strategic
185Vladimirova I.G. (1999) Organizational forms of integration of companies. Management in Russia and
abroad.vol. 6, pp.113–129; The Economic Code of Ukraine (2017): [Electronic resource] – Available at:
http://zakon4.rada.gov.ua/laws/show/436-15/conv/pagekraine; Kulinyak I.Y. (2010) Characteristics of
organizational and legal forms of business associations. Scientific Bulletin of NLTU of Ukraine., vol. 20, pp.
199–205.
187 Wallace R.L. (2005) Strategic alliances in business.Technologies for building long-term partnerships
and joint ventures. Moscow: Good book; Garrett B., Dussage P. (2002) Strategic alliances. Moscow:
INFRA-M; Cardell S. (2005) Strategic Cooperation: A Creative Business Course. Moscow: FAIR PRESS;
Ansoff I. (1989) Strategic management. Moscow: Economics; Konina N. (2006) Strategic Alliances of High-
Tech US Corporations.Problems of theory and practice.vol. 4. pp. 96–103.
partnerships and determine their characteristic in their work187. The issue of

strategic partnerships formation in small business is considered in the
publication188 as well as the variety of strategic partnerships forms.
The problem is caused by the following reasons: the majority of road
transport enterprises with fewer than five units of vehicles cannot provide
alone all necessary processes as to maintenance and repair of motor vehicles
and maintain appropriate technological base;repair and maintenance of
vehicles in such enterprises are carried out by workers without relevant
qualifications (in practice, in most cases, the drivers ofvehicles dothis);
maintenance and repair workis not completely performed and is not done in
time; the proceduresof examining drivers before departure and technical
condition of vehiclesare violated; there is a progressive deterioration of
vehicles, a significant increase in the cost of their operation; lack of a perfect
control and an administrative impact in providing services for maintenance
and repair of vehicles.
The consequences of the problem are an increase in traffic accidents
with fatalities, poor quality of services for passengers, increasing
transportation costs; lack of playing opportunities, fixed assets, transport and
fleet renewal; environmental pollution, violations of law by the carriers.
In these circumstances, it is necessary to search for and implement
strategic decisions aimed at solving the problem. One such solution could be
the introduction and development of processes of integration and cooperation
in road transport, i.e., joint efforts of entities for business and an exchange of
goods and services on a permanent, long-term, mutually beneficial basis.
1. Conceptual and categorical analysis of the nature of partnership
The notions “partnership” or “strategic partnerships” are not spelled out
in terms of the legislation of Ukraine. They aremainly connected with political
and economic structure features of our country. By 1991, in Ukraine, which
was a part of the former Soviet Union,the centralizedplanning and
187Gosteva I.S. (2008) Concepts and types of integrated enterprises. Economy. Management.
Entrepreneurship. Sciences Works of Volodymyr Dahl East-Ukrainian National University.vol.20, pp.229–
237.Lugansk.
188Palivoda O., Temindarova Y. (2011) Formation of strategic partnerships in small business: problems
and perspectives. Economic analysis. Vol. 8. pp. 144–147.
administrativeeconomy took place, characteristic features of which were: state

ownership of economic resources and means of production, the prohibition of
private enterprise, the rigid centralization of resource allocation and results of
production activities, policy planning, etc189.In the process of getting state
independence by Ukraine, a great number of private enterprises andtheir
associations appeared, but the law still has not fixed the terms “strategic
partnership” or “partnership”.However, the law stipulates the definition and
characteristics of public-private partnership. Public-private partnership is a
cooperation between the State of Ukraine, the Autonomous Republic of
Crimea, local communities represented by the relevant authorities and local
self-government (public partners) and legal entities, except state and
municipal enterprises or individuals entrepreneurs (private partners), which is
based on contract. The signs of public-private partnership are:
− providing rights to manage (use, exploit) the partnership object or
acquisition, creation (construction, reconstruction, modernization) of the
public-private partnership with further administration (use, maintenance),
except for the cases with the adoption and implementation of private
partner’s investment commitments under the agreement concluded in the
framework of public-private partnerships;
− long-term relationship (5 to 50 years);
− transferring the risk to a private partner during the implementation of
public-private partnering;
− making investment by a private partner in a site of partnership with
sources not prohibited by law.
The basic principles of public-private partnership:
− equality before the law, public and private partners;
− prohibition of any rights discrimination of public or private partners;
− reconciling the interests of public and private partners in order to
achieve a mutual benefit;
− providing higher performance, compared to a state partner without the
involvement of a private partner in the same case;
189Nikolenko Yu.V. (2009) Political Economy: Textbook. Kyiv: Center for Educational Literature.
− permanence throughout the term of the agreement contracted in

terms of public-private partnership, purpose and ownership of objects;
− recognition of public and private partners' rights and duties provided
under the legislation of Ukraine and certain terms of the agreement
contracted within public-private partnerships;
− defining a private partner on a competitive basis, except for the cases
established by law;
− fair distribution of risks associated with the performance of contracts
signed under a public-privatepartnership between public and private partners
190
.
Researchers have different interpretations of the concept“partnership”,
but there are common features of this concept, which are stated by most
scholars. By the term “strategic partnership”, we mean a certain technology of
business activities coordination that are not bound by any administrative
relations. A full strategic partnership is defined as an agreement on
cooperation of at least two independent enterprises based on trust
relationships contracted to achieve commercial and strategic goals and aims in
order to associate and complement strategic resources, optimize transaction
costs, obtain a synergy effect.
The author notes that the formation of partnerships involves the
establishment of strategic goals and finding the necessary resources to achieve
them191.
It is believed that the partnership is based on the cooperation of
enterprises, which is conditioned by the mutual capital participation,
coincidence ofstrategicinterests in development and diversification, entering
new markets, etc192.
190Public-Private Partnership. The Law of Ukraine (2010).

191Makhova G.V. (2009) Theoretical Aspects of Formation of Strategic Alliances of Enterprises.Strategy of
economic development of Ukraine. Vol. 24, pp. 19–23.
192Gryaznova A.G. (2002) Financial and credit encyclopaedic dictionary. Moscow: Finance and Statistics.
The authors in the paper193state that the strategic partnership is a

common name of cooperation forms of resources and coordination of
companies’ practice in order to receive a mutual benefit by the emergence of
synergy.
Strategic alliances (partnership) are defined as an association of several
independent companies that intend to do a specific type of production or want
to complete the project, using knowledge, materials and other resources of
each other, rather than start production on their own, not sharing with anyone
other risks and trying to beat competitors.
The partnership is seen as an agreement (legal form of interaction
between enterprises);a competitive strategy (way to achieve common
strategic objectives partners), a relational model, aimed to create relationship
value (form of establishing and maintaining long-term relationships of trust
with other market participants)194.
A paper195 state that usually the main drawback of many existing
interpretations of the term “partnership” is that it does not emphasize the
need to focus on collaboration in order to meet customer requirements.
There are several characteristics of strategic partnerships:
− strategic partnership always includes more than two independent
companies;
− none of the companies, that are part of the partnership agreement,
could achieve the strategic goal in solitary;
− partnership always has clear goal;
− theexistence of a coherent mechanism of interaction between
participants that foresees separation of powers, tasks, risks, profits and
responsibility between partners.
193Shramenko E.V., Monakova U.V. (2013) Strategic partnership as a way to strengthen the production
potential of the locomotive economy. Bulletin of the Economy of Transport and Industry.vol. 44, pp. 82–
86.
194Grebeshkova O.M. (2008) Efficiency of strategic partnership of enterprises: detection problems and
assessment methods. Economy and Entrepreneurship. Kyiv: Publishing House “Aspect-Polygraph”, vol.
21, pp. 1–12.
195Lambert D.M., Emmelhainz M.A., Gardnez J.T. (1999) Building successful Logistics Partnerships.Journal
of Business Logistics.Vol.20, pр. 165–181.
The strategic character of the enterprises’ partnership interaction is

determined by the presence of joint partners’ strategies; the unique
contribution of each partner in the common purpose; the division of
responsibilities and created competitive advantagesbetween
196
partners .Therefore, in this study, the phrase “strategic partnership” is
identified with the term “partnership”.
Partnership is also understood as a strategically stable interaction of two
and/or more companies that aim to create customer value and appearance of
synergies through cooperation of assets and potential,marketing interactionof
partners, division of areas of responsibility and results of joint activities among
them197.
Let us first take a look at the local case of integration of theroad
transportenterprises by forming partnerships of road transport enterprises in
the development of maintenance and repair of vehicles. This collaboration
aims at improving the quality of transport services, efficient use of available
industrial capacity,creating conditions for the gradual development of the
transport sector by transport enterprises’ partnership based on providing an
efficient system of maintenance and repair of vehicles.
For analysing opportunities of forming technologically integrated
structures through joint performance of the functions of the maintenance and
repair of vehicles, it is advisable to analysepossible business partnerships. With
the existing diversity, there are three main types of partnerships. The first is
integration that is formed to achieve economies of scale. The second one is
pseudo concentration and when using it, the overall development, production
and sales of product that belongs to all the participants of the partnership, are
done. Typically, these consortiaare created to implement complex and costly
projects.The third one is complementary, in other words, one partner has free
capacities, and another is in need of these facilities.Consequently, the
196 Grebeshkova O.M., Makhova G.V. Project Approach to the Formation of Strategic Business
Partnerships [Electronic Resource] Available at: www. Nbuv Gov Ua / portal / soc_gum / Znpchdtu / ... /
4_ Grebeshkova. Pdf.
197Balabanets A.V. (2010) Methodological principles of formation of strategic partnership in the field of
marketing interaction of the enterprise. Bulletin of the Donetsk National University of Economics and
Trade named after. M. Tugan-Baranovsky. vol. 3 (47), pp. 82–93.
proposed type of interaction between road transport enterprises in developing

the optimal conditions and repair of vehicleswould be combined with an
integrative-complementary type of partnership198.
The formation of partnerships should be accompanied by consideration
of mutual benefits and establishing complementary relations, i.e., which
complement each other. Moreover, a party or an independent third party
should initiate the supply of certain benefits. Starting from the moment, when
the partnership of road transport enterpriseshas been formed, the
development of the systems of MV M and R can be primary initiated by
transportation departments of local administrations that develop and submit
proposals for partnership to basic businesses. The advantages of forming
initiatives and proposals by structural units of local government are the
presence of a large amount of information on transport enterprises that is
needed for further calculations, the ability to motivate basic companies in
forming partnerships by charging a certain amount of points in competitions
for passengers’ transportation on public bus routes in accordance to199.
Moreover, the primary initiators may be third-party organizations that provide
analysis and design in the field of transport and for certain fee develop
commercial offers for enterprises, which include conducting analysis and
calculation efficiency of forming partnerships for each company and for the
partnership as a whole.Secondary initiators may be local authorities, outside
organizations and the basic company.A primary motivation for the basic
companies to form partnerships would be a probable profits increase by
attracting regular customers. A motivation for local authorities would be
safety improvement of transport services, their quality and environmental
safety. A motivation for other organizations that are developing proposals, can
be a profit gained from running complex operations with the formation of such
proposals. To motivate carriers, that are consumers of MV M and R services,
one has to reduce costs for this type of service, compared with the actual cost
198Golubkov E.P. (2016) Marketing for professionals: a practical course: a textbook and a workshop for
undergraduate and graduate programs. Moscow: Publishing House Yurayt.
199Rules for providing maintenance and repair services for motor vehicles, approved by the Order of the
Ministry of Transport of Ukraine of 11.11.2002 No. 792.
of these services. In forming partnerships, a mild form of interaction between

enterprises with the ability to provide a smooth entry and exit of participants
of partnership should be used.
The paper200determines that there are many things in common between
the terms “partnership”, “strategic partnerships” and “public-private
partnership” and that the meanings of terms “integration” and “cooperation”
are similar. After summarizing data on definitions, we can conclude that the
main characteristics of the partnership are long-term nature of relations, joint
activities, and the implementation of integration principles. These principles,
in particular, provide coordination and cooperation, rational distribution of
benefits, costs and risks, information sharing, functional integration, and the
development of integration relations.
In this paper, the term “partnership between road transport enterprises
in developing maintenance and repair of motor vehicles” means a form of
functional and technological integration of legally separate structures of
different capacity and performance of transport services and ensuring the
proper technical condition of vehicles on the basis of mutual benefit and joint
use of idle industrial infrastructure. Unlike existing partnerships, the proposed
form suggests integration not of the structures but functions of the whole
technological process of quality transport services, which will solve the
problem of improving transport safety, reduce downtime of vehicles, and
improve environmental safety etc. by maintaining a proper state vehicle.
The conceptual and categorical analysis of the nature of partnership is
presented on Figure1.
The realization of the strategy of partnerships between public companies
when developing the systems of MV M and R in contrast to the strategy in
market conditions and stiff competition has its own characteristics, which lie in
the fact that each market participant seeks to maximize profits and/or reduce
costs without affecting the interests of each other.
200Vorkut T.A. (2008) Management of systems of logistic service in supply chains. Kyiv: NTU, 2008.
Figure 1. Conceptual and categorical analysis of the nature of partnership

