wiiw, vienna
26. Nov, 2022

Different Choices, Divergent Paths: Poland and Ukraine

With Eduard Hochreiter and Tadeusz Kowalski, scheduled to appear as wiiw Research Report 2022.

We compare the economic growth trajectories of Poland and Ukraine since 1990 to try to understand the extent to which the observed growth differentials can be traced to increased efficiency in the use of capital and other factors (intensive growth) rather than to simple accumulation of capital (extensive growth). We stress the role of such qualitative factors as education, governance, and institutions. We ask: did the EU perspective and NATO membership play a role? We discuss the closely related histories of the two countries and note the stark differences between them, including their different approaches to the EU vs. Russia, full vs. incomplete transition to a market economy, and democracy vs. anocracy, as well as different initial conditions. We compare key determinants of growth and growth trajectories, using economic as well as social indicators and trying to disentangle efficiency and accumulation and combine path dependence and the role and scope of creative destruction. While Poland had the shortest and mildest transformation recession among CEEs, Ukraine has been stagnant, or rather in decline since 1990. The statistics we report and the stories we tell suggest that both countries have a complex relationship with democracy and that the nearly threefold difference in per capita GDP at PPP in 2021 in Poland’s favor, with the ratio of investment to GDP similar in both countries, can most plausibly be traced to Poland’s (a) more extensive and diversified exports, and fewer restrictions on trade in addition to more comprehensive and quicker restructuring of the national economy inspired by the EU perspective; (b) more and better education; (c) longer experience and more democracy, less corruption, better governance, and freer press; (d) less agriculture and more manufacturing; and (e) less inflation and more financial development. Furthermore, Poland built market-friendly institutions to EU specifications and joined NATO. Against all this, Ukraine had more economic equality and less unemployment as well as, from the early 1990s onward, a lower initial level of income per person but was hampered by political divisions, path-dependent corruption, and poor governance. During the global Covid-19 pandemic, Ukraine apparently suffered fewer deaths than Poland despite fewer vaccinations.