METHODOLOGY OF INVESTMENT SYSTEM RESEARCH IN THE ASPECT OF UNPRODUCTIVE CAPITAL OUTFLOW: EXAMPLE OF UKRAINE AND INTERNATIONAL DIMENSION

Abstract

The relevance of the topic of development of theoretical and methodological approaches to investment system regulation under influence of unproductive capital outflow is justified by significance of financial capital movements from groups of countries to others, caused by inappropriate institutional support for strategic investments. Aim of the proposed research is the development of methodological approaches to study and regulation of investment system development that allow to provide analysis of actual modern tendencies of investment system development, to estimate the influence of capital outflow on financial provision of investment process and to design regulating framework for shortening of unproductive financial capital outflow. The work is dedicated to research of theoretical, methodological and applicable basis of investment system development regulation in aspect of reducing of unproductive financial capital outflow with calculation of possible effect from involvement of reduced volumes of capital outflow into investment process. The research methodology, which is based on sustainable development and principle of balance of the stakeholders’ interests, includes approaches of system, theoretical and empirical analysis that allows us to identify the sense and structure of investment system in a sample of Ukraine and other 11 countries. Due to the statistical and econometric methods the estimation of the dynamics and regularities of capital investments are explored and the role of financial capital outflow in economic development of the country is estimated as percentage of GDP and as potential implicit resource that can be involved in investment process. The authors propose the methodology of investment system research and regulating from positions of institutional support embittering for renewal of invested capital and for attraction of new strategic investors. The provided systematization of theoretical positions in the sphere of investments and capital migration allows to obtain the definition of sense of investment system, to discover the regularities of its development and to identify the phenomenon of unproductive outflow of financial capital. It is found that the main criteria of unproductivity of capital outflow is excess of losses and expenses for national economy, caused by such migration of resources, under possible benefits. Conclusion. The hypothesis of existence of direct positive dependence of unproductive outflow of financial capital from growth of the national economic is proved in a sample of Ukraine due to the use of empirical statistical study method. It is identified that the key factor that provokes capital outflow is inappropriate institutional support for strategic investments. The proposed model of estimation of correlation between capital investments and value added allows to calculate the possible economic, social, and budgetary effect from involving into economy of Ukraine investments saved from outflow, that can result in more than 22.6 bln USD of value added growth.

Full text

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Vol. 7, No. 1, 2021
Corresponding author:
1 Institute of Market Problems and Economic&Ecological Research
of the National Academy of Sciences of Ukraine, Ukraine.
E-mail: alexlayko@gmail.com
ORCID: hps://orcid.org/0000-0001-7082-0862
ResearcherID: D-8293-2018
2 Institute of Market Problems and Economic&Ecological Research
of the National Academy of Sciences of Ukraine, Ukraine.
E-mail: burkinskij@nas.gov.ua
ORCID: hps://orcid.org/0000-0001-9303-0898
ResearcherID: U-9714-2017
DOI: hps://doi.org/10.30525/2256-0742/2021-7-1-57-68
METHODOLOGY OF INVESTMENT SYSTEM RESEARCH
IN THE ASPECT OF UNPRODUCTIVE CAPITAL OUTFLOW:
EXAMPLE OF UKRAINE AND INTERNATIONAL DIMENSION
Oleksandr Laiko1, Borys Burkynskyi2
Abstract. The relevance of the topic of development of theoretical and methodological approaches to
investment system regulation under influence of unproductive capital outflow is justified by significance of
financial capital movements from groups of countries to others, caused by inappropriate institutional support
for strategic investments. Aim of the proposed research is the development of methodological approaches
to study and regulation of investment system development that allow to provide analysis of actual modern
tendencies of investment system development, to estimate the influence of capital outflow on financial
provision of investment process and to design regulating framework for shortening of unproductive financial
capital outflow. The work is dedicated to research of theoretical, methodological and applicable basis of
investment system development regulation in aspect of reducing of unproductive financial capital outflow
with calculation of possible effect from involvement of reduced volumes of capital outflow into investment
process. The research methodology, which is based on sustainable development and principle of balance of
the stakeholders’ interests, includes approaches of system, theoretical and empirical analysis that allows
us to identify the sense and structure of investment system in a sample of Ukraine and other 11 countries.
Due to the statistical and econometric methods the estimation of the dynamics and regularities of capital
investments are explored and the role of financial capital outflow in economic development of the country
is estimated as percentage of GDP and as potential implicit resource that can be involved in investment
process. The authors propose the methodology of investment system research and regulating from positions of
institutional support embittering for renewal of invested capital and for attraction of new strategic investors.
The provided systematization of theoretical positions in the sphere of investments and capital migration allows
to obtain the definition of sense of investment system, to discover the regularities of its development and
to identify the phenomenon of unproductive outflow of financial capital. It is found that the main criteria
of unproductivity of capital outflow is excess of losses and expenses for national economy, caused by such
migration of resources, under possible benefits. Conclusion. The hypothesis of existence of direct positive
dependence of unproductive outflow of financial capital from growth of the national economic is proved in a
sample of Ukraine due to the use of empirical statistical study method. It is identified that the key factor that
provokes capital outflow is inappropriate institutional support for strategic investments. The proposed model
of estimation of correlation between capital investments and value added allows to calculate the possible
economic, social, and budgetary effect from involving into economy of Ukraine investments saved from
outflow, that can result in more than 22.6 bln USD of value added growth.
