Dependence of the Ukrainian Economy on Foreign Capital
The article gives a clear picture of the foreign capital operation in Ukraine. The investment attractiveness of Ukraine was defined. The analysis of elasticity and correlation and regression analysis were carried out to determine the level of Ukrainian economy’s dependence on the foreign capital. Th...
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irk-123456789-876262015-10-23T03:02:07Z Dependence of the Ukrainian Economy on Foreign Capital Medentseva, M.M. Finance The article gives a clear picture of the foreign capital operation in Ukraine. The investment attractiveness of Ukraine was defined. The analysis of elasticity and correlation and regression analysis were carried out to determine the level of Ukrainian economy’s dependence on the foreign capital. The multivariate correlation analysis was carried out to find out the factors of influence on foreign direct investment inflow in Ukraine. У статті розглянуто функціонування іноземного капіталу в Україні. Дана оцінка інвестиційної привабливості України. Проведено аналіз еластичності і кореляційно-регресійний аналіз для визначення ступеня залежності української економіки від іноземного капіталу. Проведено багатофакторний кореляційний аналіз для визначення факторів впливу на обсяги прямих іноземний інвестицій в Україну. В статье рассмотрено функционирование иностранного капитала в Украине. Дана оценка инвестиционной привлекательности Украины. Проведен анализ эластичности и корреляционно-регрессионный анализ для определения степени зависимости украинской экономики от иностранного капитала. Проведен многофакторный корреляционный анализ для определения факторов влияния на объемы прямых иностранный инвестиций в Украину. 2014 Article Dependence of the Ukrainian Economy on Foreign Capital / M.M. Medentseva // Економічний вісник Донбасу. — 2014. — № 4(38). — С. 92-96. — Бібліогр.: 9 назв. — англ. 1817-3772 http://dspace.nbuv.gov.ua/handle/123456789/87626 330.322 (477) en Економічний вісник Донбасу Інститут економіки промисловості НАН України |
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Finance Finance Medentseva, M.M. Dependence of the Ukrainian Economy on Foreign Capital Економічний вісник Донбасу |
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The article gives a clear picture of the foreign capital operation in Ukraine. The investment attractiveness of Ukraine was defined. The analysis of elasticity and correlation and regression analysis were carried out to determine the level of Ukrainian economy’s dependence on the foreign capital. The multivariate correlation analysis was carried out to find out the factors of influence on foreign direct investment inflow in Ukraine. |
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Medentseva, M.M. |
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Medentseva, M.M. |
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Medentseva, M.M. |
| title |
Dependence of the Ukrainian Economy on Foreign Capital |
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Dependence of the Ukrainian Economy on Foreign Capital |
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Dependence of the Ukrainian Economy on Foreign Capital |
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Dependence of the Ukrainian Economy on Foreign Capital |
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Dependence of the Ukrainian Economy on Foreign Capital |
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dependence of the ukrainian economy on foreign capital |
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Інститут економіки промисловості НАН України |
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2014 |
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Finance |
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Dependence of the Ukrainian Economy on Foreign Capital / M.M. Medentseva // Економічний вісник Донбасу. — 2014. — № 4(38). — С. 92-96. — Бібліогр.: 9 назв. — англ. |
| series |
Економічний вісник Донбасу |
| work_keys_str_mv |
AT medentsevamm dependenceoftheukrainianeconomyonforeigncapital |
| first_indexed |
2025-07-06T15:16:52Z |
| last_indexed |
2025-07-06T15:16:52Z |
| _version_ |
1836911179085119488 |
| fulltext |
M. M. Medentseva
92
Економічний вісник Донбасу № 4(38), 2014
UDC 330.322 (477)
M. M. Medentseva,
Donetsk National Technical University
DEPENDENCE OF THE UKRAINIAN ECONOMY ON THE FOREIGN CAPITAL
Introduction. World experience shows that econ-
omies in transition are not able to overcome the eco-
nomic crisis without attracting and making effective
use of foreign capital. Accumulating the capital,
providing access to modern technology and manage-
ment, foreign investment has not only resulted in na-
tional investment markets, but also make other eco-
nomic factors more dynamic in the development of
markets of goods and services. In addition, foreign
capital contributes to the macroeconomic stabilization
measures.
