THE UNITED KINGDOM – UKRAINE MERCHANDISE TRADE: RESILIENCE AND FACTORS

Abstract

The paper analyses the latest trends in the development of Ukrainian-British economic cooperation, examines the institutionalization process of economic liberalization, and assesses the dynamics of Ukraine’s and the United Kingdom’s export-import activities. The authors note that a key issue remains the low diversification of Ukraine's exports to the United Kingdom, with a predominance of low value-added goods. In contrast, imports are dominated by high value-added products. Identifying the factors driving the development of mutual trade creates a foundation for determining the most promising directions for deepening trade relations between the two countries under current conditions. Ukraine supplies mainly food to the UK to import mostly machinery and vehicles from there. The analysis of the dynamics and structure of mutual trade in goods between Ukraine and the United Kingdom over the past 30 years indicates a significant unrealized potential for further development. The UK used more diverse modes of transports for its exports than Ukraine. Except for the pandemic crisis, the bilateral trade was vulnerable under the recent global or idiosyncratic crises. The product groups were clustered according to their trade resilience. Time series regression analysis demonstrated that in trade with the UK Ukrainian exports depend on Ukraine’s general export competitiveness worldwide with more sector-specific factors (trade regulation in the UK for iron exports and possibly taxation in Ukraine for food exports). The Ukrainian imports are influenced by its GDP cycle, demand for foreign goods in general, the bilateral real exchange rate and possibly trade regulation in Ukraine and the bilateral banking links. Asymmetry in the importance of real exchange rate and business cycle for the bilateral trade depending on its direction and country is noted.

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