Ukraine and Kazakhstan: two post-Soviet economies that diverged

Ukraine and Kazakhstan make an instructive comparison because they started from genuinely similar positions and ended somewhere very different, and because the usual explanations for the divergence are only partly right.

The starting point

In 1991 both were mid-sized Soviet republics with heavy industrial bases, comparable education levels, similar institutional inheritance and populations within the same order of magnitude. Both faced the same transition problems: hyperinflation, collapsed industrial demand, an unreformed state and a wholesale rewriting of property law.

What diverged

Kazakhstan's per-head output moved substantially ahead of Ukraine's over three decades. The primary explanation is hydrocarbons.

Kazakhstan has very large oil reserves that came into production through the 1990s and 2000s under foreign-operated consortia, and the resulting revenue funded a state that could afford both public investment and social spending without the fiscal crises that defined Ukraine's trajectory.

That is not a policy achievement in the ordinary sense, and treating it as one produces the wrong lessons. A country with oil and a country without oil facing the same 1990s will diverge regardless of the quality of their institutions.

What the comparison actually shows

Two things that are more interesting than the headline gap.

First, resource revenue purchased stability but not diversification. Kazakhstan's economy remains heavily concentrated in extractives, and its efforts to develop manufacturing and services have had limited success. Ukraine, without that revenue, was forced into export diversification — agriculture, IT, components — that Kazakhstan has not needed to attempt.

The comparison is therefore not simply that one did better. It is that they solved different problems, and Ukraine's problem produced a more diversified export base while Kazakhstan's produced a wealthier but narrower one.

Second, both countries demonstrate that institutional quality matters most at the margin. Neither built a reliably independent judiciary. Both concentrated economic power in a small number of hands. The difference in outcome came from the resource endowment, which suggests that in this period the institutional variable was less determinative than the standard account allows.

The trade relationship

Bilateral trade is modest and structurally simple: Ukrainian food, machinery and metal products going east, Kazakh raw materials coming west. It was substantially disrupted by the transit restrictions imposed on Ukrainian goods crossing russian territory from 2016, which removed the land route.

The alternative — the Trans-Caspian route across the Caspian, through the Caucasus and to the Black Sea — is longer, more expensive and involves multiple transhipments, but it exists and has developed considerably since.

Why this matters now

The Trans-Caspian corridor is the practical reason to pay attention. As trade between Europe and Central Asia grows and as routes across russia become less viable, the corridor through the Caucasus and the Black Sea becomes strategically significant.

Ukrainian and Turkish Black Sea ports sit at the western end of it. That is a genuine long-term positioning opportunity, and it is one of the more interesting things about this otherwise minor bilateral relationship.

Related in this archive

• The neighbourhood beyond one border: five countries that mattered more than expected
• Why a market of forty million deserves attention, and why it usually does not get it
• Why an economy this size should want foreign capital, stated without the slogans
• Ukraine Annual Review 2011: a recovery that did not become a foundation

Comparing two countries by income per head is easy, but I look at something else: how long it takes to register a company, obtain a permit and go to court. The two diverged sharply on those three, and the divergence is institutional rather than about resources. What the comparison shows is not that Ukraine fell behind but that it took a different road.