The relevance of the topic chosen is that foreign
capital plays a major role in the development of any
state regardless of the economic potential of the coun-
try as well as foreign direct investment promotes eco-
nomic growth in the recipient country intensifying the
competition. Foreign capital has contributed to the
development of Ukraine's economy as foreign capital is
a source of capital investment in production, develop-
ment and implementation of advanced management
and marketing techniques. Ukraine deserves special
attention as a country in transition which was able to
increase FDI inflows by 35 % in 2010 after declining
56 % in 2009 year [1]. In terms of economic potential,
as shown in expert estimates, Ukraine is among the top
five countries in Europe, and in case of the efficiency
of the use of foreign capital Ukraine is among the top
two hundred countries.
Analysis of recent research and publications.
Empirical evidence on the dependence between FDI
and the economic growth is still inconclusive. Recent
studies have examined some factors that could influ-
ence this relationship but have not extensively ad-
dressed the role of the characteristics of foreign direct
investment (FDI) and how strong the dependence of
the economy on the foreign capital is.
The latter issue has fuelled passionate debates
amongst economists, policymakers, and in civil socie-
ty. According to Eswar S. Prasad, it has gained im-
portance in recent years because of the curious, even
seemingly perverse, pattern of global imbalances,
whereby capital seems to be flowing “uphill” from
poorer to richer countries. But it has economic rele-
vance beyond the current conjuncture because it goes
to the heart of the process of development and the role
that foreign capital plays in it. It also has enduring
policy relevance as developing countries try to decide
whether to open themselves up more to the process of
financial globalization, and as they attempt to figure
out in what form, and to what degree, they should do
so [2, p. 2].
The importance of the presence of foreign capital
in the economy of host countries was proved on the
"flying geese" or "catching up" paradigm which was
developed in the late 1930s by the Japanese scientist
K.Akamatsu. As a generalized theory of economic
development it explain how the foreign capital permits
for developing countries to catch up and even overtake
the advanced countries, but a recipient country should
remain open to direct investment from foreign compa-
nies. One economy, like the first goose in a V-shaped
formation, can lead other economies toward industrial-
ization, passing older technologies down to the follow-
ers as its own incomes rise and it moves into newer
technologies [3, p.12].
Developing the research of foreign capital influ-
ence on a host country credit should be given to the
studies of foreign authors (B.Sharma, D.Willem, R.
Barrell, M.Todaro, S.Smith and others) on the assess-
ment the investments effectiveness in market condi-
tions. Significant contribution to economic theory also
made by Ukrainian scientists: Dyachuk V.D., Grishae-
va J.G., Lazebnyk L.V., Anshyn V.M., Blank I.A. and
others. The major part of their researches is dedicated
to the relation between foreign capital and economic
growth.
The purpose of the article is to analyze foreign
direct investments in the national economy, to estimate
the level of Ukrainian economy’s dependence on the
foreign capital, to found out the factors of influence on
FDI inflow to Ukraine.
The main material. The history of investing pro-
cesses in the world gave to the seven main types of the
foreign capital. The most popular of these types nowa-
days is foreign direct investment (FDI), as FDI have a
great number of advantages for both investors and
recipients.
Foreign direct investment has a lot of definitions.
According to Todaro and Smith (2006) FDI is the in-
vestment by corporations like transnational and multi-
national in foreign countries having their head office in
a developed country [6]. Another definition for FDI
according to Wang (2005) FDI is the management and
control of a company, or an enterprise or a facility with
interest lasting for a long term in a foreign country [4].
According to Kumya and Wakasugi (1991) FDI is the
process of acquiring and investing in a new or existing
industry or business and expanding and managing it in
a foreign country [5, p.48]. Foreign direct investment is
the direct investment through governments or govern-
ment agencies, or through enterprises either private or
public ones [4].
