MONETARY AND NON-MONETARY DETERMINANTS OF DEMAND FOR IMPORTED MOTOR VEHICLES IN UKRAINE
Abstract
A prompt recovery in the demand for motor vehicles has been a distinct feature of the economy of a mili-tary camp in Ukraine, which exceeded by the end of 2023 the level of imports of pre-war year of 2021 (it contrasts with the period 2014–2015, when imports of these items dropped to almost zero). Based on data for period 2002–2024, empirical findings demonstrate a direct relationship between demand for imported motor vehicles and dynamics of GDP (with a two quarters lag), which appear to be stable over time. It is worth noting that this kind of relationship stays intact if import of motor vehicles is taken in the form of deviations from its equilibrium trend. Direct relationship between the dynamics of money supply and import of motor vehicles somewhat weakens in the shorter sample of 2010-2024, with the direction of causality becoming just the opposite in the specification with deviations of imports from the equilibrium trend. Such an outcome can be explained by the fact that dynamics of imported motor vehicles contains changes in both components – permanent (trend) and temporary ones, while deviations from the trend are temporary. Running counter to standard open economy assumptions of the inverse relations between a weaker currency and im-ports, depreciation of the hryvna in respect to the U.S. dollar leads to the increased import of motor vehicles, which can be explained by expectations of economic agents. However, a direct impact on the dynamics of imported motor vehicles is lost in the specifications with nominal and real effective exchange rates. It is intuitively appealing that the Russian aggression of 2014-2015 which escalated into a full-scale invasion in February 2022 resulted in a significant decrease in the demand for imported motor vehicles. Our findings explain the lack of any significant drop in imported motor vehicles in 2022-2024 by predominantly monetary factors, such as monetary supply and depreciation of the hryvna. As expensive premium cars make up a significant portion of imported motor vehicles, several tax and administrative measures are proposed in order to constraint demand for this segment of imports. For better adaptation to the realities of the economy of a military camp it is suggested to implement such measures as i) taxation of premium class cars, ii) military levy on fuel for civilians (no less than 5 hryvnas per litre), iii) requirement of car-sharing in the largest cities (Kyiv, Dnipro, Odesa, Lviv), iv) speed limits for civilian cars (for example, at 100 km per hour).
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