Key words: investment system, capital outow, illicit nancial ows, reinvestments, reproduction of capital.
JEL Classication: E22, F21, F38

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1. Introduction
e relevance of the proposed research, which is
dedicated to development of actual methodological
approaches to the regulation of investment system
transformation, is justied by the importance of
investments for economic development of Ukraine and
other countries due to the powerful inuence of invested
capital on the structure of economic systems in sectoral,
spatial and other dimensions. e modern tendencies
of investment system transformation in direction of
predominance of reinvestments in the total structure
of investments make the question of eective turnover
of invested resources relevant in the aspect of the
provision of appropriate conditions for reinvestments
of nancial resources without abnormal withdrawals
of capital and unproductive outow abroad. e
phenomenon of capital outow that takes place in the
Ukrainian economy and economies of other countries is
characterized by the signicant volumes, which in some
cases are equivalent to the total capital investments. e
fact that capital outow as powerful factor inuencing
on transformation of investment system is poorly
studied justies the urgency of the proposed research
and allows us to formulate the main issues of the study.
e aim of the research is to develop theoretical and
methodological approaches to investment system
regulation in aspect of reduction of unproductive capital
outow based on means of creation of appropriate
conditions for strategic investments involvement
in national economy and improving the regulatory
framework in investment sphere that is conceptually
based on realization of economic, social, governmental
and other interests of stakeholders. e tasks of the
research include: formulation of the actual methodo-
logy of investment system development research based
on principles of renewal of invested resources, prevention
of ineective capital outow, diversication of sources,
sustainability of investment processes, balance of
stakeholders interests and others; improvement of
terminological basis in the sphere of nancial capital
outow; design of the scope of methodical approaches
to estimation of eciency of investment system
functioning in national and international dimensions,
the evaluation method of volumes of unproductive
capital outow, method of the analysis of the signicance
of capital outow inuence on economic system;
detection of strategic directions for the regulation of
investment system development; methodic approach
to the calculation of the possible sustainable eect of
proposed regulation means implementation, that is
based on the use of an econometric model.
e novelty of the results obtained in the research
consists of classication of types of nancial capital
movement according to the degree of legality; scope of
principles of investment system development, designed
according to directions of modern institutional
framework in Ukraine and the EU countries, in aspect of
capital outow reduction; methodology of investment
system transformation regulation ,which unlike others,
is based on balance of economic, social, and budgetary
interests of the stakeholders; mechanisms of regulation
of investment system on national level that include
institutional, nancial, credit, economic, administrative
means; methodic approach to calculation of complex
eect from the involving into the national investment
process of volumes of capital outow saved from
unproductive withdrawal. e research ndings are
characterized by theoretical and applied value because
they can be used not only in scientic sphere but also in
sector of governance of economic development.
Possible restrictions of the research include lack of
constant sources of data concerning some types of
capital outow, namely data of volumes of nancial
resources transferred abroad as payments for reinsurance
operations are not always available on ocial sites of
Ukrainian authorities and statistical agencies but it is not
critical option for the research because of its relatively
small share in total capital outow.
2. Overview of the relevant publications
Scientic works by Sco Davis and Eric van Wincoop
(2018) are dedicated to the research of the correlation
between capital inows and outows in a sample of
127 advanced and developing countries. e authors
justied that in the most countries there is strong,
increasing correlation between capital inows and
outows but the character of this link is changeable. e
results obtained by the authors due to the modelling
of correlation between capital ows and nancial
globalization discovers the tendency of decrease of
volumes of nancial capital inows caused by factor of
nancial globalization. But authors have not described
the character and the main factors of the inuence of
capital inows on capital outows. e solution of this
problem may be set as one of the tasks of our research
because we put forward the hypothesis of direct positive
dependence of capital outow volumes from the level of
economic growth and activity in the country that may
be expressed with the help of indicators of GDP, gross
value added or nancial capital inow.
Heiets (2016) argues that the economy of Ukraine and
the economic systems of the most developing countries
are characterized by contradictory trends of investments
dynamics caused by inuence of dierent internal and
external factors, the impact of which is able by reason of
institutional insolvency of national transitional economy
that also causes the illicit nancial ows of capital
but direct correlation between institutional state of
investment sphere in the national economy and dynamics
of illicit nancial ows is not researched by the author.
Paskhaver (2007) conducted a detailed analysis of
the genesis, essence, structure and causes of capital

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formation in Ukraine, calling his research: “…study
of the anatomy of Ukrainian capital” (Paskhaver,
2007, p. 23). The author puts forward and proves
the hypothesis of imperfection and immaturity
of institutional support to attracting of long-term
strategic investments in Ukraine. Continuing the
author’s opinion, in this study we try to confirm the
hypothesis that the absence of institutional investors
support makes large amounts of financial capital
earned in the national economy to be exported to the
economic systems of other countries with reliable
conditions for storage or investments.