M. M. Medentseva
93
Економічний вісник Донбасу № 4(38), 2014
To estimate the Ukrainian dependence on the for-
eign capital the picture of foreign capital operation in
Ukraine should be drawn. Let us begin from identify-
ing the level of investment attractiveness of Ukraine.
The index of investment attractiveness (IAI) of
Ukraine in January-September 2013 declined by 0.95
points – to the level of 2.56 on a scale, falling to a level
of performance of the IIIrd quarter of 2009. Falling
trajectory of of investment attractiveness index of
Ukraine is from 3.39 in the second quarter 2013 to 2.56
in the third quarter. In the first quarter of 2014 the
index of investment attractiveness of Ukraine increased
to 2.72 points out of five. This is the highest rate since
2011, Tomas Fiala, the president of the European
Business Association (EBA), said. According to the
EBA research the estimate investment attractiveness of
Ukraine has increased since the lowest in the history of
the study of the index in IV’2013, when it fell to 1.81.
This is an alarm, which indicates the lack of investor’s
confidence in the economy and the market. Causes of
decline can be divided into external (global market
instability) and internal factors. The condition of the
U.S. and European markets cannot but impact on the
economy of Ukraine. The internal causes comprise
corruption, increased pressure on business and the
inadequate reforms [6].
Investigating the impact of FDI on the economy is
also important to analyze the geographic structure of
investment and spheres of the national economy in
which these investments are made. The largest share in
the FDI structure is taken by Cyprus (31.7%). This is
explained by the fact that under the guise of FDI the
previously taken capital returns to Ukraine, but now is
legalized. Cyprus is followed by Germany (12%), the
Netherlands (9%), Russia (7 %), Austria (6 %), United
Kingdom (5%) [1].
Further analysis of the structural transformation in
the field of foreign direct investment and GDP by eco-
nomic activity in Ukraine shows that the largest share
of foreign investment was attracted to the following
economic activities:
− manufacturing industry (27.93 % of total fdi in
2013);
− financial activities (33.68 % of total fdi in
2013);
− real estate, renting and business activities
(10.63 % of total fdi in 2013).
The structure of economic activities represented
in Table 1 is associated with a high rate of return on
funds invested and with a significant return on invest-
ment.
To estimate the level of the Ukrainian economy
dependence on foreign capital it is appropriate to use
elasticity analysis.
Let us take a calculation of the elasticity with re-
spect to GDP dynamics in terms of the dynamics of
foreign investment in certain sectors (table 1).
Table 1
The elasticity of structural transformations
in the economy of Ukraine
Economic activity
Elasticity coeffi-
cient
∆ і∆ і
Agriculture, hunting and forestry 0.976
Mining 1.004
Manufacturing 0.891
Production and distribution of
electricity, gas and water
0.772
Construction 0.825
Trade; repair of motor vehicles,
household appliances and person-
al and household goods, hotels
and restaurants
1.085
Transport and communications 1.065
Education 1.691
Health care and social service 1.497
Financing activities 0.587
Real estate, renting and business
activities
1.051
Note: The table designed by the author based on the
State Statistics Committee data [8].
Calculation shows that the current practice of pri-
ority investment is of greater importance not only for
the recipient country (Ukraine), but for the donor in-
vesting country. Examining the value of the coefficient
of elasticity of changes in gross domestic product for
the change in the volume of foreign direct investment,
it is easy to come to the conclusion that with the same
size of investment the funds in education and health
make the largest contribution to GDP. Development of
human capital and FDI reinforce each other through
complementary effects: increased qualification of the
workforce (training, new skills and special education
for workers of transnational corporations and enterpris-
es with foreign capital) - the direct effect; social stabil-
ity and improving the nation's health - indirect effect
[8]. Relatively high coefficient of elasticity belongs to
the mining (1.004), transport and communication activ-
ities (1,065), trade and tourism (1,085).
To determine the degree of communication FDI
and GDP there was used a popular method of econom-
ic phenomena, correlation and regression analysis
(table 3).