Partnership is a mutually beneficial Strategic partnership is an agreement on Public-private partnership - cooperation
relationship between two or more cooperation between two or more between the state of Ukraine, the Autonomous
organizations, each of which retains independent enterprises, based on trust Republic of Crimea, territorial communities in
its independence and independence relationships and concluded for achieving the person of relevant state bodies and local
[Abramov L.K., Azarova T.V.] commercial and strategic goals, obtaining self-government bodies (state partners) and
synergy of combined and complementary legal entities, except public and communal
strategic resources, optimizing costs enterprises, or individuals - entrepreneurs
[Palivoda O., Temindarova Y.] (private partners), which Is carried out on the
basis of the contract [Law of public-private
partnership]
The partnership of motor transport enterprises in the development of systems of maintenance and repair of vehicles is a form of
functional and technological integration of the activity of legally separate structures of different capacity for the implementation of
transport services and ensuring the proper technical condition of vehicles on the basis of mutual benefit and the joint use of the
unused production and technical base. Unlike the existing forms of partnership, the proposed form involves the integration of not
structures, but the functions of a holistic technological process of qualitative provision of transport services, which will enable,
through support in the proper condition of vehicles, to solve the problem of improving the safety of transportation, reducing
downtime of vehicles, increasing the ecology, etc.
Cooperation is a form of mutual provision of services by enterprises in solving Integration is a way of combining the efforts
problems that arise in the course of commercial activity. It is a universal form of joint of enterprises, in which the market
production, based on the cooperation of two or more independent legal and economic mechanism of the relationship is replaced by
points of view of enterprises on the basis of voluntary agreements with the aim of domestic operations [Petrovich Y.M,
increasing the overall competitiveness [Rebrikova N.V., Shalnova O.A.] Prokopyshyn-Rashkevich L.M.]
201
Source: compiledby the authors on the basisof
In addition to all the benefits of partnership, this form of business has

some drawbacks, namely:
− conflict of interest, since public companies that take part in the
development of the systems of MV M and R are characterized by completely
different interests of their members; so basic companies aim to obtain the
greatest profit from the MV M and R services; enterprise-carriers, by contrast,
seek to receive quality services of maintenance and repair of vehicles with the
201Azarova T.V., Abramov L.K. (2004) Technology of development of informational and methodical
network for the public sector at the regional level. Kirovograd: SPD FO Shegeda.; Palivoda O.,
Temindarova Y. (2011) Formation of strategic partnerships in small business: problems and perspectives.
Economic analysis. Vol. 8. pp. 144–147; Petrovich Y.M., Prokopyshyn-Raskiewicz L.M. (2006) Economics
and finance of the enterprise. Lviv: Magnolia.;Rebikova N.V., Shalnova O.A. (2013) Co-marketing and co-
operation: similarities and differences. The Bulletin of the Cherepovets State University. Scientific
journal. vol. 4 (53). pp. 46–48.
lowest cost. In these circumstances, it is necessary to develop tools of

distribution of costs and benefits in a joint partnership activity;
− the process of establishingpublic companies requires significant time
and resources to be spent by one or more of the parties of the partnership. In
this case, it is optimal to delegate these operations (analytical work on the
feasibility of forging partnerships and proposals to their formation) outside
organization for fee;
− the risk of takeover of small business and the complexity of control. If a
company in partnership is large,thenit is more difficult to solve the problem of
monitoring the effectiveness of co-operation. This task can be solved by means
of periodic monitoring of the current partner relations and individual
companies by an independent third party.
In order to partially or completely get rid of the negative impact of the
drawbacks of partnership, a partnership between the public companies should
be legally fixed by contracts of partnership, where enterprise-carriers could
transfer certain amount of work on MV M and R to another member of
partnership, that is to a basic enterprise, whereworkwith partners on MV M
and R would be carried out at its industrial and technical base.
2. The development of a conceptual model of functioning of partnerships
and enterprisesof road transport.
Partnerships betweenroad transport enterprises are particularly relevant
in terms of an administrative and territorial reform that has not
providedmechanisms to ensureunited communities with transportyet. The
necessity of establishing partnerships would be determined by reallocation of
passengers’ correspondence due to the changes in incorporated communities’
centres of gravity, the need to open new routes, placing feasibility of logistics
within established communities and more. The adoption in 2014 of the Law of
Ukraine “On cooperation of local communities” may subsequently change the
emphasis in selecting partners and expand the boundaries of territorial
partnerships.
The scheme of operation of transport enterprises providing the

development of the systems of MV M and R at different times and under
different economic conditions is shown in Figure 2.
Figure 2. The scheme of operation of transport enterprises at different times

and under different economic conditions
PROVIDING PERIOD CURRENT PERIOD PROPOSED OPTION
Motor transport enterprises Motor transport enterprises Private carriers who do not Partnership: enterprises and
have their own technical base private carriers
Average size of enterprises: Carrier 1 Average size of enterprises:
Average size of enterprises: 5-6 vehicles The cost of vehicles is 100% of 5-6 vehicles
260-280 vehicles The cost of vehicles is 10 - 30% of all fixed assets The cost of vehicles is 10 - 30% of
all fixed assets all fixed assets
The cost of vehicles is 40 - 50% of
all fixed assets Carrier 2
The cost of technical base is 70-90% The cost of vehicles is 100% of
of all fixed assets, which is designed all fixed assets The cost of technical base is 70-90%
for maintenance and repair of a of all fixed assets
significant amount of MV: …
The cost of technical base is 50 - 1) technical base, which serves and Carrier n
60% of all fixed assets repairs own and MV; The cost of vehicles is 100% Carrier 1
2) free technical base and / or free of all fixed assets
space for installation of technical
base Carrier 2
- work with the M and R MV is carried out

by workers without qualification (in Carrier n
+ work with the M and R MV are carried - a simple technical base;
practice, in most cases, drivers of
out by workers of appropriate - simple equipment, for maintenance
vehicles);
qualification; works and maintenance of MV;
- scheduled work on maintenance and
+ timely repair of MV; + work with M and R MV are usually + work with the M and R MV are carried
repair of enterprises is not performed on
+ timely maintenance of MV; carried out by workers of appropriate out by workers of appropriate
time and in full;
+ regular maintenance work on M and R qualification; qualification;
- the procedure of pre-tour review of
MV in full; + scheduled works on maintenance and + scheduled works on maintenance and
drivers and the technical condition of MV
+ previews of the technical condition of repair of MV are performed on time and repair of MV are performed on time and
is violated;
the MV; in full; in full;
- there is a progressive deterioration of
+ pre-race reviews of drivers + pre-race reviews of drivers and MV + pre-race reviews of drivers and MV
MV, a significant increase in the cost of
technical condition are carried out technical condition are carried out
their operation
а) during the planned economy б) the current situation в) suggested option
According to the analysis of statistics, in recent years, the structure of

the transport market has changed as well as the structure of road transport
companies that operate in this market. The average transportation company
had on its balance sheetapproximately 100–400 units of vehicles in the 90s of
the last century202, at present, the average number of vehicles of the company
is 5–6 units203.Taking into account that the automobile companies were built
202 Bortnikov S.P. (2008) Fundamentals of designing of automobile transport enterprises: textbook.
Ulyanovsk: UlSTU.
203Statistical Data on Automobile Transport.Ministry of Infrastructure of Ukraine.Available at:
http://mtu.gov.ua/content/statistichni-dani-po-galuzi-avtomobilnogo-transportu.html.
on typical projects, where the cost of vehicles and industrial and technical
resources were distributed in approximately equal parts, the assumptions
concerning the availability of unused production capacity in such enterprises
to carry out maintenance and repair of vehicles could be made. In this regard,
a conceptual model of operation and business partnerships in the
development of transport systems maintenance and repair of vehicles is
constructed. This model specifies that direct participants in the partnership are
entities that have free power production and technical base and enterprise-
carriers that do not have such facilities. It is assumed that companies that do
not have their own production and technical base will use the technological
base of enterprises that have its excess capacity due to fixed monthly
contributions to the fund of partnership development. It is considered that the
resources, in the form of investment for the installation of production
positions, are required only at the stage of partnerships establishment,
afterwards they will start operating on their own, causing their gradual cyclical
self-sustaining development through an additional income that appears
through regular financial contributions of partnership. Thanks to additional
financial resources, it becomes possible to optimize capacity utilization and
upgrade basic enterprises with modern equipment, tools, etc., which in its turn
will improve the level of mechanization of maintenance, repair, and reduce
complexity, thus minimizing the cost of operations. It is also expected to
improve the quality of works on maintenance and repair through the planned
implementation of the required amount of work and by increasing the
motivation of consumers toreceive these servicesregularly. Partnerships
contributions include the full range and scope of services required to maintain
a vehicle in good condition, due to which there is a positive effect not only for
the participants of the partnership, but also for stakeholders (Figure 3).
Along with the benefits of enterprises,the partnership in developing the
systems of MV M and R has several features, one of which is that in most cases
it is advisable to build themon the basis of large trucking companies that were
created during the times of the planned economy. The establishment of public
companies partnerships must occur by implementing strategies that are
regarded in this study as a model summarizing the actions necessary to

achieve these goals by coordinating and allocating resources of companies.
Figure 3. The conceptual model of the establishment and development

of business partnership in developing the systems of maintenance and repair
Partners Progressive cyclical development of

maintenance and repair systems
Road transport Optimization and Improved service

enterprises with free re-equipment of and repair services
production facilities production
are base enterprises capacities
Creation of a
technical base
development
fund
Access to maintenance Increasing satisfaction
Road transport and repair on an ongoing and quantity of
enterprises that do not basis - additional customers
have a production base customers
for maintenance and
repair of vehicles
Increase in the profit of basic
enterprises while reducing the
cost of services for partner
enterprises
Benefits for partners Benefits for stakeholders
Society: Municipalities,
Enterprises that provide maintenance and repair services for - improvement of state:
vehicles: the ecological - improvement of
Carriers: - expansion of the sphere of activity; state of the the quality of
- reduction of risks; - obtaining additional advantages and points in route environment; passenger
- improvement of the quality - improving road transportation
maintenance competitions;
of maintenance and repair of safety services
- attraction of funds for construction and reconstruction of
vehicles; production facilities;
- use of someone else's - use of advanced technologies;
experience; - improvement of the quality of services of technical
- concentration on the main Passengers: Suppliers of spare
influences; - improvement of the
activity; - improvement of the technical state of own and outsider parts and materials:
- obtaining competitive quality of transportation - increase of sales
vehicles; by public transport;
advantages; volumes;
- reducing the cost of repair and maintenance services; - increase of - regular customers;
- reduced costs of - reduction of the cost of spare parts at the expense of environmentally
maintenance and repair of - Increase in profit
wholesale direct deliveries; friendly transportation;
vehicles - improvement of the use of the fleet of vehicles due to - partial reduction of the
improving the quality of planning its work; cost of transportation
- increase in profit
For example, the development of a strategy for the company lies in

forming plans to achieve objectives, which define the opportunities and needs
of the partnership participants204. It is possible to attract new customers for
204Dikan N.V., Borisenko І.І. (2008) Management: A manual for students, postgraduate students,
university lecturers. Kyiv.
basic enterprises in partnership, in accordance with the classification of a

competitive strategy by Michael Porter 205 and based on206.
As for establishing thepartnerships’ strategies, their implementation
must be accompanied by performing the functions that meet the needs of all
members of partnerships. They can be divided into several groups: the
function of the client – the right to receive adequate service quality; an
operator – direct service delivery, planning and profit; a regulator – control
and regulatory functions; legal – political function, i.e., determining the rules
of interaction between partners through the development of legislation. The
obligatory condition for the establishment and operation of partnerships is a
clear division of responsibilities between the partners and stakeholders of
partnerships. The functional and institutional scheme of relationships between
participants and stakeholders in partnership PAT are shown in Figure 4; it
implies availability of all above-mentioned groups of participants, policies,
parties, clients, an operator, and a regulator.
The distribution of functions between the members and stakeholdersof
the partnership is the following:
− apolicy side – the Cabinet, Parliament, Ministry of Infrastructure – the
development of legislation;
− customers– carriers that specialize in providing transportation services;
− operators–a basic enterprise in the partnership;
− aregulator –a third party operator that oversees operations for
ensuring compliance of services withthe stated requirements.
The basic function of a regulator and the condition of forming public
companies partnerships are providing and maintaining a sufficient level of
quality services for MV maintenance and R, and the development and
implementation of measures to guarantee the results of the service.
The implementation of methodology of ensuring the basic needs of the
established partner enterprises that will be used in the formation of
205Porter E. Michael. (2005) Competitive strategy: A methodology for analysis of industries and
competitors. Moscow: Alpina Business Books, 2005.
206Penshin N.V. (2008) Efficiency and quality as a factor of competitiveness of services in road transport:
monograph. Tambov: Publishing house of Tamb. State. Tech. University.
partnerships can be a tool to maintain the required level of MV maintenance

services and R. The results of a consumers’ request study are often used to
improve the activity of a public company and increase its focus on the
demands of consumers.
Figure 4. The scheme of functional and institutional relations of participants
and stakeholders in the partnership
Laws
Foreign organization
Ensuring
service
compliance
with specified
requirements
Basic Carriers -
enterprises customers of
that provide M Services in M and R MV M and R MV
and R MV services
services
With the development of the market economy, the consumers of

services of MV M and R get more and more opportunities to compare and
select the best companies that can provide a high level of service. Therefore,
during the formation of partnerships, it is advisable to determine the needs of
consumers and focus on them.All functions and capacities necessary for the
effective performance of MV M and R should be combined into a single system
that allows solving problems of virtually any complexity and doing it
responsibly, consistently and professionally.
Conclusions. It was determined that one of the ways to improve the
functioning of entities is integration.The comparative analysis of the
integration structures helps us to conclude that the optimal direction for the
integration of an enterprise is partnership. Thenotion «partnership
betweenroad transport enterprises in developing the maintenance and repair
systems of motor vehicles” is regarded as a form of functional and
technological integration of practices of legally separated structures with
different capacity and performance of transport services and ensuring the

proper technical condition of vehicles on the basis of mutual benefit and
sharing of production and technical base.
We suggested the scheme of the transport enterprisesfunctioning that
enables us to compare the processes of the service delivery of maintenance
and repair of vehicles at different times and under different economic
conditions.
A conceptual model of the formation and operation of public companies
in the sphere of developing the systems of maintenance and repair ofmotor
vehicles, which involves the use of production facilities reserves of core
companies, in order to obtain a synergistic effect, is devised.
Based on the above-mentioned, we reach the overall conclusion that the
public company partnership in the development of the maintenance and
repair systems of vehicles are formed upon economic and other benefits for all
participants. The basic condition for the formation of the public company
partnership in developingthe maintenance and R of vehicles is the presence
and status of an industrial base; after analysing the status of the base, it is
possible to conductthe negotiations on cooperation and possible transfer of
specified amounts of services of maintenance and R for brands (classes) of
vehicle or types of services from some companies to others.Thus, to assess the
possibility of forming partnerships among road transport enterprises in the
sphere of developingthe maintenance or repair systems, there is a need to
analysethe existing technical base of a public company.
Galina Myskiv
Lviv Institute of Economics and Tourism, Lviv, Ukraine
Khrystyna Danylkiv
National University “Lviv Polytechnic”, Lviv, Ukraine
CONCEPTUAL BASES AND STRATEGIC DIRECTIONS OF THE