Lunina, Bilousova, & Frolova (2020) analyze
investment drivers as means of stimulation of economic
system development and explore the role of tax reforms
in creation of aractive investment climate that can
prevent nancial resources outow.
Ilyina (2017) proposes methodology of investment
climate evaluation as an eective research method of
business climate of the national economic system that
can describe the level of activity of foreign and internal
investors and highlight possible negative impacts on
country’s development.
Holz (2020) considers investment statistics as
source of estimation of productivity level of national
economic system, on example of Chinese economy.
e author examines the key denitions in investment
sphere, considers an aspect of data availability,
and technical issues of the investment data of the
People’s Republic of China (PRC). He also explores
relationship between xed asset investment and gross
xed capital formation, tries to highlight the problem
of investments data falsication in PRC and the author
indirectly approaches to research of the question of
illicit ows of capital.
e methods for research of investment sphere
in economy of Ukraine proposed by Vartsaba and
Leshuk (2017) are based on development of evaluation
indicators for providing of the estimation of investment
aractiveness of regions in Ukraine.
Kazuo Ueda (1990) has provided thorough theoretical
and empirical research of Japanese capital outows for
the period of the 1980s and tried to discover the driving
forces of this phenomena and its role in the economic
development of the country.
Dhar (2021) has provided research that is dedicated
to identication of extreme capital ows in emerging
markets in a sample of 36 economies.
e analyzed scientic works of various authors,
which are devoted to the study of capital outows, are
thorough, comprehensive with a powerful scientic
apparatus, but they do not take into account issues of
a theoretical nature, namely: lack of terminological
constancy in sphere of capital outow research;
formulation of a modern methodology for studying
of the investment system on basis of invested capital
renewal, in the context of the implementation of the
model of sustainable development and in the aspect
of inuence of unproductive capital outow. A key
applied issue is represented by the development of
organizational and economic mechanism for regulating
of the investment system at the national level in terms
of improving its social eciency, ensuring returns for
all stakeholder groups, increasing institutional strength
and creating favorable conditions for investments
reproduction and for the reducing of unproductive
capital outow abroad.
3. Research methods
e research is aimed at the design of the methodology
of investment system study and regulation in context
of modern conditions of domination of reinvestment
operations in total structure of the investments and
under inuence of unproductive capital outow. e
following methods are used in the research: method
of system analysis and synthesis (determining the
sense and structure of investment system, identifying
the dominant driving force of the modern investment
process, design of classication of types of capital
outow); theoretical and empirical analysis (formation
of scope of principles that are actual for modern
investment system development, estimation of the role
of capital outow in the investment process); method
of institutional analysis (study of regulatory documents,
international and national policies in investment
sphere); method of comparison and scientic
abstraction (estimation of signicance of capital
outow for economic systems of dierent countries),
statistical and logical analysis methods (dynamic
series and structure analysis of investments and capital
ows, averages, shares, per capita indices, grouping of
investments according to nancial sources, comparisons
of total and per capita investments, capital outow data
in dierent countries), graphical methods (schemes
and diagrams of investments and unproductive
capital trends), method of modelling (estimation of
the dependence of gross value added from capital
investments for the purpose of calculation of sustainable
eect from involving into the investment process of
capital that is saved from unproductive withdrawal
abroad), methods of regulation means and policy design
(formation of strategic directions for the regulation of
investment system development, design of economic
and organizational mechanisms for improvement of
institutional framework in investment sphere with the
aim of strategic investments stimulating).
e methodical toolkit of the research is used for
verication of the main scientic hypothesis that
is formulated as follows: the investment system
development of any modern country is highly dependent
on reinvestment operations and sustainable eective
functioning of the investment system is possible with the
help of appropriate institutional support that facilitates

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strategic investments, otherwise the growth of business
activity in the national economy, expressed by GDP
indicator increase, leads to progressing unproductive
capital outow.
4. Results of the research
Despite numerous studies of outstanding scientists
in the eld of investment activity in Ukraine and in
the regions (Heiets, 2006), unresolved issues remain
the implementation of priorities for the development
of the investment system with proper impact on the
national economy in the form of organizing high-
tech competitive industries, maximizing the created
added value based on deep processing of domestic raw
materials, which will contribute to eective economic
transformation in the context of integration into EU
markets and participation in the international division
of labor. e key category that characterizes all
the features and components of the investment process
in the country is the investment system, which is
represented by a combined set of all elements and
components of the investment process to convert
resources into capital and produce reproduction cycles.
e results of the conducted research (Burkynskyi,
Laiko & Talpa, 2018) show that in the national economy
and on a global scale, investment has acquired the
signs of consistency, expanded its classical boundaries,
including such stages as aracting, investing resources,
reproduction and reinvestment or withdrawal from
circulation, and has become an integral part of social
production.