The formula chosen to calculate a correlation co-
efficient is [4]:
= ∑ (∑ )(∑ ) ∑ (∑ ) ∑ (∑ ) (1)
M. M. Medentseva
94
Економічний вісник Донбасу № 4(38), 2014
In our case FDI was chosen as the one of two var-
iables (x) (million USD) to calculate the correlation
coefficient to evaluate the relation between the second
variable GDP (y) (billion UAH). It goes without saying
that FDI does have influence on Ukrainian economy,
buy now we will have the numbers (the correlation
coefficient) to prove this fact. We have made the fol-
lowing calculations of the correlation coefficient (table
2).
Table 2
Calculation of the correlation ratio
Years FDI (x) GDP (у) x*y x² y²
2002 4555.3 225.81 1028632.3 20750758.09 50990.16
2003 5471.8 267.344 1462852.9 29940595.24 71472.81
2004 6794.4 345.113 2344835.8 46163871.36 119103
2005 9047 441.452 3993816.2 81848209 194879.9
2006 16890 544.153 9190744.2 285272100 296102.5
2007 21607.3 720.731 15573051 466875413.3 519453.2
2008 29542.7 948,056 28008134 872771123.3 898810.2
2009 35616.4 913.345 32530061 1268527949 834199.1
2010 40053 1082.569 43360136 1604242809 1171956
2011 44806 1316.6 58991580 2007577636 1733436
2012 50333.9 1408.889 70914878 2533501489 1984968
2013 55296.8 1454.931 80453029 3057736090 2116824
Sum 320014.6 9668.993 347851749 12275208044 9992194
Average 26667.88 805.7494
After substituting in the formula 1 we have got
the correlation coefficient:
ℎ = 0,99
The calculations let us reach the following con-
clusions:
— because the correlation coefficient = 0,99,
applying the Chaddock scale of the determination coef-
ficient, FDI and GDP are very strongly interrelated and
are directly related (because > 0);
— coefficient of determination = 0,199, and it
means that the variation in GDP depends on changes in
the volume of investment by 19.9%.
There is strong dependence between Ukrainian
economic growth (GDP) and FDI. It means that the
more FDI will be attracted to Ukraine , the more re-
sources for economic growth Ukraine will have. So, it
would be useful to find out what are the main factors
which have influence on the FDI amount in Ukraine.
Let us use the correlation and regression analysis
to estimate the dependence of FDI inflow on the sever-
al factors. FDI (million dollars) were selected as the
result factor. The factor variables are such indicators:
X1 - GDP, billion UAH.
X2 - the average wage, UAH.
X3 - the amount of public debt, billion UAH.
X4 - level of the tax burden, %;
X5 - profitability of domestic enterprises %;
X6 - average interest rate on deposits, %;
X7 - the official rate of UAH to the USD, for $
100;
X8 – inflation, %.
The data for correlation and regression analysis of
the impact of factor variables on direct investments is
shown in the table 3 [8, 9].