UKRAINIAN CREDIT MARKET DEVELOPMENT
Abstract.The modern system problems of the national credit market, which limit the lending of
the Ukrainian economy, are determined. The authors proved that it is extremely important to
develop the Concept of development of the Ukrainian national credit market, which would
identify the main concepts and problems in this area and outline ways of their solution. This
would enable market participants to withstand growing political and economic challenges and
permanent crises and strengthen the competitive position in the domestic financial market
from further integration into the international financial one.
According to the results of the analysis,forthe intensification of the domestic credit market
development one should develop the followingstrategic directions for improvement: regulatory
and legal support, financial and economic support, institutional and organizational support,
social and marketing support.To each of these areas, a number of measures has been proposed
that will allow implementing the development strategy ofthe Ukrainian credit market
completely.
JEL Classification System: O160, G 170, G180

Key words:concept, development strategy, credit market, national economy,
normative support, financial and economic provision, social security,
institutional support.
Introduction. The current crisis in the national economy, the difficult

socio-economic status of the population and the unstable military-political
situation in the country require the search for extraordinary ways of
overcoming and developing preventive programmes to prevent political and
economic crises. However, the implementation of these programmes requires
great financial resources, a significant proportion of which could be provided

by credit funds raised by both internal and external creditors.
At the same time, ineffective functioning of the national credit market is
due to imperfect legislative regulation and an inappropriate institutional
structure, significant credit risks, excessive interest rates, the lack of credit
resources, population’s distrust to financial intermediaries, limited lending
services, which are concentrated mainly in the bank-lendingsegment. Today,
the systemic problem of the national credit market, above all, is the
accumulation of large-scale bad credit debt and rising credit risk in all
segments of the credit market due to political and economic instability, which
restricts lending to the national economy. Therefore, in the context of a
catastrophic shortage of investment resources, Ukraine is forcedto turn to
foreign creditors in a deep economic crisis, which limits the ability of domestic
lenders to compete and negatively affects the country’s overall economic
security.
In such circumstances, it is extremely important to develop the concept
of development of the Ukrainian national credit market, which would identify
the main concepts and problems in this area and outline ways of their
solution. This would enable market participants to withstand growing political
and economic challenges and permanent crises and strengthen the
competitive position in the domestic financial market from further integration
into the international financial one.
Some conceptual directions of the credit market in the context of the
financial market development in Ukraineare put forward in the Complex
programme of the Ukrainian financial sector development until 2020,
approved by the NBU No 391 of 18 June 2015. The Regulator considers that
the main directions for improving the Ukraine credit market should be 207:
− restoration of bank lending to the volumes that will ensure the desired
dynamics of economic growth and do not create inflationary pressures;
− clearing of bank balances from troubled assets;
207
ComprehensiveprogramofdevelopmentofthefinancialsectorofUkrainetill
2020.ResolutionoftheNationalBankofUkraine 391 from 18.06.2015.Available at:
http://bank.gov.ua/doccatalog/document?id=18563297
− establishing a state register of credit histories and ensuring access of

credit bureaus to information in open registers.
The programme also provides a number of recommendations for
improving the protection of the rights of creditors and borrowers and making
certain amendments to the laws of Ukraine.
At the same time, we need to point out the limited nature of the
programme regarding the development of the credit market, since it only
concerns the segment of bank lending, leaving out the non-bank lending
segment and does not take into interbank, state and foreign lending.
However, the mechanisms do not implement any measures to improve
the functioning even for isolated areas of the credit market of Ukraine, but
only declare the need for this.
We believe that the necessity to develop a concept for the development
of the credit market is extremely relevant and timely, and will allow forming a
national strategy for the market development with the allocation of priority
directions of implementation for the restoration of lending in the short term.
The starting point for the development of the concept should be a
system of indicators of the current development of the credit market, which
will enable us to determine the state of the market, assess the situation on it
and develop measures based on predictive guidelines for the subsequent
successful and effective development. The main indicators of the development
of the credit market include:
− interest rate fluctuations and central bank discount rates;
− a sharp change in the rates of shares or bonds (stock indexes);
− volatility of the volume of the loan proposal;
− change in the value of mortgaged property;
− innovative technologies, in particular, financial innovations;
− the relation between cash receipts and payment obligations;
− development of financial instruments, etc.
The sharp change in indicators towards growth, which points to a phase
of a rise in the credit cycle and a rapid approach to the peak, requires the
introduction of restrictive credit policies. In addition, the slowing down of all
these indicators until the stop – on the contrary – indicates a phase of a

decline in the credit cycle, the approach to the crisis and requires an expansive
lending policy. That is, based on the given indicators, one should choose the
conceptual direction of the credit market development and use the necessary
set of tools for this.
In addition to the functioning credit market indicators, fundamental
aspects of conceptual directions of the development should be the assessment
of the current state analysis of factors and the identification of problems that
prevent the effective operation and growth, and the development of proposals
for improving the efficiency of credit activities of the credit market in Ukraine.
The research on the current state of the credit market development208
proves that today the development of the credit market depends on the
military-political, financial and economic situation in the state. The military
conflict in eastern Ukraine and the protracted financial crisis have a negative
impact on the development of the national economy. This is reflected in the
fall in GDP, the devaluation of the hryvnia, the increase in inflation, the
reduction of economic activity of economic actors, the decline of social
standards of life, the decline of welfare of the population, which lead to lower
confidence of consumers in financial, and, in particular, credit services.
2015 and 2016 have been the most difficult years for the national credit
market since independence: the largest decrease was observed in the volume
of loans granted to the national economy by the banking segment of the credit
market, and the largest decline in the number of banks over the past decade
was noticed.
Negative macroeconomic events have led to a significant increase in
problematic debts of borrowers to banks, which caused deterioration in the
quality of the loan portfolio of the banking sector and became a threat to the
activities of individual banks. The situation with the problematic balances of
208
Myskiv G. (2015). The Functioning and Development of the Ukrainian Credit Market: Theory,
Methodology, Practice: Monograph. Lviv. Ukraine.
banks was also complicated by the lack of effective systems for protecting the
rights of creditors and borrowers, primarily guarantees of property rights and
impartial legal proceedings.
The development of the NBFI lending segment is complicated by the lack
of effective legislation, regulatory systems and prudential supervision, which
has led to a deepening of distrust towards it.
The conducted analysis of the Ukrainian credit market showed the
existence of significant problems that impede the efficient functioning of the
market and its subjects. In general, they can be divided into problems that
have an exogenous (external environment) and endogenous (internal market
environment) character.
The main problems of functioning of the credit market are exogenous,
since they determine opportunities or create obstacles for its further
development, but it is beyond the competence of institutions of the credit
market to overcome them. The main exogenous problems for the credit
market are macroeconomic and political ones.
Because of the endogenous factors, specific problems with the
functioning of the credit market under the influence of macroeconomic
factorsarise, and overcoming these problems depends on professionalism
ofemployees of thecredit market institutions.
The research made it possible to identify a complex of diverse internal
problems, which are divided into four groups:
1. Problems of legislative provision.
This group of problems is related to the imperfection or complete lack of
regulatory acts that define and regulate the activities of credit market entities.
We noted a weak legal regulation of the functioning of the credit market in
general and its individual segments, in particular.
2. Financial and economic problems.
The presence of these problems reflects the disadvantages of credit
activity of credit market participants, which are manifested in specific financial
indicators and expressed by negative financial results. We can add a high level
of risk of credit operations to the financial and economic problems, which
leads to the growth of problematic debts with creditors, a lack of credit
resources and/or their high price, a lack of capitalization of market creditors,
which puts down their financial stability and ability to resist economiccrisis,
etc.
These problems partly arise because of imperfect legislative regulation
of activity in the credit market, in particular, credit relations in all segments of
the market and partly – due to the influence of macroeconomic factors (during
crisis, the credit risk increases, what is accompanied by an increase in the
loans’ value). However, those problems mainly are problems of the internal
credit mechanism of market lenders.
3. Problems of institutional structuring and organization of credit
relations.
These problems are permanently present in the credit market since its
establishment in the territory of independent Ukraine. They are related to the
lack of a well-defined structured vision of organization and development of the
financial sector of the state (which also includes the credit market) by
government regulatory agencies, such as the NBU and the Ministry of Finance.
This creates the existence of institutions, which duplicate each other’s powers
of regulation of market subjects and, sometimes the activity of individual
segments remains out of sight. For example, pawnshops (as subjects of the
national credit market) began reporting to state agencies their activities only
starting from 2008, although they have been operating fora long time till the
independence of Ukraine.
4. Social problems.
The emergence of these problems is related to the low level of public
confidence in financial and credit institutions, in new lending products,
technologies and instruments that limits resource facilities of credit
institutions through the refusal of the population to keep savings in the
deposit form or outflow of funds from them. On the other hand, it leads to a
reduction in development opportunities in the direction of integration into the
global financial market, which, as a result, restricts the use of the credit market
potential as a full-fledged component of the national economy.
Taking into account the considered aspects that affect the formation of
the development directions of the credit market and modern trends of the
economic growth, we have devised the Conceptual framework for the
development of the Ukrainian credit market that includes such components
(Figure 1).
Given the identified problems and peculiarities of the Ukrainian credit
market at the present stage and the national economic problems affecting it,
the purpose of the operation and development of the credit market should
be:theestablishment of effective activity and development of all segments of
the credit market by forming the necessary volume of credit resources and
their transformation in order to meet the needs of credit facilities of business
entities and households, which will increase the investment potential of the
national economy and its competitiveness, and as a result will make it possible
to use the potential of the national credit market efficiently.
The methodological basis for forming the concept of the credit market
development should be systemic and institutional approaches.
The systemic approach to develop the competitive credit market is to
provide:
− integrity of the credit market development as a system of interrelated
segments of lending, each of which, at the same time, is an independent
element;
− systematization of the transfer and receipt of information between
market participants through the hierarchy of interconnections and for external
use by other agents of the national economy;
− institutional structuring of the market, which involves the formation of
an open, dynamic system of institutions of the credit market, and is the basis
for ensuring proper lending conditions for economic entities on the basis of
functional and organizational forms of credit activity.
Conceptual basis for the development of the Ukrainian credit market
Indicators of the credit market development

- volatility in interest rates and the discount rate of the Central Bank; a sharp change in stock or bond rates (stock indices); Implementation Ways and Expected Results:
of the volume of the loan proposal; change in the value of collateral; innovative technologies and financial innovations; the relation between cash receipts and
payment obligations; development of financial instruments - improvement of the legislative framework
Problems and trends of the modern functioning of the credit market for regulating the effective functioning of
1. Problems of legislative provision the credit market, its segments and activities
2. Financial and economic problems of its subjects, as well as for the use of
innovative products, technologies and
3. Problems of institutional structuring and organization of credit relations. instruments in lending;
4. Social problems - -improvement of the institutional structure
The aim of the market through reorganization of
- establishing the effective functioning and development of all segments of the credit market, by forming the necessary volume of credit regulatory bodies and the consolidation of
resources and their transformation, for the needs of households and economic entities, which will increase the investment potential of the their powers, in order to create favorable
national economy and its competitiveness, and, as a result, will enable to effectively use the potential of the national credit market. conditions for effective prudential
supervision, influence on market players,
Methodological basis: strengthening their financial stability and
System approach - ensures the integrity of the the credit market's development, the systematization of the transfer and receipt of information between its growth of credit and investment potential;
subjects and the institutional structuring of the market.The institutional approach is aimed at forming an effective institutional market's structure. The - the restoration of the lending rates of the
synergistic approach will determine the total effect of the interaction of individual segments, resulting in the properties of the credit market of the state, which national economy to pre-crisis indicators,
do not have separate segments.
which provides the necessary dynamics of
Principles of the credit market developmenttt:functionality, transparency, stability, competitiveness and efficiency of economic growth in the state;
- optimizing the structure of bank lending in
market functioning order to reduce the share of foreign
Strategic directions: currency loans and increase the share of
1. Normative-legal support - creation of a regulatory environment for the functioning of the credit market with the help long-term investment lending aimed at
of regulating and controlling influence of normative legal documents modernization and innovative development
2. Financial and economic measures - setting up and launching a market self-regulatory mechanism for the functioning of the national economy;
of the credit market, which directly depends on the influence of factors of the market environment of the country. - restoration of public confidence in credit
institutions, which provides a stable inflow
3. Institutional and organizational measures - a set of measures in all segments of the market to improve their of deposits to the credit system, a significant
institutional structure (regulatory and infrastructure institutions) and measures to improve the organization of credit increase in the share of long-term deposits
relations. and an optimal balance of loans to deposits
in the banking system in the range of 110%-
Priority directions:
130%;
- development of the Ukrainian credit market as a competitive market environment;
- minimizing the risks of credit activity,
- ensuring compliance with the institutional framework for the effective functioning of the credit market;
reducing the share of problem debt on bank
- ensuring integrated development of all segments of the credit market;
loans to the level of 7-8%, which is optimal
- reduction of asymmetry of information on the market
for the quality of bank loan portfolios;
- increasing the efficiency of state and foreign
Criteria of the effectiveness development of the credit market: lending through the introduction of a
- ensuring the volume of loans granted for the sustainable economic growth of the state's economy; transparent public reporting system on the
- reducing the riskiness of lending operations, which will be reflected in reducing the level of bad debts on loans; use of credit funds by key managers;
- the credit market is developing
- reduction of asymmetry of information on the credit market; comprehensively and effectively in the
- providing the necessary legislative regulation for the effective development of all market segments; direction of integration into the global
- ensuring the uniform development of all segments of the credit market financial space and fully provides the credit
and investment needs of the national
- establishing productive relations between credit market institutions and institutes of other components of the economy.
Figure. 1. Conceptual basis for the development of the Ukrainian credit market
Source: author's own development
245
The institutional approach is aimed at forming an effective institutional

structure of the credit market through the inclusion of regulatory, credit and
infrastructure institutions, which will reduce the asymmetry of information on
the market and will allow forming effective internal and external institutional
mechanisms based on exchange-distribution flows between them.
The basic principles of the Concept of the development of theUkrainian
credit market are functionality, transparency, stability, competitiveness and
efficiency of the functioning of the market.
The functionality of the credit market should ensure coordinated actions
of all structural elements of the market to guarantee its smooth, efficient
operation to meet the needs of the market entities.
The transparency of the credit market is creditors’ desire to open
information on their lending activities, services, credit products and
performance as well as transparency of government regulators on the
objectives of regulation and supervision for lending.
The stability of the credit market implies the ability to counteract the
negative effects of financial threats, both internal and external, and neutralize
them.
The competitiveness of the credit market is the ability of domestic
market players to compete with foreign financial institutions within the
country and on the international financial markets; it is the ability to provide
access to Ukrainian lenders and borrowers to the world market of financial
resources.
The efficiency of activities of the credit market actors is to achieve
positive results of activities, if the co-operation of all market actors and their
needs are coordinated, which will have a positive effect on the development
of the national economy.
According to the results of the research on the current state and existing
problems of the credit marketdevelopment, we believe that in order to
stimulate the development of the domestic credit market, it is necessary to
develop the following strategic directions for improvement:
− regulatory and legal support;
246
− financial and economic support;