For the modern economic system, the processes
of reproduction of invested capital as a source of
renewal of investment resources are important, as
since the global financial crisis, the importance of
reinvestment processes in most countries of the
world has increased significantly, and the use of
own funds of enterprises and business entities as
a source for investment has become a key feature of
the investment process (Figure 1). The tendencies
of reinvestments domination and the importance of
stable conditions for renewal of invested resources
are also highlighted in agenda and conclusions of the
sixth World Investment Forum (2018).
e investment process in Ukraine for the entire
period of independence is characterized by the use
mainly of own funds of enterprises and organizations
as the main source of capital investment (from 50% to
almost 70%).
Therefore, the investment process and components
of the investment system should be studied in the
context of the stages of attracting resources and
making capital investments, reproducing capital and
using the resulting effect (reinvesting or extracting
growth on invested capital), while assessing the
ability of the country’s economy to contribute to
the reproduction and increase of capital attracted to
economic turnover, since this ability automatically
becomes an indicator of the overall ability to attract
investment resources.
e formation of the methodology and priorities
for research and regulating the development of the
investment system of Ukraine (Figure 2) is determined
in accordance with the current features of the
functioning of the national economy and challenges,
that are discovered in previous researches (Burkynskyi,
Laiko & Talpa, 2018), and require immediate solutions,
namely:
Bank loans
In Ukraine, % In the most of developed countries, %
52
Attracting
new
capital
14
35
13
Budget funds
65
22
Own funds
of enterprises
and
organizations
Foreign
investments
Personal
Funds
Other sources
10.3 12.7
59.3 69.9
17.9 5.3
3.0 1.4
7.8 7.8
1.8 2.9
2007 2017
Reinvested
earnings
Other
sources
2007 2017
14.0
65.4
10.8
0.7
5.28
3.9
2019
20
65
15
2019
Figure 1. Dynamics of the structure of sources of nancial support of the investment process in Ukraine
and in the most of the developed countries of the world
Source: concluded according to the ocial data of the State Statistics Service of Ukraine (2019) and UNCTAD Global
investment trends monitor (2019)

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1) Hidden decrease in overall investment activity in
the national economy, expressed by an increase in
the quantitative indicators of the investment process
achieved due to the impact of ination, and a drop in
real investment volumes in terms of USD equivalent or
purchasing power parity;
2) Absence of a positive modifying eect of investment,
which leads to a raw material type of development of the
national economy, deep deindustrialization is developing;
3) Consistency of investment quality characteristics
without signicant changes;
4) Progressive outow of nancial capital abroad and
the dominance of incomplete investment process cycles,
lack of strategic foreign investment;
5) Non-compliance of institutional support with the
real needs of investment system development;
6) Lack of institutional support for strategic investment
at the project level;
7) Lack of levers of inuence on improving the level
of well-being in territorial economic subsystems
(at regional and basic levels);
8) Need for compliance and consistency with the
provisions of international investment policy and
domestic strategic documents in order to participate
more eectively in international economic exchange.
According to the results of the analysis of the
dynamics and structure of the investment process in
Ukraine in recent years, a number of negative processes
become identied as hidden, but with impact on the
state of the national economic system.
ese processes include:
1) A positive change in the volume of capital
investment, which is clearly linked to inationary
processes and the growth of consumer prices, but diers
from real tendencies of capital investments decrease in
constant prices in USD can be seen on Figure 3.
us, the growth of capital investment in Ukraine
in current prices occurred from 2006 to 2019 from
149 billion UAH up to 624 billion UAH at the same
time, the ination with an average annual index value
of 112.1% and an accumulated value of 416.6% for
2006–2019 led to an incorrect determination of the
The purpose of research and regulation of the transformation of the investment
system is to ensure a high level of prosperity and economic growth by stimulating
of strategic investments, reproduction of capital and reduction of its outflow
on the basis of sustainability and balance of stakeholders interests
Key idea – comprehensive impact on all stages of the investment process with an emphasis
on the reproduction of capital and reduction of its outflow
Balance of
interests of
stakeholders
Renewal
of invested
resources
Prevention
of ineffective
capital outflow
Diversification
of sources outflow
Sustainability
of investment
processes
Cyclical
development
and renewal
Purposefulness
and priority
Openness and
transparency
Adaptability
and flexibility
Validity,
objectivity
Special
Theoretical
and
conceptual
block
Common
Principles
Estimation of strategic directions for regulating of investment system development
Methodical
block
Implementa-
tion and
evaluation
block
Approaches
to estimation
of efficiency of
investment system
functioning
The evaluation
method of vol-
umes of unpro-
ductive capital
outflow
Method of the
analysis of the
signif
icance of capital
outflow influence on
economic system
Methodic approach to calculation of possible sustainable effect of implementation
of proposed regulation means, that is based on the use of an econometric model
Analysis of
institutional sup
port
for investment
system development
Mechanisms of strategic investments support and reducing of capital outflow
(including economic, financial, tax, information, organizing, administrative means)
Feedback and correction of the aim and tasks
Figure 2. Methodology of research and regulation of investment system development
in aspect of unproductive capital outow reduction

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real amount of capital investment and a hidden drop in
investment activity (Table 1).
e decline in investment volumes in terms of USD
equivalent occurred from 29.5 bln USD (in 2006) to
23.2 bln USD (in 2019). at is, there has been no
real increase in the volume of capital investment in
the Ukrainian economy during the study period, but
an imaginary increase in current prices has taken place
due to the fact that the increase in the ination index
and the fall in the national currency exchange rate
against USD occurred at a faster pace than the decrease
in the volume of capital investment in xed prices and
in a stable currency equivalent.