Table 3
Summary data for correlation and regression analysis of the impact factor values
X1, X2, X3, X4, X5, X6, X7, X8 on FDI
Years Y X1 X2 X3 X4 X5 X6 X7 X8
2002 4555.3 225.81 311 63.2923 18 4.8 11.2 537.21 6.1
2003 5471.8 267.344 376 64.4687 20.1 3.7 7.8 532.66 -0.6
2004 6794.4 345.113 462 66.1332 20.32 2.6 7.1 533.27 8.2
2005 9047 441.452 590 67.6823 18.3 6.4 7.8 531.92 12.3
2006 16890 544.153 806 63.1446 22.21 7 8 512.47 10.3
2007 21607.3 720.731 1041 66.1137 23.11 6.6 6.8 505 11.6
2008 29542.7 948.056 1351 71.2943 22.62 6.8 7.2 505 16.6
2009 35616.4 913.345 1806 130.6896 23.92 3.9 8.3 526.72 22.3
2010 40053 1082.569 1906 301.4284 22.78 3.3 11.8 779.12 12.3
2011 44806 1316.6 2239 434.32 21.42 4 9.4 793.56 9.1
2012 50333.9 1408.889 2633 473.1216 25.5 5.9 7.3 796.76 4.6
2013 55296.8 1454.931 3337 516.405 24.6 5 11.3 799.1 -0.2
M. M. Medentseva
95
Економічний вісник Донбасу № 4(38), 2014
According to the eight-factor regression analysis
the economic and mathematical model was construct-
ed:
Y = -29408.57 + 26.15X1 + 1.88X2 + 21.2X3 +
1243.75X4-229.88X5 + 990.22X6-13.45X7 + 195.25X8
This equation shows that the greatest impact on
FDI inflow to Ukraine results from such factors as:
1. The level of tax burden. If this factor changes
by 1%, the volume of direct investments will change to
1243.75 million;
2. Profitability of domestic enterprises. An in-
crease of this factor by 1% will cause the increase of
direct investment to 733.99 million;
3. Average interest rate on deposits. If this factor
changes by 1%, the volume of direct investments will
change to 990.22 million.
4. Inflation rate. An increase of this factor by 1%
leads to the increase of direct investment to 195.25
million.
The input data are transformed to the correlation
matrix calculated on the basis of table 2.4, which is
used to measure the strength of the relationship be-
tween selected variables and the factorial scoring index
(Table 4).
Let us transform the numerical values of the cor-
relation coefficient obtained in the correlation matrix
(table 4), into their text semantic equivalents (table 5).
Table 4
Correlation matrix
Y X1 X2 X3 X4 X5 X6 X7 X8
Y 1
X1 -0.99173 1
X2 0.984085 0.971122 1
X3 0.88831 0.888197 0.919931 1
X4 0.826347 0.8029 0.796882 0.596927 1
X5 0.010071 0.060651 -0.01347 -0.15235 0.145779 1
X6 0.315873 0.253296 0.353908 0.44016 -0.05108 -0.35612 1
X7 0.81588 0.816116 0.83115 0.965242 0.482772 -0.25918 0.539638 1
X8 0.01422 0.009548 -0.1009 -0.36328 0.094452 0.145001 -0.23322 -0.3714 1
Table 5
Transformed correlation matrix
Y X1 X2 X3 X4 X5 X6 X7 X8
Y 1
X1 Very strong 1
X2 Very strong
Very
strong 1
X3 Strong Strong
Very
strong 1
X4 Strong Strong Strong Appreciable 1
X5
No
connection
No
connection
No
connection Weak Weak 1
X6 Moderate Weak Moderate Moderate
No
connection Moderate 1
X7 Strong Strong Strong Very strong Moderate Weak Appreciable 1
X8
No
connection
No
connection Weak Moderate
No
connection Weak Weak Moderate 1
Calculation of the correlation matrix leads to the
conclusion that there is a significant relation between Y
and X factors, except the X5 (profitability of domestic
enterprises) and X8 (inflation rate).
Conclusion. Thus, the calculations carried out
give a clear picture of the Ukrainian economy’s de-
pendence on the foreign capital. The Ukrainian eco-
nomic growth very strongly depends on the FDI in-
flows. This fact was proved with the help of two meth-
ods: Elasticity Analysis and Correlation and Regres-
sion Analysis. Calculation of elasticity shows that the
current practice of priority investment is of greater
importance not only for the recipient country
(Ukraine), but for the donor investing country as well.
Examining the value of the coefficient of elasticity of
changes in gross domestic product for the change in the
M. M. Medentseva
96
Економічний вісник Донбасу № 4(38), 2014
volume of foreign direct investment, it is easy to come
to the conclusion that with the same size of investment
the funds in education and health make the largest
contribution to GDP.