− institutional and organizational support;
− social and marketing support.
The measures to improve the legal and regulatory framework for the
development should include the creation of a regulatory and legal
environment for its functioning, with the help of regulating and controlling the
influence of normative documents, which establish the basic principles of
lending to all segments of the credit market.
Today, an acceptable level of legislative regulation (although it requires
further elaboration),is formed only in the bank lending. The legal provision of
credit activity and credit relations in other segments of the credit market is
either insufficient or absent, which generates contradictions between
scientists, practitioners and lawyers.
It is advisable to initiate the adoption of the Law of Ukraine “On Credit
and Credit Activity” by the Verkhovna Rada for the arrangement of legal norms
and well-defined rules of the regulation mechanism of the credit market,
juridical consolidation of subjects’ list and market members, objects ofcredit
relations, etc. We assume that the law like that would be able to structure the
credit market by segmentsclearly, regulate the activities of all its members,
regulate credit relations between creditors and debtors, simplify the dispute
resolution, which arise between them, etc.
The development of credit derivatives’ market has a significant influence
on the functioning of the credit market (as part of the market of derivative
financial instruments), which allows minimizing and distributing credit risks
between the subjects of credit relations.However, none of Ukrainian legislative
acts regulates the relations that occur when concluding and executing
agreements with derivative financial instruments and establishes their state
regulation’s principles, etc. It is urgent to developthe Law of Ukraine “On
Derivative Financial Instruments” with detailed provisions on the use of credit
derivatives and approve it. The adoption of the law like that will allow
developing available derivative tools and improving functioning of the credit
market in the hedging part of credit risks.
247
The strategic issue that needs legislative regulation and dealing with all
segments of the credit market is the protection of creditors and borrowers’
rights, because this link in credit relations is the weakest and the least legally
protected one.
Practically all creditors face problems of debts’ non-repayment. The
current laws (“About restoring solvency of the debtor”, “About enforcement
proceedings”, “About Collateral”, etc.) do not allow the creditor to defend
effectively their rights. The rights of the mortgagor in a lawful state should be
legally protected under a legally established procedure for the realization of
mortgaged property.
First of all, it is necessary to simplify and unify appeal's procedures of
collateral and satisfy the collateral-secured claims of creditors at the legislative
level. For doing this, it is obligatory to make changes in the Law of Ukraine
“About Collateral”209, regarding the development of a mechanism for
collateral’s recovery.We think that it would be advisable to determine the
mechanism of application of extrajudicial procedures for foreclosuring on
property in the Law of Ukraine “On Collateral”, which is the subject of
collateral by giving the right to pledge holders to conclude notarial certified
transactions with pledgers, who are legal entities at any time of the obligation,
but not only after the emergence of grounds for foreclosure of the mortgaged
property.It is also necessary to improve the registration system of real rights
on property and their limitations.
In the context of the regulatory and legal framework for functioning of
the credit market, there should be a separate point of the harmonization of
the Ukrainian legislation with the EU legislation.Despite the priority of this
regulatory support area and the development of a range of proposals by
financial and legal professionals, today this issue remains unresolved and
actual.From this perspective, the main strategic goal of thecredit market is to
ensure the access of economic entities to loans in Ukraine, provided according
to European standards.
209
About Collateral.Law of Ukraine. Available at: http://zakon2.rada.gov.ua/ laws/show/2654-12
248
An improvement of financial and economic guarantee is the most

important among the accented areas of improving the credit market
functioning, because it involves setting up a self-regulating credit market
mechanism, which directly depends on the influence of the market
environment factors of the country.
The actions, which stabilize the banking system and increase its financial
stability, should become the basis among other financial and economic actions
and be based on raising its capitalization level.
The most acceptable ways of reorganizing banks to increase their
capitalconcentration are: 1) merging of banks with high-quality assets; 2)
joining of unprofitable banks, which have a favourable territorial location to
financially stable banks;3) creation of banking association’s forms, determined
by current legislation. At the same time, the merger or accession of even small
banks with quality assets allows increasing significantly the size of collective
assets and deposits, which raises market’s value of shares of newly created
bank or a banking association210.
That is, the banking integration processes will ensure the achievement of
the necessary capitalization level of the newly established financial institution,
as well as the synergetic effect that will be manifested in increasing revenues,
an expanded range of banking services, an increase in the level of stability and
competitiveness, development of new regional markets, an increase in credit
limits, a decrease in interest rates, providing reliable insurance of credit risks,
etc.
The result of consolidation processes in the banking system will be the
reduction of the number of banks, which will affect the financial strength and
stability of operating banks, enable them to overcome the crisis, be solvent
and creditworthy, despite the negative external factors. The general and
strengthened banking system will provide increased confidence in the banks
by depositors, investors and creditors. In addition, all this will be positively
reflected in the dynamics of the development of the credit market of the state.
210
Akchurina Yu. M. (2011)Improvement of the mechanism of anti-crisis sanitation measures of domestic
commercial banking institutions.Modern issues of economics and law, 1, 74-79.
249
The effective development of the credit market can also be achieved by

introducing in the banking the practice of modern tools to manage credit risks,
in particular, recommended by the Basel Committee, – capital buffers, and one
of the mechanisms of bank risk management – securitization of assets211.
We believe that the introduction of capital buffers – the
conservationbuffer and the countercyclical buffer range – will effectively
restrain or stimulate the development of the credit market, depending on the
lending cycle, minimize countercyclical risks, make the credit market more
stable and more resistant to fluctuations of the credit cycle. In general, this will
reduce the impact of future financial crises on the financial system and the
national economy.
Another group of measures aimed at improving the credit market
functioning is the reduction of the scope of banks’ debts problems
accumulated from conducting an irrational (expansive) credit policy. For this,
we offer:
− to improve the efficiency of the system for identifying potentially
problematic (ineffective) market subjects through the development and
introduction of a unified methodology for assessing borrowers’
creditworthiness;
− to implement the practice of accumulating unprofiled assets in
specialized management funds (for example, in the All-Ukrainian Agency for
working with problem loans) and providing legislative sale’s support for the
credit debt;
− to provide the activation of instruments of normalizing
thedebtors’payment discipline for problematic assets in the banking practice.
It should be noted that today there is no single general banking
methodology for assessing the borrowers’ creditworthiness. Each bank uses its
own methodology, taking into account the methodical recommendations of
the NBU to assess the banks’ creditworthiness and financial stability of the
211
GalkovL. I., HoneyO.I.,DemchishinM.Ya (2016). Bank lending in the structure of the national economy
of Ukraine: parametric estimation and activation problems. Actual problems of Economics, 6 (175), 328–
334.
250
borrower 212 and being guided by a certain system of financial ratios, which the
bank chooses at its own discretion. In this context, we note that a large
number of widely used coefficients for assessing creditworthiness have lost
their relevance these days, for example, liquidity ratios. In addition, there is no
single normative value for the calculation of coefficients, which leads to
different interpretations of them.
Therefore, we suggest approving and unifyingon the legal basis a single
effective methodology for assessing the borrowers’ creditworthiness, which
would enable all bank lenders to define the borrower’s
creditworthinessunambiguously and clearly.
In our opinion, it is advisable to develop a methodology for assessing
creditworthiness separately for individuals and legal entities.
The segment NBFI credit is closely linked to the bank-lending segment:
the credit growth in one segment leads to adequate reaction in another, and
vice versa. Therefore, the successful implementation of measures to enhance
credit activities of banks has a positive impact on lending of non-bank financial
institutions.
The most acute problems that hamper the further development of non-
bank lending in Ukraine are:
− alack of an effective mechanism for refinancing of non-banking
institutions;
− alow level of capitalization and unstable financial status, in particular,
credit cooperatives;
− alack of an effective mechanism to support the financial stability of
non-banking institutions.
For the purpose of improving state lending, we suggest using a system of
indicators for determining its expediency and effectiveness, taking into
account the important social value and a possible economic effect.
The main results of the financial and economic introduction ofmeasures
to improve the credit market functioning should be stabilization and increase
212
Regulation on the procedure for the formation and use by banks of Ukraine of reserves for
reimbursement of possible losses through active banking operations.Resolution of the National Bank of
Ukraine. Available at: http://zakon4.rada.gov.ua/laws/show/z0231-12/page
251
of financial stability of banks for the stable banking sector functioning as the
basis of the credit market.
As the current crisis situation in the national economy has significantly
shaken the banks reputation and knocked the trust of economic entities down,
and it has had a negative impact on the credit market financial indicators as a
whole. The improvement in the financial stabilityof banks, their crisis
resistance and reliability for customers will restore the trust of the population,
which is the basis of credit relations.
An improvement of institutional and organizational support is a complex
direction, which unites a set of measures in all market segments in order to
improve their institutional structure (regulatory and infrastructure institutions)
and other measures to improve the organization of credit relations.
The reorganization (building up) of the market institutional structure,
which can provide effective regulation and supervision, accumulation and
exchange of borrowers’ credit history information, and allow managing
problematic assetseffectively, will most significantly affect the improvement of
the credit market functioning.
We consider it expedient to support the suggestions of leading
specialists in relation to creation of a number of new financial and credit
institutions (such as: the megacity regulator, the NBU Credit Register, the
Agency for working with problem loans213,214etc.) for the purpose of
strengthening the regulatory-integrating positions on the market.The activities
of rating agencies, bureaus of credit histories and market financial
intermediary also require further improvement.
We see that some issues of improving state lending depend on the
activity efficiency of state management bodies, which solves the problems of
the scope of lending from the State Budget, provides the return of received
loans, lending monitoring, priority directions of granting loans, the efficiency
of the credit funds use, etc.
213
KovalO.P. (2010).Some Aspects of State Regulation of the Financial Services Market in
Ukraine.Finances of Ukraine, 3, 5–13
214
Project Financial Sector Development Strategy of Ukraine till 2015. Available at:
www.ufin.com.ua/koncepcia/002.docndei.me.gov.ua/downloads/strategy.pdfa/laws/show/2755-17
252
The State Fiscal Service of Ukraine215is responsible for the timely