The introduction of the values of the capital
investment indicator for the first half of 2020 into
the calculations made it possible to demonstrate
a general trend towards a drop in investment activity
due to the COVID-19 pandemic. Despite the fact
that the value of the capital investment indicator in
2020 is taken for a six-month period, its value in both
current and fixed prices, according to official statistics
(the State Statistics Service of Ukraine, 2020), is
65.1% compared to the corresponding period of the
previous year (i.e., the first half of 2019).
0
100
200
300
400
500
2006 2008 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 І half
year
2020
In current prices, national currency
In constant prices, USD
%
Figure 3. Indices of capital investments in economy of Ukraine
Source: concluded according to the ocial data of the State Statistics Service of Ukraine (2019), e National Bank of
Ukraine (2019)
Table 1
Dynamics of capital investment in the Ukrainian economy:
the impact of inationary phenomena and changes in the exchange rate
Capital investment: 2006 2008 2010 2012 2014 2015 2016 2017 2018 2019 1st half
of 2020
- in current prices, bln UAH 149 272.1 180.6 273.3 219.4 273.1 359.2 412.8 578.7 624 163.8
- in comparable prices, bln USD 29.5 35.3 22.7 34.2 13.9 11.4 13.2 14.7 19.4 23.2 6.0
Average annual exchange rate,
UAH/ USD 5.05 7.7 7.96 7.99 15.77 24 27.19 28.06 27.2 25.85 26.71
Ination index, % (accumulated
value for the period from 2006
to 2019 is 416.6%, average
value for the period is 112.16%)
111.6 122.3 109.1 99.8 124.9 143.3 112.4 113.7 109.8 104.1 102
Source: concluded according to the data of the State Statistics Service of Ukraine (2020), the National Bank of Ukraine (2020)
2) e constancy of the structure of sources of
nancial support for capital investment in Ukraine and
their non-diversication with a constant dominance
of own funds of enterprises and organizations. Minor
changes in the structure of sources of nancing for
capital investments in Ukraine occurred due to the
decentralization reform and the redistribution of
budget powers, which allowed territorial communities
to invest a large amount of nancial resources in their
own development, that resulted in the increase of
investment, nanced by local budgets from 5.7 billion
UAH up to 56.5 billion UAH, according to the data of
the State Statistics Service of Ukraine (2020).
3) e absence of signicant changes in the structure
of capital investment by type of economic activity,
where the stable leader is industrial production, mainly
extractive industry, and agriculture (e State Statistics
Service of Ukraine, 2020). However, the amount of
capital investment in these activities is not characterized
by the rapid growth necessary for the renewal of
production capacity, and the existing, even, drop in
investment volumes in dollar terms, despite the fact that
most of the production equipment today is purchased
by import and, in fact, represents compensation for

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Vol. 7, No. 1, 2021
the added value created abroad, that is, there is an
unproductive outow of nancial capital.
4) Low activity of strategic foreign investors.
us, foreign direct investment annually covers only
1.5%-3% of the country’s total investment demand,
in 2019 year – only 0.7%, while operations of
withdrawal and receipt of previously invested capital
are characterized by a large order of magnitude and
depend on macroeconomic and political stability. In
2014 and 2015, there was a rapid withdrawal of capital
previously invested in Ukraine by other countries in
the amount of 13 billion USD, according to our own
calculations (Laiko, 2015, p.205) and 4,570.9 million
USD according to Global Financial Integrity data
(2020). Strategic investment has almost no place
at all, since the main suppliers of imported capital
are oshore countries, which are also the largest
consumers of the national investment resource.
5. Role of nancial capital outow
in development of investment system:
international and national aspects
Characteristic of the national investment system is
the phenomenon of unproductive outow of nancial
capital, which is signicant in its volume but still
insuciently systematically studied (Figure 4).
A signicant problem in diagnosing and regulating the
process of unproductive outow of nancial capital is
the lack of a well-established methodological approach.
To date, there is still no normative gradation of
denitions that characterize the movement of nancial
capital and methods for calculating capital outows.
Guided by the approaches of semantic system analysis,
the scientists of the Institute of market problems, and
economic and ecological research of NAS of Ukraine
proposed a classication of denitions in the eld of
export of nancial capital abroad, and also developed
a methodological approach to calculating the volume
of unproductive outow of nancial capital from the
national economy and from certain regions of Ukraine.
e signicance of the negative impact of the
phenomenon of unproductive outow of nancial capital
is manifested in the deprivation of signicant investment
resources in the national economy (Table 2).