The result of regression analysis of the relation
between the direct investment in Ukraine and the se-
lected factors shows that it is necessary to create and
maintain a favorable tax climate and increase the prof-
itability of domestic enterprises to ensure a stable in-
crease in investments as the main indicator of invest-
ment attractiveness of the country. The clear proof of
such suggestions are the results of the regression anal-
ysis summaised above, according to which the level of
the tax burden, the level of profitability of the enter-
prises have greatest impact on the volume of direct
investments. In this subsection we use multifactorial
correlation analysis unlike the previous subsection
where there were only two variables (FDI and GDP).
We have found out the main factors on influence on
FDI inflow to Ukraine they are the profitability of do-
mestic enterprises, the tax burden.
References
1. The official website of the State Agency for
Investment and National Projects of Ukraine [Electron-
ic resource]. – Mode of access: http://www.ukrproject.
gov.ua/investment. 2. Foreign Capital and Economic
Growth [Electronic resource]. – Mode of access:
http://www.iie.com/publications/papers/subramanian04
07.pdf. 3. Terutomo Ozawa The (Japan-Born) “Fly-
ing-Geese” Theory of Economic Development Revisit-
ed–and Reformulated from a Structuralist Perspective
2010. 4. Wang, Peijie (2005). The Economics of for-
eign exchange and global finance, Springer. 5. Komi-
ya, Ryutaro; Wakasugi, Ryuhei (1991), Japan's Foreign
Direct Investment. Annals for the American Academy
of political and social science, Vol. 513, 48-61.
6. European Business Association [Electronic re-
source]. – Mode of access: www.eba.com.ua. 7. Re-
port Investment Company "NIKO" of FDI in Ukraine,
2011[electronic resource]. – Mode of access:
http://www.kua.niko.ua/ wpcontent/uploads/2010/07/
Sector_Review_Macro-c-FDI_2011_full-v_RU.pdf.
8. State Statistics Committee [Electronic resource]. –
Mode of access: http://www.ukrstat.gov.ua/. 9. Official
site of the Ministry of Economic Development and
Trade of Ukraine [Electronic resource]. – Mode of
access: http://www.me.gov.ua/.
Меденцева М. М. Залежність української
економіки від іноземного капіталу
У статті розглянуто функціонування іноземно-
го капіталу в Україні. Дана оцінка інвестиційної
привабливості України. Проведено аналіз еластич-
ності і кореляційно-регресійний аналіз для визна-
чення ступеня залежності української економіки
від іноземного капіталу. Проведено багатофактор-
ний кореляційний аналіз для визначення факторів
впливу на обсяги прямих іноземний інвестицій в
Україну.
Ключові слова: іноземний капітал, прямі іно-
земні інвестиції (ПІІ), інвестиційна привабливість,
еластичність, кореляційно-регресійний аналіз.
Меденцева М. М. Зависимость украинской
экономики от иностранного капитала
В статье рассмотрено функционирование ино-
странного капитала в Украине. Дана оценка инве-
стиционной привлекательности Украины. Прове-
ден анализ эластичности и корреляционно-регрес-
сионный анализ для определения степени зависи-
мости украинской экономики от иностранного ка-
питала. Проведен многофакторный корреляцион-
ный анализ для определения факторов влияния на
объемы прямых иностранный инвестиций в Украи-
ну.
Ключевые слова: иностранный капитал, пря-
мые иностранные инвестиции (ПИИ), инвестици-
онная привлекательность, эластичность, корреля-
ционно-регрессионный анализ.
Medentseva M. M. Dependence of the Ukraini-
an Economy on Foreign Capital
The article gives a clear picture of the foreign cap-
ital operation in Ukraine. The investment attractiveness
of Ukraine was defined. The analysis of elasticity and
correlation and regression analysis were carried out to
determine the level of Ukrainian economy’s depend-
ence on the foreign capital. The multivariate correla-
tion analysis was carried out to find out the factors of
influence on foreign direct investment inflow in
Ukraine.
Keywords: foreign capital, foreign direct invest-
ment (FDI), investment attraction, elasticity, correla-
tion and regression analysis.
Received by the editors: 14.10.2014
and final form 23.12.2014
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