Ukraine’s industrial policy: pathways out of a peripheral development trap

Abstract

This article examines the challenges of designing and implementing industrial policy in peripheral and semi-peripheral economies under conditions of external constraints, using Ukraine as an illustrative example. The Ukrainian economy operates under the influence of multiple and often contradictory factors whose combined effect significantly narrows the available industrial policy toolkit and increases the risk of further peripheralization within the international division of labour. The origins of this vulnerability can be traced to long-standing adherence to Washington Consensus prescrip-tions, and the neglect of key structural regularities of economic development, including increasing returns, diversifica-tion of economic activities, economic complexity, cumulative causation, economies of scale, and cluster and synergy effects. The study characterizes the structural weakness of the Ukrainian economy, manifested in processes of deindus-trialization, raw-material specialization, and the loss of economic complexity compared with the countries of Central and Eastern Europe. It also provides a theoretical interpretation of the nature of external constraints faced by peripheral and semi-peripheral countries in shaping industrial policy and systematizes their manifestations in Ukraine, including WTO trade commitments, the financial conditionality of IMF programmes, the requirements of the EU acquis com-munautaire and the “Ukraine Facility” programme, climate-related regulatory pressure from the European Union, as well as the asymmetry of bargaining power in interactions with transnational corporations. The paper shows that these constraints reflect deeper structural asymmetries of the global economy: countries that historically developed their in-dustries through protectionist policies and state support for domestic producers now shape international trade rules that effectively limit the ability of developing economies to replicate a similar development trajectory. For Ukraine, mitigat-ing the impact of these constraints requires both defending the right to expand the industrial policy toolkit in negotia-tions with international partners and strengthening domestic productive capabilities while increasing domestic value added. These conditions highlight the need for structural and technological transformation of industry along two inter-related dimensions: a techno-economic trajectory associated with the principles of Industry 4.0 and a value-oriented trajectory aligned with the concept of Industry 5.0. Using the economic complexity approach as an analytical basis for selective industrial policy, the study outlines related diversification paths for the Ukrainian economy that are relatively attainable given the country’s existing productive capabilities while also possessing the potential to increase technologi-cal sophistication and enable further diversification. This framework provides an analytical basis for the implementation of a selective industrial policy aimed at fostering more complex economic activities. On this basis, the article substanti-ates strategic principles for Ukraine’s industrial policy aimed at overcoming the peripheralization trap and facilitating the structural transformation of the economy through the development of productive capabilities under conditions of external constraints and the requirements of Industry 4.0 and Industry 5.0.