payments settlements for budget loans, andtherefore the inappropriate
payables for the state are due, first of all, to the lack of effective control from
its side, as evidenced by the penalties absence for problematic borrowers.This
is also indicated by the low level of financial management216,of the chief
managers of spending budget funds, which do not perform the main targets
for returning and granting loans from the state budget.
We believe that the state lending segment can function effectively only if
the main principles of lending are being followed.It is necessary to provide the
regular control of the Accounting Chamber of Ukraine and the State Treasury
over the receipt and use of credit funds from foreign creditors and strictly
follow the recommendations and comments provided by them in order to
prevent abuse of state authorities and optimal use of granted foreign loans.
The proposed institutional and organizational events will allow creating
favourable conditions for the development of modern lending forms in all
segments of the credit market, while the mechanism of protecting the rights of
creditors and borrowers is improving.
The improvement in the social and marketing guarantee of credit market
functioning involves creating a favourable, positively adjusted socio-
psychological climate in the state regarding lending institutions, which would
allow the complete use of the population’s financial and monetary potential
for ensuringthe sustainable development of financial institutions of the credit
market for the needs of the state’s economy.
Under present crisis conditions, social and marketing activities can
ensure the recovery of the population’s trust towards financial institutions,
which would create the preconditions for the implementation by a credit
system its own accumulation and transformation functions for full functioning
of the credit channel of the transmission mechanism, ensuring financial
215
TaxCodeofUkraine.Available at: http://zakon2.rada.gov.ua/laws/show/2755-17
216
Official site of the Accounting Chamber of Ukraine: ReportoftheAccountingChamberofUkrainefor 2011.
Available at: http://www.ac-rada.gov.ua/doccatalog/document/16740480/Zvit_2011.pdf; Official site of
the Accounting Chamber of Ukraine: ReportoftheAccountingChamberofUkrainefor 2012.Available
at:http://www.ac-rada.gov.ua/doccatalog/document/16742074/Zvit_2012.pdf
253
stability in the society and a proper level of social security in the financial-
credit sphere.
Social and marketing actions are intended to create the preconditions
for fulfilling their accumulation and transformation functions for the credit
market in order to ensure the proper functioning of the credit channel of the
transmission mechanism, support financial stability in society, restorethe
population’s confidence in the future and reach a proper level of social
security in the financial and credit sector.
The mass media should become the most important implementation
tool for performing social marketing measures, which today are leading in the
formation of a mental ideological sphere (in particular in the financial sphere:
from the channel of information transmission, they are easily transformed into
subjects of social communication, which have all possibilities for information
interpretation in favour of certain parties and the creation of “information
asymmetry”).
Social and marketing actions should form a positive image of the credit
system in people’s minds, increase public trust in it and minimize panic in a
crisis situation or during implementing government or the NBU unordinary
reforming financial and credit decisions.
At the same time, it is necessary to share and propagandise financial
literacy programmes at educational institutions and raise the population’s
financial literacy through television, Internet resources, third-generation
universities, etc.
Banking and non-banking financial institutions should develop their own
communications strategy with public through the media, work on a prediction
and forecast of possible options for the development of the situation, but not
wait until information flows become completely uncontrolled.First of all, to
meet the requirements of the Law of Ukraine “About Access to Public
Information”, financial institutions, primarily non-banking (because banks are
widely represented on the Internet), should create and constantly update their
own official website or pages in popular social networks (for example,
Facebook, Twitter) for the purpose of ensuring transparency and access to
information about their activities for the public with the obligatory disclosure
254
of financial statements.On the part of the population, this will bring about a
more trustful attitude towards financial institutions and their activities in the
credit market.The implementation of social and marketing actions should form
a positively adjusted external environment with ensuring the necessary
population’s behaviour to achieve creditors’ success through the credit
services implementation.
The launch of a state social PR campaignshould also be directed at the
return of deposits to the banking system and the formation of saving capital in
the culture population.This would allow creating a save model of the
population’s behaviour, which is more desirable for the successful
development of the national economy than the pre-crisis consumer model of
“life on credit”; and would allow banks to accumulate resources and direct
them at lending to the real economy sector and the restoration of competitive
domestic production, because if it is absent, the stimulation of consumption
demand of the population by the budget and credit policy would only lead to
the restoration of the consumer imports growth, imbalances in the payment
balance and inflation.
We believe that putting into practice the set of proposed social and
marketing actions by the credit system and the state will allow the public
opinion about their activities to be positively adjusted, will provide trust
recovery of the population towards banking and non-banking institutions,
which will promote the development ofdeposit and credit state markets and
ensure the necessary financial resources receipts into the national economy.
Based on thestrategic directions of the credit market development, which
comprehensively cover all the segments of its development, and determine
the prospects for economic growth, we will outline the main priority directions
of its development:
− ensuring the development of the Ukrainian credit market as a
competitive market environment, aimed at stimulating the economic
development of the national economy and observance of European values;
− ensuring observance of the institutional framework for the credit
market effective functioning on the basis of a rational and harmonious
combination of market self-regulation actions and state regulatory measures
255
taking into account economic, legal, political and other national realities, as
well as advanced international experience;
− ensuringthe complex development of all segments of the credit market
on the basis of comprehensive legal regulation, which will provide the
market’s integrity and protect the rights of creditors, consumers and investors;
− focusing on reducing the information asymmetry on the market by
increasing the requirements to the standards of the information disclosure by
market participants and transparency of their activities, which, in its turn, will
reduce the level of an indebtedness problem;
− improvingthe infrastructure of the Ukrainian credit marketin order to
create organizational and economic bases for activating the role of the
national credit market in the processes of overcoming the crisis phenomena in
the national economy.
Conclusions.The expected results of implementing the above-mentioned
actions to improve the Ukrainian credit market functioning should be as
follows:
− creation and implementation of a complete legislative framework for
regulating the credit market effective functioning in general, individual
segments and activities of its entities, and for the use of innovative products,
technologies and tools for lending;
− improvementin the institutional structureof themarketby
reorganisation of regulatory bodies and unification of their power, in order to
create favourable conditions for effective prudential supervision, an influence
on the market subjects, strengthening of their financial stability and growth of
credit and investment potential;
− restoration of the pace ofthe national economy lending to pre-crisis
indicators, which will ensure the necessary dynamics of economic growth in
the state;
− optimization of the bank lending structure towards reducing the share
of foreign currency loans and increasing the share of long-term investment
lending, aimed at modernizing and innovative development of the national
economy;
256
− restoration of public trust in financial institutions, particularly, lending

institutions, which can provide a stable deposits inflow to the credit system, a
significant increase in the share of long-term deposits and an optimal
correlation of loans to deposits in the banking system in the range of 110%–
130%;
− minimization of risks of lending activity to all market lenders, and
keeping the share of problematic debt on bank loans at the level of 7–8%,
which is optimal for the quality improvement of bank loan portfolios;
− an increase in the state efficiency and foreign lending by implementing
a transparent public reporting system on the use of loan funds by key
managers;
− development of the credit market in the direction of integration into
the world financial space and ensuring the credit and investment needs of the
national economy.
At the same time, the fact of defining the expected results does not
guarantee their achievement. Therefore, it is necessary to control the phased
execution of the conceptual foundations of the credit market development
with a number of criteria, as the resulting benchmarks.The criteria are the
main, determining measure of a particular process or phenomenon in scientific
terms.The necessity to determine the criteria for the effective functioning and
development of the credit market is conditioned by the formation of the
market economy principles, the need to observe a correlation between the
lending results and social needs, which promote the economy growth and the
effective social development of society.
We believe that the criteria for implementing the effective concept of the
credit market development should be:
− ensuring the growth of loansvolumes, necessary for the sustainable
increase of the state economy;
− a decrease in risks of credit operations, which will be displayed in the
reduction of the level of problematic debts on loans;
− provision of the necessary legislative regulation for the effective
development of all market segments;
257
− ensuring a steady development of all segments of the credit market,

which will be reflected in the growth of the market share of non-bank
segments in the credit market;
− establishment of fruitful relations between the credit market
institutions and other components of the financial market.
Hence, the implementation of the proposed conceptual framework for the
development of thenational credit market will eventually achieve the expected
results, which will strengthen the credit market, make it more resistant to
financial crises, increase its influence on stimulating the economic growth of
the state, and all market subjects will be able to operate in a competitive
environment according to well-defined, legally-regulated rules in accordance
with the principles of lending.
258
Svitlana Hrynkevych
Lviv National Agrarian University, Lviv, Ukraine
Maryana Kohut
Lviv National Agrarian University, Lviv, Ukraine
TECHNOLOGY TRANSFER IN THE

SYSTEM OF INTERNATIONAL
ECONOMIC RELATIONS
Abstract. The aim of the article is to investigate the impact of international technology transfer
on economic growth. The typical stages of international technology transfer were presented.A
model of the decision to purchase the technology was offered. The personal definition of
international technology transfer was proposed. The dynamics of innovation technologies in
industrial enterprises in Ukraine were illustrated. The net inflows of foreign direct investment
into the Ukrainian economy were analysed.The classification of factors affecting economic
growth was offered. Methodical and practical recommendations for Ukraine in the field of
promotion and regulation of international technology transfer were suggested.
JEL Classification System: O 016, O 310

Keywords: international technology transfer, economic growth, global
economy, multinational corporations, foreign direct investments
Introduction. In a modern economic science, there is no doubt about the

fundamental importance of technological innovation for economic
development. Technological innovation is a powerful and extremely effective
tool, that can significantly increase the position of a company in a competitive
struggle and in this way become a determining factor for economic
development. Consequently, technologies directly determine the trends and
dynamics of economic development of national producers, and, accordingly,
the national economy in general.
However, the importance of technologies in the modern world cannot be
overestimated; different countries are characterized not only by different
259
levels of technological development, but also by different levels of

involvement in the processes of international technology transfer. At the same
time, some countries combine a high level of economic development with a
high level of activity in the field of technology trade, while others, on the
contrary, despite their own high technological level, almost do not participate
in international technological transactions; among the countries with a low
level of economic development, there are both active importers of
technologies and countries that are rather passive or almost not involved in
processes of international technological transfer.
Thus, one of the main tasks in the study of international technology
transfer is to determine the impact on the economic growth of a
country,analyse the principles, laws and mechanisms of this influence,
evaluate the feasibility and effectiveness of international technology transfer,
as well as formulate practical recommendations for optimizing state policy in
the field of international technology transfer to maximize economic efficiency
and, accordingly, indicators of economic growth of the national economy.
One of the main problems that have been explored in recent years’ in
economic literature in this area is the search for the ways to intensify a
technological change in the Ukrainian economy. Much attention is paid to
technology transfer processes, which are a chance for successful competition
with countries with higher technological potential.
At the same time, it is necessary to clearly understand that attracting
foreign technology in this case is not the end in itself, but a potential tool for
increasing the overall technological level and the level of productivity of
production, which in its turn will form the basis for sustainable and stable
economic growth.
However, before moving on to the analysis of the impact of international
technology transfer on economic growth in the current conditions
ofglobalization of the world economic system, it is advisable to analyse the
content and essence of the concept of technology transfer and consider the
main trends of international technology transfer.
The further possibilities of analysing, modelling and using the findings in
practical activity depend directly on how precisely one or another economic
260
category is determined. Before analysing the principles of international

technology transfer and its impact on economic growth, it is necessary to
clearly define what we mean by technology transfer.
Actually, the term “technology transfer” is widely used both in scientific
literature and in the media. At the same time, the study of special literature
shows that at this time there are different interpretations of the concept
“technology transfer”.
This is primarily due to the fact that the outlined concept covers an
extremely wide field of activity. Most often, by the technology transfer, they
mean the exchange of scientific and technological achievements. At the same
time, the following concepts are used as synonyms: “technology transfer”,
“technological exchange”, “technology sales”, “technology spread”,
“technology diffusion”, “technological assistance”, and others.
Technology transfer, especially international, has a special place in the
international economy. Its influence is caused by the following factors:
− technological development determines the competitiveness of the
country, becoming global in nature and scale;
− the main factor of economic development in the post-industrial era
was the actual technology;
− accelerated development of scientific and technical cooperation, as
well as the separation of high-tech specialization, characterizes the modern
international division of labour;
− scientific and technical resources become the subject of international
competition.
The main tendencies of the international technology transfer include:
− globalization of the technology market;
− standardization and unification;
− development of innovation infrastructure;
− intensive development of the market of high-tech technologies;
− increased competition;
− leading positions of the developed countries of the world;
261
− theincreased state influence in scientific and technological

development and in promoting technology transfer;
− the growth of the role of multinational corporations (TNCs) as key
players and driving forces in the global technology
marketthroughtheoligopolizationandmonopolizationof this market, the
creation of international strategic alliances in the field of R & D, as well as
through the use of specific TNC strategies and the provision of global
technology distribution and support;
− the development of international technical assistance;
− the increase of international cooperation in the innovation sphere, etc.
In the process of international technology transfer, in terms of
technology availability, the market analysis allows you to choose the most
optimal technology and the most optimal ways of its transmission.
In this case, the typical sequence of stages of international technology
transfer can be represented as follows:
1) An evaluation of the need to attract technology;
2) technology search;
3) acomparison of technologies;
4) pre-selection of technologies (several most promising options);
5) anestimation of the practical application of technologies;
6) anassessment of the impact of technologies;
7) anestimation of profitability and self-sufficiency of costs associated
with the acquisition of technologies;
8) the final choice of technology;
9) negotiations on purchase;
10) theconclusion of a license agreement;
11) technology transfer and accompanying documentation;
12) the use of technology;
13) anevaluation of the results of the use of technology.
262
For a more detailed analysis, we can present a rational algorithm for

making a decision on the acquisition of technology in the form of a formalized
model ( Figure 1).
Todayinthescientific literature there is a significant number of definitions
of the concept of “technology transfer” and its significance in the world
economy. However, all thoughts converge in one: the experience of many
countries shows that structural restructuring of the economy can and should
begin with the borrowing of technologies. Initially, they are used to produce
goods of mass demand and saturation of the domestic market. The funds
received from the sale, are spent on the creation of new productions, as well
as the further development of innovation activities within the country.
Today, for Ukraine, the main task is to develop a unified strategy for
participation in a single technological space, which will help to increase
competitiveness in the world stage, since technology transfer provides
innovative development to both enterprises and the country as a whole,
contributing to their technological upgrading.
On the basis of the analysed classical and contemporary scientific views
on the definition of international technology transfer, we will regard
international technology transfer as a complex process of attracting from
other countries commercial and non-commercial bases of technology for
increasing the technological level, productivity and production efficiency.
As we have already noted, international technology transfer helps to
improve the overall technological level and, consequently, contributes to an
increaseof the efficiency of production, a reduction of unproductive costs of
resources and working time and leads to a rise in the general level of well-
being. It should be noted that although the technological level directly
improves the competitive position only of the recipient countries of
technology, by reducing the unproductive costs of resources and working time,
it also increases the efficiency of the use of resources in the world in general
and in this way indirectly leads to an increase in the overall level of efficiency
of the global economic system in general.
263
Figure 1. A model of a decision to purchase the technology
Necessity of the technology’s attraction
Searching Comparison
yes Assessment of
necessity
no
Excuses for yes no
costs
Negotiation in the
purchasing
process Possibility of
practical
application
Conclusion of
the contract
Technology
transfer Using
Evaluate the
results

