Institutional traps in transitional economies: The case of Ukraine

The main objective of this thesis is an investigation into obstacles to democratic market transformation in Ukraine.;The research examines how the transition process in Ukraine has been captured by vested interests and how Ukraine has become caught in an institutional trap, where the historically established institutional structures continue to play a key role in the reinforcement of existing non-democratic economic and political relations in society.;The study defines an institutional trap and focuses on the main sources of a persistent institutional inefficiency within the Ukrainian economy, which are analyzed as: inefficient governance and a weak post-totalitarian state; lack of civil society and the hypertrophied role of informal rules and relations inherited from the past.;The study concludes that the premature democratization of economic and political life led to criminalization of society where an institutionally weak state acted only as a supplier of protection for influential clans, fortifying oligarchization.;The thesis shows that Ukraine's oligarchic groups continue to constitute the political and economic base of the country. As a result, under the established institutional settings, domestically grown oligarchs represent the one and only force in the economy capable of investing.;The thesis presents the diffusion model of corrupt investment practices in Ukraine as an analytical model of the institutional trap. It is suggested that a positive impact of an oligarchic environment on investment spending, in turn, stimulates economic recovery under existing non-transparent economic conditions, and, therefore, reinforces the institutional trap. An increase in the degree of investors' confidence signified that oligarchic structures continued to benefit under the trap conditions and had no incentive to deviate towards a better institutional equilibrium.;The thesis provides the model of the reinforcement mechanism of the institutional trap and confirms the author's hypothesis about positive impact of the oligarchic environment on investment spending.;On the base of the results of empirical investigation this research concludes that the full legalization of unlawfully acquired capital and incomes would be more beneficial for Ukraine's economy than leaving the economy without legal guarantees of the safety of property, since the latter policy option, if implemented, will lead to a higher increase in intensity of the oligarchic factor in sustaining already established rates of investment growth.;The analysis also concludes that an establishing of transparent economic conditions will stimulate higher investment efforts due to improvements in institutional quality.