Which Side Would Make Ukraine Richer?


Lost amid the upheaval in Kiev is the fundamental question: Would the country be better off if its economy became more integrated with the West, or if it remained in Russia’s orbit? Economic history suggests that the protestors, not Yanukovych, are right. Although global income convergence is at best a stuttering phenomenon, being a poor member of a rich region is a better course to wealth than midlevel status in a poor region. …

When it comes to convergence within economic communities, the evidence suggests that two lessons of real estate apply: First, you’d rather be the last house on the right side of the tracks than the first house on the other side. Second, if you want your investment to appreciate, it’s best to be the cheapest house in an expensive community than the luxury condo in a lousy neighborhood.

On Friday, Cassidy outlined the risks of helping Ukraine financially:

If nothing is done, Ukraine will default on its loans, and its currency will collapse: that much is pretty certain. But another bailout wouldn’t resolve all the country’s problems. In the short run, it may well intensify them. As the price of extending new loans, the I.M.F. and other lenders would surely insist that the Ukrainian government take some unpopular steps, such as phasing out costly energy subsidies and balancing its budget. Such austerity policies often makes things worse, at least for a while. Even in places where bailouts eventually work, such as Ireland, they involve a very painful transition.

Update from a Dutch reader:

That map you posted makes me very proud to be European. It feels counter intuitive that Europeans are pretty much refusing to take up arms right now. However, their strategy works. The map proves it. Sure, European peace gloves have always been backed by a nuclear American stick, but the gloves work. They move borders and bring peace. Estonians and Lats now pay with the same currency my parents do. There are no more borders between my parents’ home and the Baltic states. Kids who were born when I was in high school as citizens of the USSR – enemies of the West – are now EU citizens, paying with the euro and can travel as easily throughout the EU as Americans can in America. That’s not something people anyone would have predicted a mere 25 years ago.