264
Atthesame time, under current conditions of globalization and

transnationalization of the world economy, international technology transfer
in developing countries, first of all, relates to the activities of transnational
corporations (TNCs), within which the majority of new technologies are
created. TNCs have a very high level of innovation and international
fragmentation of production processes.
Traditionally, the most common forms of TNC investment in technology
abroad are considered foreign direct investment and outsourcing.
The analysis of the technology transfer illustrates the importance of
technological and innovation development for Ukraine, since FDI is an
important factor in strengthening the technology sector and at the same time
one of the most effective channels for international technology transfer.
Our next step is a more detailed study of the impact of transnational
corporations in world trade in particular on the international technology
market. As we have already noted, despitethe extraordinary practical
importance of this issue and the huge number of publications on this subject,
the issues of TNC’s impact on the international technology transfer and the
assessment of the impact of foreign direct investment by transnational
corporations on the transfer of technology from the modern global economy
are still unresolved.
At the same time, despite the large number of studies on the activities of
TNCs in the global technology market and the dynamics of changes in the
environment in the activities of transnational corporations, not all the
questions have received sufficiently comprehensive answers, which gives
grounds for continuing the further study of this issue.
It is known that TNCs carry out a policy of territorial expansion by
attracting their capital in the form of foreign direct investment. Foreign direct
investment represents the most advanced form of internationalization and
globalization of business. It can be related both to cash flows and to the
transfer of technical and organizational decisions, as well as the results of
intellectual activity in exchange for direct investment shares.
265
The development of the modern economy is determined predominantly

by the movement of capital, especially in the form of foreign direct
investment. The volume of foreign direct investment (FDI) is one of the
traditional forms of international technology transfer.
Foreign direct investments, along with other forms of globalization and
internationalization of enterprises, open up the greatest opportunities for
expansion, although they are considered the most risky way of operating TNCs
on the world market.
The process of internationalization also covers research and
development work. Transnational corporations in the 60’s and 70’s of the XX
century carried out commercial and manufacturing operations abroad, and
subsidiaries only adapted new technologies to local needs and realities.
However, due to the technological level alignment in the developed
countries since the mid-80s, individual companies increasingly target R & D on
the basis of international specialization, and instead of a one-way flow of
technology between the headquarters and branches there are divergent and
roughly comparable with each other in volume streams.
The following reasons for the internationalization of research and
development by transnational corporations can be considered:
− use of international knowledge and experience;
− lower labour costs for researchers abroad;
− the emergence of highly skilled workers in developing countries (for
example, software developers in India; engineers in Singapore);
− the access to the local technological and innovation base;
− accelerating the introduction and development of new products and
increasing the efficiency of production processes.
At the same time, the international technology transfer in the activities
of transnational corporations is usually based on two main channels of
transmission:
− trade channel, which contains import of high-tech goods and property
rights;
266
− investment channel, which consists of cooperation with foreign

partners within a joint venture, the creation of a foreign enterprise with
foreign capital or the acquisition of an existing local enterprise in the host
country 217.
It has been already mentioned, transnational corporations differ from
ordinary companies by specific strategies and mechanisms of activity, which
help them to take precedence over ordinary (non-transnational) competitors.
If we analyse these specific strategies and mechanisms, we can also
highlighttwo specific channels through which transnational corporations
transfer technologies between countries: internalization and externalization.
The internalization is the first channel of the technology transfer, which
is used for remuneration or free of charge. It is transmitted from an enterprise
in one country to a controlled (affiliated) company in another country, thus
retaining ownership and control over the use of technology.
This mode of transfer involves the use of foreign direct investment, as
well as the creation of networks and strategic alliances with other companies
to research and implement specific products and production processes.
In this case, technologies can be transferred in the form of goods
(machinery and equipment), intangible assets (licenses, patents, trademarks,
stamps), as well as an accompanying consequence of employment in a firm of
foreign specialists.
The second method of technology transfer – externalization – is carried
out on the market with legal entities that do not (at least formally) depend on
multinational companies, and may include the creation of joint ventures,
franchises, the sale of machinery and equipment, licensing, etc. The less
difficult technology is and the less slow the pace of change is the greater
likelihood isthat the company will choose the externalization as a way to
transfer technology.
From the point of view of the host country, it is important whether local
companies can master new solutions, collaborating with TNCs, or whether the
217
Borisova S. E. The Influence of TNC's World Activities on the Global Capital Markets Market in
Southeast Europe in the Conditions of the Formation of the Global Economic System / S. E. Borysova. –
[Electronic resource]. ‒ Available at: http://www.nbuv.gov.ua/portal/soc_gum/pips/2009_1/398.pdf
267
technology that is being transferred will reduce the lagging behind of the more
developed countries.
Both of these factors depend not only on the strategy or the “goodwill”
of transnational corporations, but also on the host country’s ability to absorb
FDI and foreign technology, in particular of the level of worker’s education, the
level of R & D’sdevelopment, the proximity of accounting and financial control
standards, the protection of intellectual property (ownershiprights,
independence of the courts), the availability of effective mechanisms in the
fight against corruption, etc.
It is important to note that innovation activity is one of the priority
factors that determine the level of innovation in Ukrainian enterprises.
Innovation activity is characterized as an activity aimed at creating and
implementing a “new product”, that is innovation, for launching it on the
market, with a view to commercializing the results.
The toolkit for the analysis of innovation activities most often include the
following indicators: an employment rate in innovative spheres; an indicator of
the funding sources structure; a rate of innovation cost; an indicator of human
innovation potential; an indicator of innovative technologies implemented at
industrial enterprises, etc.
The dynamics of innovative activity in industrial enterprises in Ukraine
for the period 2000–2016 is shown in Figure 2.
Examining the dynamics of innovation in the enterprises, according to
Fig. 2, from 2000 to 2006 there is a tendency to reduce innovative activity of
industrial enterprises. Further, there is a sharp increase in innovation activity
from 11.2% in 2006 to 14.2% in 2007, but since the beginning of 2008 to the
end of 2009, again a decline in innovation activity was observed and since
2010, a slight 1% increase can be traced. The new rise accounted for 2011,
when innovation activity was 16.2%, in 2012 and 2013 one can observe an
increasing trend of innovative activity that is reduced by the end of 2014. In
2014, the three-quarters of innovation active enterprises implemented
industrial innovation (or 12.1%).
268
Figure 2. The dynamics of innovation technologies in industrial enterprises in

Ukraine, 2000–2016218
18
16,6
16
14,8 14,3 14,6 15,2
14 13,6 13,6
12,8
12 12,1
11,5 11,5 11,5
10,8 10,7
10 10 10
8 8,2
6
4
2
0
Source:compiled by the authors on the basis ofdata from the State Committee of Statistics of
Ukraine.
According to Figure 2, in 2015–2016, the number of industrial

enterprises that began to engrain innovations was increasing.To sum up, the
share of innovation-oriented domestic enterprises for the period from2000 to
2016 increased by 1.8%, thatcan be regarded as a positive trend219.
There is a need to analyse and study the features of attracting foreign
direct investment, which will help to maximize the use of all the positive
effects of foreign investment in order to improve the business environment in
Ukraine and create a favourable investment climate in general, which in its
turn will ensure sustainable economic development in the country.
218
Since 2014 information has been presented excluding the temporarily occupied territory of the Crimea
and the zone of the antiterrorist operation in the eastern Ukraine
219
State Committee of Statistics of Ukraine [Electronic resource]. ‒ Available at:
http://www.ukrstat.gov.ua
269
It should be noted that the potential benefits and opportunities for

achieving positive economic effects from foreign direct investment for the
Ukrainian economy as a whole are as follows:
1) FDI is an effective factor in the structural transformation of the
economy;
2) FDI is a source of additional capital;
3) FDI, as a form of international cooperation, helps the national
economy to integrate into the global economic system;
4) FDI provides international technology transfer, thus contributing to
the growth of scientific and technological cooperation;
5) FDI provides the use of various marketing and management methods
such as, for example, licensing agreements or diffusion of new production
technology, imitation or copying of new products;
6) FDI contributes to the emergence of a new market economy while
contributing to the strengthening of ties between economic actors.
FDI is also a channel for technology transfer with the following means:
1) adiffusion of new production technology;
2) market acquisition of technological components, know-how or
licensing agreements;
3) marketing and management technologies (management agreements,
agreements on industrial cooperation, mobility of qualified specialists
between foreign and national companies);
4) imitation (copying of new products, methods of advertising, etc. 220).
By using different channels, foreign direct investment becomes an
important factor in the transformation of a more efficient economic system.
The net inflows of foreign direct investment into the Ukrainian economy
are analysed Figure 3.
As we see from Figure 3, by 2002, this indicator did not exceed 1 billion
dollars. After this, the indicator has increased predominantly, reaching the
maximum value in 2008. In the future, the index declined in the crisis and
220
Gorshkov A.V. Direct foreign investment as a factor of economic growth [Electronic resource] / A.V.
Gorshkov. – Available at: www.lib.csu.ru/vch/074/002.pdf
270
post-crisis 2009, 2013 and 2014, falling in 2014 to the level of 2001.
Nevertheless, in 2016 the indicator reached 3.4 billion dollars.
Figure 3. Foreign direct investment, net inflows (BoP, current US$)

12000
10000
8000
6000
4000
2000
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
221
Thesectoralstructureofforeign investment is extremely important for the

formation of an innovative economy. It largely determines the access of
domestic producers to world markets, as well as the development of new
technologies.
In Figure 4, the net inflow of FDI into the Ukrainian economy in% of GDP
is shown.
221
WorldBank Statistics [Electronic resource]. ‒ Access mode :http://data.worldbank.org
271
Figure 4. Foreign direct investment, net inflows (% of GDP)

10
9
8
7
6
5
4
3
2
1
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
222
As we see from Figure 4, the maximum value of the net inflow of FDI in
the Ukrainian economy (in% of GDP) was recorded in 2005 (9%); later this
indicatorwas gradually declining, and in 2014 it fell to the 1995 indicator (less
than 1%). The decrease in the volume of attraction of foreign investments in
Ukraine was due not only to the fact that the domestic economy became less
attractive to foreign investors, but also because a significant number of
investors during the crisis channelled their funds to domestic markets to
maintain their economies and sharply reduced investment abroad. In addition,
some investors suspended the implementation of investment projectsat all223.
However, we can observe that after 2014, the net inflow of FDI into the
Ukrainian economy was increasing and in 2016, it reached an indicator of
3.7%.
In Figure 5, the distribution of FDI into the Ukrainian economy by
countries of the world is shown.
222
World Bank Statistics [Electronic resource]. ‒ Available at :http://data.worldbank.org
223
Grinov T. T. Foreign Investments in Ukraine: Status and Prospects of Development [Electronic
resource] / T.T. Grinov. – Available at:http://vlp.com.ua/node/5688.
272
Figure 5. Distribution of FDI to the Ukrainian economy by the country of origin

(% of the total) by the end of 2016224
Poland; Germany
2,20% Other
Germany; Cyprus
countries;
USA; 15,40%
16,30% Netherlands
3,20%
Virgin United Kingdom
islands; Russia
3,30%
Austria
Cyprus; 22,10%
France; France
3,50%
Virgin islands
Austria;
4,30% USA
Russia; 4,90% Netherlands; Poland

19,10% Other countries
United
Kingdom; 1,20%
As we can see, the largest investment in the Ukraine’s economy by the

end of 2016 came from the conditional offshore Cyprus. In addition, other
offshore areas – Virgin Islands and Belize – have a relatively large share. Other
important sources of technology transfer to Ukraine are the EU countries (the
Netherlands, Germany, Great Britain, Austria, France, Italy, Poland), as well as
the Russian Federation (almost 5% of the total volume).
In today’s global environment, all countries can import the same
technology, however, in order to become a truly competitive player in the
global technology market and be not only a passive user, they must stimulate
the development of similar innovations on their basis. For example, South
Korea and Taiwan225, importing the latest technology, have shown significant
224
State Committee of Statistics of Ukraine [Electronic resource]. ‒ Available at
:http://www.ukrstat.gov.ua
225
Reverchuk S.K. Investology: the science of investing: [manual] / S. K. Reverchuk, N. Y. Reverchuk, I. G.
Skomorovich - Kyiv: Atika, 2001. - 264 p.
273
success in overcoming the technological and economic breakdown by actually

stimulating the development of the innovation sector.
Thus, an analysis of the volume of foreign direct investment in the
Ukrainian economy in recent years has shown that the level of investment
remains insufficiently high. Therefore, it is necessary to develop and
implement a state investment and innovation programme that would
contribute to the development of the investment climate. The revitalization of
the tax process, trade policy, the financial sector, the banking sector and state
regulation is important for the intensification of the investment process.
Foreign direct investment, as the main tool of TNC’s activity, makes it
possible to achieve the objectives of innovation development only under
certain conditions, namely: international technology transfer, a high level of
education and infrastructure development.
In recent years, Ukraine has only made its first attempts to form an
active policy of development and innovation.Although a large number of
highly skilled scientists and a high level of education and enormous potential
in a number of high-tech industries characterize the innovative potential of
Ukraine, today there are significant barriers to Ukraine for becoming
competitive in the innovative sense of the country and increasing the overall
level of global competitiveness of the national economy.
Under today’s conditions of development of the global economic system,
the sharp increase in the scale and intensity of the international knowledge
exchange and technologies has led to the formation of a relatively new
concept of techno-globalization, namely, the merger of innovations and new
technologies into a single set of technical knowledge.
Objectively, techno-globalism leads to the strengthening of the role of
external factors of technological development in any national economy.
Accordingly, the key element of international economic relations is the
international transfer of technologies in its most active part – trade in patents
and licenses, transfer of technologies and intangible assets, foreign direct
investment. All these forms greatly contribute to the diffusion of technology,
standardization and the creation of a global technocratic society.
274
Today, the practice of cooperation and the international division of

labour is widely used, the essence of which is that research and development,
for example, are placed in one country, the manufacturing process – in
another country, the implementation of products is carried out in a third
country, and a company that manages the entire process can be situatedin a
fourth country.
Active users of technological globalization are multinational
corporations,the strategies of which, in fact, are often aimed at transferring
not only manufacturing units, but also innovation and technology centres that
are actively involved in the development of new types of goods. Together with
the latest technology, TNCs also introduce new business standards, as well as
new models of innovation.
Nowadays, Ukraine is only at the stage of introducing new qualitative
changes in innovation policy. Typically, technology transfer in Ukraine is
reduced to one of its simplest forms – the purchase of equipment, namely,
leasing. Equipment leasing allows small and medium-sized businesses to buy
the necessary equipment without buying it, while renting in a leasing
company. This form of technology transfer can be economical in case of an
insufficient amount of money in the enterprise: using it, a company will be
able to regulate the movement of funds more efficiently.
Particular importance is attached to the effective implementation and
application of a wide range of measures that would help Ukraine to
successfully integrate into the global technological community.
The technological lag in Ukraine is due to the following factors:
− alack of a comprehensive strategy of an innovation model of
development at the state level;
− the imperfect regulatory framework, even the existing laws arenot
always performed at the proper level;
− underfunding of innovative activity;
− alow demand for technological development within the country;
− insufficient competition in the domestic markets of producers and
suppliers of new technologies.
275
We can agree with the statement “such groups of measures are required
to intensify Ukraine’s participation in the world markets of technologies. It will
help to identify the “points of technological growth”. They should be aimed at
eliminating shortcomings in the area of technology transfer through using
potential market opportunities. Overcoming these negative tendencies
requires improvement of the state policy in the sphere of technology transfer
... ”226.
In particular, V. Krasnomovetsand A. Proshchalikina, distinguish the
following groups of measures, which are aimed at intensifying Ukraine’s
participation in the international technology transfer:
− normative-legalmeasures;
− Economicmeasures;
− organizational measures.
The main tasks of regulatory and legal measures are:
1) to improve the legislation on innovation activity and its coordination
with international normative-legal acts;
2) to develop the legislation aimed at simplifying the founding and
operation of innovative enterprises and organizations of innovation
infrastructure;
3) to resolve issues of venture capital investment, functioning and
support of venture funds on a legislative level.
The level of development of regulatory and legal regulation, efficiency
and availability of control over compliance with them, reduces the amount of
transaction costs as it is expected from normative-legal measures. The norms
that fix the incentives of innovation activity and the peculiarities of public-
private partnership, which are conditions for the development of innovation
activity, are very important.
The main tasks of economic measures are:
226
Krasnomovets V. Participation of Ukraine in the processes of international technology transfer in the
context of providing competitive advantages [Electronic resource] / V. Krasnomovets, A. Proshalkin //
Financial Space. - 2015. - No. 2 (18). – Available at: http://fp.cibs.ubs.edu.ua/files/1502/15pamuuu.pdf
276
1) to formpublic-private partnership of the national system of