Given in Table 2 volumes of unproductive export
of nancial capital determined according to the
methodology developed by Institute of market
problems and economic-ecological research of the NAS
of Ukraine (Laiko, 2014, p. 205). According to Global
Financial Integrity methods (2020), with illegal capital
withdrawal volumes in the amount of 11,676 billion
USD every year, Ukraine was ranked 14th out of
150 countries in the world (the rating was compiled in
2017). e methodological approach to determining
the volume of illegal export of nancial capital used by
Global Financial Integrity (GFI), although informative,
is not objective enough due to the dierent scale of the
countries being compared, their area and population.
If we calculate the volume of unproductive leakage of
nancial capital per 1 person (in per capita dimension),
then in Ukraine this amount is 259.47 USD per year and
it exceeds similar indicators of countries such as China
(211.76 USD per 1 inhabitant), India (29.9 USD), but
is less than in Mexico (505.7 USD per 1 inhabitant) and
Movement (export) of financial capital
The unproductive outflow of financial
capital is the legal export of capital, defined:
–according to the balance of payments
(the amount of negative balances on items of
current transactions, financial transactions,
capital transactions, the negative value of the
item “errors and omissions”);
–according to the balance of payments and
official statistics as the sum of indicators (in-
vestments abroad, losses from reinsurance
operations, other financial and offshore trans-
actions, the growth of foreign currency pres-
ence in national economy (as mean of sav-
ings), a negative value of item “errors and
omissions”;
–use of other legal ways for capital export,
such as tax rates differences in reinsurance
operations in Ukraine and abroad;
Escape of capital
– the export
of financial
resources by
unauthorized
methods, but
without violating
of criminal law
Leak of
capital –
criminal
export of
financial
resources
Estimated according to customs
statistics, indirect methods
of the CIA, GFI, the method
of “hot money”
Estimated according to balance
of payments data with key
criteria of unproductivity
Illicit financial flows
Figure 4. Classication of types of nancial capital export and denition of capital outow

Baltic Journal of Economic Studies
64
Vol. 7, No. 1, 2021
in the Russian Federation (297.3 USD per 1 inhabitant).
e phenomenon of unproductive outow of nancial
capital is quite serious problem for the national
economies of 11 other counties, which we have analyzed
with the use of GFI methodology (Table 3).
As it is seen from Table 3, the inuence of capital
outow (illicit nancial ows) on the economic
development of dierent countries is quite signicant.
e strongest impact is identied on economies of
relatively small European countries such as Hungary,
Poland, and Romania, which are characterized with
transit geographical location, and Mexico where the
level of shadow economy is quite high.
It is also worth taking into account the powerful
inuence of unocial institutional support in the
implementation of the investment process, according
to which illegally or semi-legally withdrawn nancial
resources from abroad can actually be investments
aimed at expanding the country’s spheres of inuence
abroad (opening new production facilities or
representative oces of national producers in other
countries, using local resources of other countries to
create national added value, to create an economic
basis for the development of selements of citizens in
other countries, etc.). Unfortunately, for Ukraine, such
positive aspects from the withdrawal of nancial capital
are not typical and almost all the facts of the withdrawal
of nancial resources abroad are manifestations of
unproductive withdrawal of capital.
e dynamics of nancial capital outow is closely
linked to transformational changes in society, behaving
both as a factor of inuence on the investment process
and as an indicator of economic and political events
(Figure 5).
As it is seen from the linear graphics of Figure 5,
there is a quite strong correlation between dynamics
of unproductive outow of nancial capital and GDP
in Ukraine. e visually detected correlation allows us
to prove the hypothesis of existence of strong positive
dependence of capital outow volumes from GDP
growth caused by the conditions of lack of institutional
support of strategic investments.
One of the most signicant components of the
indicator of unproductive outow of nancial capital
in Ukraine is operations of export of raw materials
and export of high-tech products, despite the fact
that objective prerequisites for the preservation
and formation of new production facilities with
a high degree of processing and signicant added
value of nal products in Ukraine are available. e
conducted studies of prices for export and import
of food products in Ukraine (Laiko, 2014, p. 320)
allowed us to determine the paern of excess prices
for imports to Ukraine in comparison with exports
from 1.6 to 14 times (Table 4), which is a consequence
of deindustrialization, trends in the export of raw
materials and imports of goods with a high degree of
processing and added value.