technology transfer on the basic principles; the important links of partnership
should become regional centres of technology transfer;
2) to develop a system of indirect stimulation of innovation activity;
3) to stimulate demand for consumer goods by providing preferential
loans, state guarantees for the purchase of domestic science-intensive
products by enterprises;
4) to introduce tax incentives for innovative enterprises.
The expected effect of economic measures is the existence of economic
incentives for innovation, which compensates for the risks and difficulties of
innovative projects, contributes to the formation of the market of innovation,
and increases the attractiveness of the use of new technologies in production.
The development of public-private partnerships enables companies to access
advanced technology and highly skilled labour, reduces the financial costs of
developing and mastering innovative products, and so on.
The main tasks of organizational measures are:
1) to improve and simplify the procedures for registration of intellectual
property rights;
2) to develop an integrated database on demand and supply of
technologies in Ukraine. To facilitate the search for foreign investors and
customers, it is necessary to create a special Internet-exchange technology
and form a coordinating body;
3) to develop a system of forecasts using forecasting methods that will
help to more objectively identify the priority directions of state’s innovative
development with the corresponding resource support;
4) to create a professional association of innovators for the
dissemination of successful technology commercialization practices,
professional training (advanced training and professional retraining) of
specialists;
5) to create special patent courts for resolving issues of intellectual
property protection.
277
The expected effect of organizational measures is that the infrastructure

of technology transfer will facilitate solving specific problems of technology
commercialization: providing venture investments, reducing uncertainty,
diminishing transaction costs.
All proposed measures will help to ensure the implementation of an
innovative development model, as Ukraine needs to develop and integrate the
concept of a developing innovation model in the scientific, technical and
industrial fields.
A major problem in implementing an innovation model is the lack of
public funding for innovation and science and technology sectors. Today, the
leaders of the implementation of an effective innovation policy are the United
States, Japan and Germany.
Summing up, we can note that in the context of global competition, the
emphasis is primarily put on innovation, which enables us to make the most of
the potential and use innovative potential in the field of international
cooperation. Therefore, it is advisable to study the experience of developed
countries in order to implement an innovation policy, in particular, for the
effect of commercialization and the introduction of advanced technologies in
the market.
Conclusions. On the basis of the conducted analysis, an algorithmic
model was developed for making a decision on the acquisition of technology,
the main stages of which are:
1) anassessment of the need to attract technology;
2) technology search;
3) a comparison of technologies;
4) thepreliminary choice of technologies;
5)an assessment of the possibility of practical technologiesapplication;
6) an evaluation of the impact of technologies;
7) theprofitability evaluation and self-sufficiency of costs associated with
the acquisition of technologies;
8) the final choice technology;
9) purchase negotiations;
10) theconclusion of a license agreement;
278
11) transfer of technology and accompanying documentation;

12) the use of technology;
13) anevaluation ofresults of the technologyuse.
Consequently, for the successful development of the national innovation
system, it is necessary to combine the experience of foreign countries and try
to create its own model, moreover adapt it to the realities of the present in
Ukraine. Acquiring modern equipment and concluding licensing agreements
with technology-producing countries will help Ukraine to increase its
competitiveness on the world market.
Moreover, further standardization and integration with the member
states of the European Union and creation of a favourable investment climate
is extremely important for Ukraine. It is crucial to intensify the investment
process and increase the volume of investments, including using foreign
capital. The volume of foreign direct investment, which provides for the
transfer of related technologies and know-how, will make it possibleto provide
innovative development of the country.
Each country, including Ukraine, is interested in raising competitiveness
on the world market of innovations, as rapid scientific and technological
progress becomes an integral part of economic growth in modern conditions.
Improving the legislative framework in the field of technology transfer and
formulating an effective state policy on the commercialization of intellectual
property results will create a positive climate on the technology market in
Ukraine.
279
Daria Doroshkevych
Dmytro Vavilkin
RETHINKING THE ROLE

OF A TRADITIONAL
PROJECT MANAGER IN THE SOFTWARE DEVELOPMENT
Abstract. This article attempts to investigate, summarise, analyse possible reasons that lead to
failure of IT projects from a management perspective and suggest possible solutions. There are
three main objectives that are aimed to be achieved: first of all, there will be investigated the
scale of the problem and some reasons that lead to project failures will bediscussed. The data
from surveys will be also used to list those reasons and prove that the problem is actual and
significant; secondly, the relation between the reasons for projects failure and project
management will be discussed and the necessity of improving IT project management will
bestressed; and finally, current approaches to managing IT projects will be reviewed and
possible room for improvementwill be suggested. As the research in this article is limited by
data obtained from surveys, the reasons for project failures represent personal opinions of
interviewees, which are not necessarily correct: unfortunately, nowadays, there is no
centralised institution that collects and publishes data about performance of IT projects.
JEL Classification System: O 016, O 310

Key words: IT projects, project management, projects failure, agile, scrum
master, product owner, development team, traditional project manager
Introduction. It has already been 63 years since the invention of the first
programming language. It was very clear that the IT industry would lead the
way since that moment. Moreover, one may think that there has been just
enough time to invent certain standards, rules and bring the best practices to
the industry to ensure the successful outcome of most of IT projects.
Nevertheless, why do we get so few products like Windows, Facebook,
Photoshop or Airbnb?
280
“You’ll automatically be in the top 3% of best-performing companies by

successfully completing all your projects”, states Daniel Threlfall227.
Furthermore, 32% of surveyed businesses experienced a project failure in 2014
and these numbers increased up 55% in 2015228.
According to Huffington Post, 75% of the researched IT projects failed:
only 32% succeeded, while 44% were challenged and 24% failed completely229.
In addition, even if a project was successfully completed, it would not
necessarily bring the desired outcomes. According to another research
conducted by Michael Blog and Sven Blumberg from McKinsey230, a global
consultancy agency, “on average, large IT projects run 45% over budget and
7% over time, while delivering 56% less value than predicted”. Furthermore,
17% of IT projects ended up so badly that became threatening to the existence
of companies.But why do IT projects fail so badly?
Gartner names complexity as one of the main reasons that leads to the
projects failure231. While referring to complexity, Moore232 talks about
bureaucracy in governance arrangements that require producing additional
amount of reporting: “When a project starts to stumble, the increase of the
volume and scope of upward reporting will only place more burden on the
project and it will be unlikely to improve the likelihood of success”.
227
Threlfall, Daniel, ‘Seven Shocking Project Management Statistics and Lessons We Should Learn’, The
Project Management Learning Center, 2014, p. 1 <https://www.teamgantt.com/blog/seven-shocking-
project-management-statistics-and-lessons-we-should-learn/> [accessed 2 October 2017]
228
Sharon Florentine, ‘More than Half of IT Projects Still Failing’, CIO, 2016, p. 1
<https://www.cio.com/article/3068502/project-management/more-than-half-of-it-projects-still-
failing.html> [accessed 2 October 2017].
229
Jonathan Ezer, ‘Why Do so Many I.T Projects Fail?’, The Huffington Post, 2010, p. 1
<http://www.huffingtonpost.com/jonathan-ezer/why-do-so-many-it-project_b_712060.html> [accessed
2 October 2017].
230
Michael Bloch, Sven Blumberg, and Jürgen Laartz, ‘Delivering Large-Scale IT Projects on Time, on
Budget, and on Value’, 2012 <http://www.mckinsey.com/business-functions/digital-mckinsey/our-
insights/delivering-large-scale-it-projects-on-time-on-budget-and-on-value>
231
Susan Moore, ‘IT Projects Need Less Complexity, Not More Governance’, Gartner, 2015, p. 1
<http://www.gartner.com/smarterwithgartner/it-projects-need-less-complexity-not-more-governance/>
[accessed 2 October 2017].
232
Moore, Susan, ‘IT Projects Need Less Complexity, Not More Governance’, Gartner, 2015, p. 1
[accessed 2 October 2017]
281
Bureaucracy, however, is not the only factor that makes running projects
more complicated.Ezer233 argues that “bad management” is the main problem,
raising also the issue of managers training: “the implication is that if managers
were better trained, these projects would all become successful”.
Thelfall234, on the other hand, mentions “communication breakdown” as
another reason that resulted in unfortunate outcome of 57% of the researched
IT projects. He also stresses the importance of the ability of project managers
to clearly communicate with all parties involved in project development.
Forbes provides some of the following reasons that contribute to
projects failure, such as poorly defined (or no defined) outcome, a lack of
leadership, a lack of accountability, insufficient communication, a lack of user
testing and solving the wrong problem235. Marr236 also concludes, “in fact, 54
percent of IT project failures can be attributed to poor management – while
only 3 percent are due to technological problems”.
Similarly, Clark237 views “the absence of project mandate, unclear
expectations, poor communication between IT and business and no user
input” as crucial factors.Michael Bloch and Sven Blumberg238 also add missing
focus (unclear objectives, a lack of business focus), content issues (shifting
requirements, technical complexity), skill issues (an unaligned team, a lack of
skills), execution issues (an unrealistic schedule, reactive planning) to this list.
233
Ezer, Jonathan, ‘Why Do so Many I.T Projects Fail?’, The Huffington Post, 2010, p. 1
2 October 2017]
234
235
Bernard Marr, ‘Are These The 7 Real Reasons Why Tech Projects Fail?’, Forbes, 2016, p. 1
<https://www.forbes.com/sites/bernardmarr/2016/09/13/are-these-the-real-reasons-why-tech-
projects-fail/#330414ba7320> [accessed 1 September 2017].
236
The same
237
Clark, Tim, ‘4 Common IT Project Management Challenges and 4 Solutions’, 2014
<https://www.liquidplanner.com/blog/4-common-it-project-management-challenges-and-4-solutions/>
238
282
Dr. Rahim239 states that poor planning, unclear goals and objectives,
misalignment quality of interaction and changing objectives are the main
troublemakers.In order to conclude why IT projects fail, every project needs to
be researched separately. However, in this article we shall focus on
management aspects that drive such poor performance of IT projects.
This section attempts to define the scope of project management,
discuss responsibilities and identify whether the reasons for projects failure
discussed in the previous section can be related to project management.
According to the Association for Project Management240, “project
management is the application of processes, methods, knowledge, skills and
experience to achieve the project objectives”. The Figure 1 defines three main
attributes that project management is responsible for ensuring.
Figure 1. The scope of project management
As far as the Figure 1 explains the scope of project management in a very

general way, however, it gives the idea of the basic product requirements that
239
Rahim, Dr. Emad, ‘5 Reasons Why So Many IT Projects Fail’, Bellevue University Project Management
Center of Excellence, 2017, p. 1 <https://pmcenter.bellevue.edu/2017/06/24/5-reasons-why-so-many-it-
projects-fail/> [accessed 4 October 2017]
240
APM, ‘What Is Project Management?’, Association for Project Management, p. 1
<https://www.apm.org.uk/resources/what-is-project-management/> [accessed 4 October 2017]
283
have to be achieved: a product has to be delivered within a certain timeframe

and budget while providing the necessary functionality. Therefore, the project
management can be also described as the set of activities planned to
accomplish those three objectives; failing to achieve one of those objectives
can result in failure of the whole project.
According to another definition by241, “an IT project manager is a
professional charged with overseeing the process of planning, executing and
delegating responsibilities around an organisation's information technology,
(IT) pursuits and goals”. This definition refers to a traditional project manager
in software development; though there could be several people involved in
managing IT projects, which is discussed further in the section 3.
As it has already been mentioned, planning is an important part of the
project management process, which usually occurs prior to the beginning of a
project. In the section 1, “reactive planning”242, “poor planning”243, “unrealistic
schedule” and “lack of business focus” 244have been mentioned as some of the
main issues. It is clear that “reactive planning” is the resultof the inadequate
initial planning, which resulted in the necessity to adapt the project
development processaccording to the appearing (unforeseen) challenges.
Thereby, “reactive planning” can easily make a “schedule” look “unrealistic”.
The “lack of business focus” can be the result of imprecise business
requirements, which are usually transformed into project requirements at the
planning stage.
When project comes to the stage of implementation, the right people in
charge are exactly what is needed. Thus,delegating responsibilitiesclearly is an
241
Rouse, Margaret, ‘IT Project Manager’, 2013 <http://searchcio.techtarget.com/definition/IT-project-
manager>
242
243
Rahim, Dr. Emad, ‘5 Reasons Why So Many IT Projects Fail’, Bellevue University Project Management
Center of Excellence, 2017, p. 1 <https://pmcenter.bellevue.edu/2017/06/24/5-reasons-why-so-many-it-
244
284
245
important aspect of project management. Therefore,an “unaligned team”
246
and “lack of leadership” are the result of ineffective delegating of
responsibilities. “Lack of skills” is also part of the same problem; however, the
HRM team is also responsible for making sure that the project team has the
necessary skills to perform at the highest capacity. Hence, depending whether
project management is involved in hiring process, it can be also held itself
responsible for the “lack of skills”.
The term “execution”can be related to the whole process, including
planning and delegating responsibilities as well. However, the issues like
“communication breakdown”247, “poor communication”248, “solving the wrong
problem”249, “complexity”250, “bad management”251can be generally described
as execution issues. As project management is responsible for all
communication in a project, the lack of communication, whether between the
teams, departments, stakeholders or clients is the result of insufficient project
management efforts. Talking about “complexity” (which also implies
“bureaucracy”, according to Moore252), it is also worth mentioning that this
issue is a bit more complicated, as policies and rules are established by the top
management, therefore, it would be inappropriate to regard it as an
entirelyproject management issue.
245
The same
246
projects-fail/#330414ba7320> [accessed 1 September 2017]
247
248
Clark, Tim, ‘4 Common IT Project Management Challenges and 4 Solutions’, 2014
<https://www.liquidplanner.com/blog/4-common-it-project-management-challenges-and-4-solutions/>
249
projects-fail/#330414ba7320> [accessed 1 September 2017]
250
Moore, Susan, ‘IT Projects Need Less Complexity, Not More Governance’, Gartner, 2015, p. 1
[accessed 2 October 2017]
251
Jonathan Ezer, ‘Why Do so Many I.T Projects Fail?’, The Huffington Post, 2010, p. 1
2 October 2017].
252
The same
285
To sum up, most of the reasons for projects failure can be connected
with IT project management to a greater extent. Therefore, some
improvements clearly need to be made to promote efficiency of IT project
management.
There is a growing tendency in IT companies to use software
development models across various departments; even if an IT project is not
necessary connected with software development, the following practices can
still be applied.
Depending on the chosen software development model, there can be
different approaches to managing projects. In general, there can be several
software development models that are chosen to run an IT project: the
waterfall model, incremental development and reuse-oriented software
engineering253.
The waterfall modelisolates the major software development, activates
it at separate stages that must not be overlapped (Figure 2). This is a classic
example of a plan driven development and one of the first frameworks that
has been ever used in software development.
The incremental model interleaves different software activities as series
of development cycles that are added incrementally (Figure 3); every cycle is
focused on adding certain functionality to a product. One of the most popular
incremental models is believed to be Agile development.
253
Ian Sommerville, Software Engineering, Software Engineering, 2010 <https://doi.org/10.1111/j.1365-
2362.2005.01463.x>
286
Figure 2. The waterfall model
254
Source: compiled by the authors on the basis of
Figure 3. The incremental model
255
254
Ian Sommerville, Software Engineering, Software Engineering
Engineering, 2010 <https://doi.org/10.1111/j.1365-
2362.2005.01463.x>
255
The same
287
Reuse-oriented software focuses on integrating existing components into

the system (Figure 4). This approach aims to reduce time of software
development.
Figure 4. The reuse-oriented software model
256
According to TechBeacon257, most of the companies tend to largely

adapt practices of agile software development today: at least two thirds of all
surveyed companies stated that they either used “pure Agile” or “leaning
towards Agile”. Apparently, the vast majority tends to adapt certain elements
of Agile methodology to a different extent: while some companies may not be
using “pure Agile” methodology, they incorporate some elements or use
hybrid methods.
256
The same
257
TechBeacon, ‘Survey: Is Agile the New Norm?’, 2015 <https://techbeacon.com/survey-agile-new-
norm>
288
Figure 5. The primary development method used in organisation across

projects
258
The basic idea of the Agile model is that there is no specific person to be
responsible for the outcome of the project but rather the whole development
team is responsible259. On the one hand, this makes a positive impact on a
team spirit; on the other hand, the absence of a single head of the project
makes managing projects more complicated.
In the waterfall model, it is common to have a single head of the project.
But the main challenge with this approach is that a single head of the project
cannot be equally good at all activities involved in project management. For
instance, a single person cannot have a great business focus, advise
258
TechBeacon, ‘Survey: Is Agile the New Norm?’, 2015 <https://techbeacon.com/survey-agile-new-
norm>
259
2362.2005.01463.x>
289
development team on technical and non-technical issues perfectly and plan a

detailed schedule. Therefore, a common solution to this problem that adapts
the Agile methodology is to delegate responsibilities so that people involved in
managing Agile projects can focus on different aspects of project
management.
The structure of the Agile team can slightly vary: as it has been
previously mentioned, many companies incorporate only some elements of
the Agile methodology. The standard agile team structure implies that there
are three roles involved in overlooking project: a project manager and a
product ownerand development team (Figure 4).
Figure 6. The Agile team structure
260
A product owner (PO) is someone who represents stakeholders in the

Agile development: the job of a product owner is to make sure that a product
260
Lindsay Ratcliffe and Marc McNeill, Agile Experience Design: A Digital Designer’s Guide to Agile, Lean,
and Continuous, 1st edn (New Riders, 2011)
290
vision is properly implemented. A product owner is also often known as mini-

CEO of product development.
A project manager (PM) in agile development is often calledscrum
master:these two titles are often used interchangeably but in most cases, they
imply different positions. A scrum master (SM) focuses on facilitating the
development process and acts as a mentor for the development team: he or
she removes any development barriers and makes sure that the team is not
distracted by any external interference. Despite certain similarities betweena
scrum masterand a traditional project manager, these two roles are quite
different (Table 1).
Table 1. The difference between SM and traditional PM

Scrum Master Traditional Project Manager
− serves the team where − manages the budget;
needed; − reports to business leadership on
− removes blockers or project progress;
impediments that hinder project − focuses on process;
progress; − allocates tasks;
− coaches the product − prioritizes features;
owner; − manages risk;
− monitors the progress of − coordinates with other dependent
the sprint; teams.
− helps team estimate and
increase velocity;
− promotes continuous
communication;
− facilitates sprint planning
and other scrum meetings;
− monitors and helps
improve team dynamics;
− lends support to whatever
part of the project, which needs
assistance at a certain time;
− motivates the team;
− acts as the glue that holds
the team together.
261
261
Adam Frederico, ‘What’s the Difference between a Project Manager and a Scrum Master?’, Solstice,
2016, p. 1 <https://www.solstice.com/blog/whats-the-difference-between-a-project-manager-and-a-
scrum-master> [accessed 26 October 2017]
291
Unlike a project managerin the traditional sense, the Agile project

managershouldfollow the Agile philosophy and they delegate as many
responsibilities as possible to development team, focusing on three major
functions: supporting thehe team, buffering the team against an external
influence and co-ordinating
ordinating activities across departments.
While there is an outgoing debate whether the role of a traditional
project manager isredundant in the theAgile development, the answer really
depends on many things.. The main differentiation point between the two is
that ascrum master usually employs a coaching approach anda traditional
project manager uses a directive approach262. Thus, depending on whatever
approach fits better the needs of the project, the decision can be made
whether to assign a scrum master ora a project manager to the project or even
both.
Foley263 argues that the larger and complex the project is, the more
efforts are required to manage team(s) and coordinate activities (Figure 7).
Figure 7. An increasing
ncreasing need for the Project Manager role
264
262
Leonardo Plaza, ‘Who Is the Project Manager in Scrum?’, Management Plaza, 2015, p. 1
<https://mplaza.pm/who-is-the-project-manager-in
in-scrum/> [accessed 25 October 2017]
263
Foley, Simon, ‘DOES SCRUM MAKE THE PROJECT MANAGER ROLE REDUNDANT?’, Scott Logic, 2014, p.
1 <http://blog.scottlogic.com/2014/09/10/does-scrum
scrum-make-project-managers-redundant.html>
264
The same.
292
This is specifically the case when teams that work on the same project
have different locations.
Risk management is really important in software development and Agile
was exactly invented to decreasethe risk profile. However, Agile is not risk free
and just as any methodology has its own pros and cons. One of the
disadvantages of the Agile process is that it is believed to be overlooking some
factors that affect the product quality (Figure 5): in Agile, risk management
mostly concerns product requirements265 while it often misses other aspects,
such as cost time and a schedule, for instance.
Figure 8. Factors that affect the product quality
266
Governance environment, specifically, status reporting, can create an

additional amount of workload for development team which sometimes
critically affects the process quality. Therefore, having a single person that
periodically measures process progress against a schedule significantly
simplifies the work of development team.
265
The same
266
2362.2005.01463.x>
293
Here in Table 2, some issues with project management that are

mentioned in the section 1 have been addressed and they discuss how Agile
and PM can help.
Table 2. How PM can improve the Agile process

Issue How Agile helps How can PM help
Agile methodology was On big scale projects,
Complexity invented to decrease bureaucracy is inventible.
bureaucracy and Project manager helps to
streamline development plan realistic schedule and
processes makes sure that
development team has not
got stuck with official
circumlocution
Communication Agile and specifically, A project manager can help
breakdown Scrum, usually includes with communicating across
daily stand-up meetings departments. A good
and close face-to-face project manager can also
communication help to overcome cultural
and language barriers
Poorly defined (or Agile helps control It can be very hard to get
not defined) changes by adding new all necessary customer
outcome, a lack of requirements at the representatives if there are
leadership, a lack of beginning of each sprint; many different final users.
accountability, Agile also implies Therefore,some extra
insufficient customer involvement efforts are typically needed
communication, a during development to be made to get
lack of user testing process in order to get customer’s feedback in a
and solving the feedback and make sure timely manner and there is
wrong problem that product matches something that can also be
customer’s expectation done by a project manager
The absence of In Agile, it is PO who is As far as PO mostly focuses
294
project mandate, responsible for on functionality, it is

unclear communicating both project manager’s job to
expectations, poor with business and IT and establish deadlines and
communications bringing the product’s plan the schedule that
between IT and concept to life works both for
business and no development team and
user input customers
Missing focus Agile implies that It is clear that this is the
(unclear objectives, development team needs responsibility ofHRM to
a lack of business to be skilled and has to bring the right people to
focus), content have strong abilities to the project. However, a
issues (shifting self-organise. Therefore, project manager can
requirements, development team is identify the gap for
technical responsible for reducing necessary human resource,
complexity), skill the element of technical so HR department can start
issues (an unaligned complexity. hiring process just in time.
team, a lack of This can also reduce the
skills), execution amount of reactive
issues (an planning
unrealistic
schedule, reactive
planning)
All in all, there is a strong argument for getting PM involved in bigand

complex Agile projects. It can be also suggested using elements of different
software development models, where they fit the project needs rather than
just stick to one specific model.
Conclusions. In this article, the possible reasons that lead to failure of IT
projects from management perspective have been investigated, summarized
and analysed and possible solutions have been suggested.
Firstly, the scale of the problem has been investigated and some reasons
that lead to project failures have been discussed. The data from surveys have
295
been used to list those reasons and prove that the problem is actual and
significant.
Secondly, we have discussed how the reasons for projects failure are
related to project management and stressed the necessity for improvement of
IT project management.
Finally, 3 major software development models have been reviewed and
Agile has been regarded as mostly preferred by IT companies; various
management roles that are involved in the Agile development have been
discussedand some areas, where Agile potentially falls short have been found;
it has been suggested how the role of a traditional project manager can
improve the Agile model, including arguments for situations, when using a
project manager might be appropriate.
Whilst further research is clearly needed, some directions have been
given. In this article, we have discussed how a traditional project manager can
improve the Agile development, however, some questions remain
unanswered. The further work can include researching into competences of IT
project managers and recruitment strategies that can be applied to make
project management more efficient.
296
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Volume 3

MODELLING OF THE MECHANISMS TO RESTORE THE

University of Economy Publishing, Bydgoszcz, Garbary str., 2, Bydgoszcz, 85-229

TRANSLATION EDITOR: Olga Siredzhuk

Liubov Mykhailova, Viktoriia Hrytsenko

Nataliya Marhita, Roksolana Voronina

Tatiana Bludova, Tatiana Galahova

Andrii Mykhailov, Tetiana Kharchenko

Olga Mnykh, Nadiya Lyubomudrova, Ruslan Brytskyi

Olga Ilyash, Volodymyr Getmanskyy, Vladyslava Kornilova

Dmitriy Antoniuk, Katerina Antoniuk, Juliia Poliakova

Anatoliy Mokiy, Denys Mykhailyk, Lev Vlasenko, Olesya Datsko

Yurii Hrysiuk, Artem Labuta

Galina Myskiv, Khrystyna Danylkiv

Svitlana Hrynkevych, Maryana Kohut

Daria Doroshkevych, Dmytro Vavilkin

EDITORS and AUTHORS

1. Anatoliy Mokiy - Doctor of Economics, Professor, Vice-rector,

11. Khrystyna Danylkiv - Ph.D in Economics, Associate Professor, Finance,

Theoretical and Applied Economics Department, National Technical University

Globalization, as a vector of promising and, at the same time,

authors’ estimation of the dynamic spatial-temporal model to develop the

ASSESSMENT OF THE DYNAMIC SPATIO-TEMPORAL MODEL OF

ASSESSMENT OF THE VALUE OF APICULTURE IN SPACE-

JEL Classification System: F14, O47, Q17, Q56

Introduction. Reforms that have recently occurred in Ukraine are aimed

Table 1. Honey production in the world, thousand tons

countries account for 46.5% of the world's honey production.This indicator in

Table 2. World export of natural honey, thousand tons

7 Ukraine 7,5 11,4 15,8 25,5 37,6 37,9 22,6 4,0

Ukraine is also approaching the leading positions, with the volume of

Table 3. World imports of natural honey, thousand tons

Figure 1. Dynamics of Ukrainian exports of natural honey

Ukrainian companies, paying 17% duty, sell the remaining quantities of

Traditionally, Chinese suppliers have been the leader in supplying

Table4.The geographical structure and export volumes of Ukrainian honey,

Table 5.Volumes of imports of natural honey to Ukraine

Table6.Volumes of export and import of wax in Ukraine

Of course, the volume of production and export of honey and wax is

Table 7.The number of bee colonies in the world, thousand families

Their number in the world is gradually increasing, and in 2013

Data on export-import of beekeeping in Ukraine are presented in Table 8. This

Table 8.Indicators of trade of bees’ families of Ukraine with the European

6. American scientists believe that the stress caused by the

environment, and develops ecotourism. In addition, beekeeping promotes the

Figure 3. The influence of beekeeping on sustainable rural development

Sustainable development of beekeeping

Economy Population Environment

Source:compiled by the authors on the basis of the research

In domestic literature known to us, we did not find a methodology that

Where W – loss of the region’s economy from the disappearance (decrease) in

Using statistical data of the State Statistics Committee of Ukraine, we

Table 9. Calculation of losses / benefits from changes in the number of bee

Loss of the economy of agriculture,

pollination over losses (benefits) of

Honey production of 1 bee family,

during pollination by bees, million

Specific weight of losses / gains in

Gross added value, million UAH

Excess of losses (benefits) from

Loss / benefit of beekeeping,

the gross added value of

2010 -99500 22,50 -142,4 -2406,8 -2549,2 82948 -3,07 16,9