e presence of an outow of nancial capital in the
implementation of foreign trade is also indicated by
the negative balance of payments of Ukraine, which
in terms of operations with goods has a consistently
Table 2
Signicance of the amount of nancial capital export from the economy of Ukraine, bln USD
Indicators 2006 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018 2019 1st half
of 2020
Capital outow* 2.7 2.4 -2.99 8.7 -1.8 -3.2 -0.6 6.1 11.6 11.7 12.1 12.3 -0.8
Investments 29.5 35.3 29.7 22.7 34.2 31.3 13.9 11.4 13.2 14.7 21.4 23.1 6.06
Capital outow, % to investments 9.2 6.8 x 38.3 x x x 53.5 87.9 79.6 56.5 53.2 x
GDP 112 129 121 135 176 183 101 82.9 87.7 106 132 141.5 32.1
Capital outow, % to GDP 2.4 1.9 x 6.4 x x x 7.4 13.2 11.0 9.2 8.7 x
* – data with “-” – capital inow
Source: calculated according to the data of the State Statistics Service of Ukraine (2020) and the National Bank of Ukraine (2020)
Table 3
Signicance of the amount of nancial capital outow (illicit nancial ows)
from the national economies of dierent countries
Russia Belarus Poland China Turkey India Mexico Brazil Hungary Romania Moldova
Capital outow (illicit
nancial ows), bln USD 42.93 1.08 52 296.0 24.75 40.9 64.52 20.80 21.57 10.49 0.21
Popula-tion, mln. persons 144.4 9.47 37.98 1398 83.43 1366 127.58 211.1 9.77 19.36 2.66
GDP, bln USD 1670 60.03 587 13895 771.4 2713 1221 1885 157.88 241.6 11.46
Capital outow, % to GDP 2.57 1.79 8.86 2.13 3.21 1.51 5.28 1.10 13.66 4.34 1.82
Capital outow per capita,
USD/ 1 person 297.3 114.04 1369.1 211.8 296.7 29.9 505.68 98.56 2207.5 541.8 78.63
Source: calculated according to the data of the Global Financial Integrity (2020) and the World Bank (2020)

Baltic Journal of Economic Studies
65
Vol. 7, No. 1, 2021
negative value over the past decade from 6 to 22 billion
USD (e National Bank of Ukraine, 2020).
6. Strategic directions of investment system
development regulation and modeling
of possible eects from unproductive
capital outow reduction
Transformation processes that occur in the national
economy and aect changes in the investment system
are caused by improper organization and insuciently
eective institutional support for the investment
process. Because of the fact that the main emphasis in
regulatory documents of an investment nature in recent
years was placed on aracting foreign capital, control
over stimulating reproduction processes in strategic
economic activities was lost.
The prospects for regulating the development of
the investment system in Ukraine determined as
a result of the conducted research are mainly in the
plane of institutional transformations, since this
aspect is one of the most significant and problematic
for the national economy. According to actual state
of economic development in Ukraine, the following
strategic directions aimed to the decrease of
-20
-15
-10
-5
0
5
10
15
12345678910 11 12 13 14 15
Capital outflow, bln USD
GDP annual growth, %
Capital
inflow
and
GDP fall
area
Capital
outflow
and
GDP
growth
area
Figure 5. Dynamics of unproductive outow of nancial capital and GDP in Ukraine
Source: calculated according to the author’s methodology based on the ocial data of the World Bank (2020), the State
Statistics Service of Ukraine (2020) & the National Bank of Ukraine (2020)
Table 4
e average price of 1 ton of food exports and imports from Ukraine
to countries EU and Eastern Europe in (average value 2006-2019)
Indicators EU-28 Eastern Europe
Total export, th of tones 6,918.7 3,837.1
Total export, bln USD 1.5 4.3
Average price of 1 ton of export, USD 215.5 1,131.7
Total import, th of tones 821.3 687.7
Total import, bln USD 2.5 1.3
Average price of 1 ton of import, USD 3,066.61 1,844.1
Prices ratio 14.2 1.6
Source: calculations are based on the balance of payments data (e National Bank of Ukraine, 2020)
unproductive capital outflow are to be proposed in
the following forms:
– To improve the regulatory framework in investment
sphere;
– To stimulate strategic investments;
– To improve the level of investments protection;
– To increase the proposal for investments into the
national economy;
– To foster the capital turnover in economic system;
– To create protective framework for national economy
and for investments avoiding breaking of law and
international agreements.
e most powerful regulative impact on investment
system in aspect of capital outow reduction may be
caused by economic and tax mechanisms. Results of
our previous researches (Burkynskyi, Laiko & Talpa,
2018) show that during the rst year of regulation it
is possible to prevent the outow of at least of the 3rd
part of nancial capital from the total annual volume.
e calculation of the nancial performance of the
proposed regulatory measures, which is carried out
on the basis of an interpretation of the principles of
sustainable development, indicates the appropriateness
of stimulating reinvestment processes, since this should
bring returns in such dimensions:

Baltic Journal of Economic Studies
66
Vol. 7, No. 1, 2021
– Economic dimension (increase in value added and
prot for investors);
– Budget dimension (increase in taxes and fees);
– Social dimension (increase in employee benets,
social benets, fees).
To calculate the estimated signicant eect obtained
from reducing unproductive capital outows and
directing such nancial ows to support the investment
process in the country, it is proposed to develop a model
of the dependence of gross value added on capital
investment.
Using ocial statistics on the volume of gross value
added and capital investment in Ukraine, we have
concluded such a model using a step function as such,
which allows us to obtain the greatest approximation
to the simulation of the real relationship between gross
value added and capital investment, formally justied by
the maximum value of the coecient of determination
(Figure 6)
e equation that describes dependence of value
added (VA) from capital investments (CI) has the
following form:
VA = 11,694*CI0,7233
According to the model and to the data of
unproductive nancial capital outow we make the
following suggestion: the reduction of even the 3rd
(2.5 bln USD) part of unproductive outow of nancial
capital as of 2018 – 2019 years and reinvestment of
this volume in economic turnover allows to obtain an
estimated increase of:
– gross value added to 22.69 bln USD (612.6 bln UAH);
– tax incomes to budgets of various levels (corporate
income tax, personal income tax, value added tax) 5.84
bln USD (157.7 bln UAH);
– social benets of 5.54 bln USD (149.5 bln UAH),
including wages of 4.54 bln USD (122.6 bln UAH),
social deductions to the wage fund of 0.998 bln USD
(26.95 bln UAH).
Calculations of possible eects from the involving into
the investment process of additional nancial resources
saved from outow are provided with the following
assumptions:
– the main taxes that are to be obtained include
corporate income tax (18% of net prot), personal
income tax (18% of wages), value added tax (20%);
– share of wages in gross value added is 20%, share of
prot in gross value added is 12% (according to the data
of our calculations of average rate of salaries and prot
in gross value added);
– the rate of social deductions (the signal social fee in
Ukraine is 22%).
Possible growth of gross value added due to the use
of proposed means of investment system regulation and
capital outow reduction is 22.69 bln USD or 20.4% of
present value of this indicator as of 2019.
7. Conclusions
e methodology of investment system development
regulation that is designed in the research include
improved terminological basis, actual conceptual
approach that meets modern requirements of
international and national investment policies, blocks
of common and special principles, namely: principles of
renewal of invested resources, prevention of ineective
capital outow, diversication of sources, sustainability
of investment processes, balance of stakeholders interests
and others; scope of methodological approaches to
estimation and regulation of eciency of investment
y = 3,085x + 41,263
R² = 0,6678
y = 11,694x0,7233
R² = 0,7514
y = 46,525e0,0353x
R² = 0,601
y = 59,027ln(x) - 66,787
R² = 0,7299
y = -0,0913x2 + 7,0109x + 6,7095
R² = 0,6993
0
20
40
60
80
100
120
140
160
180
0 5 10 15 20 25 30 35 40
Figure 6. Dependence graphs of value added from capital investments in Ukraine,
identied for the period 2006–2019
Source: calculated according to the data of the State Statistics Service of Ukraine (2020) and the World Bank (2020)

Baltic Journal of Economic Studies
67
Vol. 7, No. 1, 2021
system functioning in aspect of unproductive capital
outow reduction.
One of the main theoretical goals obtained in the
research – is the identication of actual denitions
of investment system and of unproductive capital
outow with impact on renewal processes importance
for institutional support of strategic investments.
e phenomenon of unproductive capital outow is
identied in total system of classication of types of
nancial capital movement as completely legal way
of capital transfer abroad with key characteristic of
unproductivity that expressed as excess of losses and
expenses caused by investment resources transfer
abroad under possible and real economic benets.
e importance of research of unproductive
capital outow in comparison with other ways of
capital export (namely illicit nancial ows) is
empirically proved due to the statistical data synthesis,
according to which the ratio of the capital outow
to GDP, average during the last 5 years, in Ukraine
is more than 9%, in China – 2%, in India – 1.5 %, in
Poland – 8.9%, in the Russian Federation – 2.57%, in
Hungary – 13.7%, in Romania – 4.34%. It is proved
the signicance of capital outow for such European
countries as Hungary, Poland, Romania, and for
Mexico where volumes of export of nancial capital per
capita reached levels of 550-2200 USD per 1 person.
Due to this data, new regularity of capital export is
empirically discovered and is explained by the impact
of geographical location factor with highly developed
transborder communications and inuence of illegal
aspects. But more in-depth examine of this problem is
to be provided in future researches.
According to provided analysis of dynamics of
unproductive capital outow, it is conrmed the
hypothesis of direct positive dependency of capital
outow from level of economic activity, expressed
by indicators of GDP volume and gross value added
growth. Such dependence caused by ineciency
of institutional support of strategic investments in
economy of Ukraine and results of this situation can
be described by the following formula: the more
prot in national economy is gained, the more risk
of unproductive outow and the more resources are
available for withdrawal abroad.
e regulatory framework proposed in the research
is aimed on stimulation of strategic investments, on
the improving of the level of investments protection,
on the increase of the proposal for investments, on the
fostering of the capital turnover in economic system.
It is stated that the most powerful regulative impact
on investment system in aspect of capital outow
reduction can be yield with help of economic and tax
mechanisms. Results of provided researches dedicated
to potential eect estimation of the implementation
of proposed means of capital outow reduction
demonstrate possible growth of gross value on 20.4%
of present value of this indicator as of 2019 year in
a sample of economy of Ukraine.
8. Acknowledgements
is publication was prepared within the framework
of the scientic project “Development of the Ukrainian
investment system on the basis of capital outow
reduction” (КПКВК 6541030).
9. e contribution of the authors
Oleksandr Laiko – 50% (methodology, literature
review, research, etc.).
Borys Burkynskyi – 50% (concept and objectives,
literature review, research, etc.).
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