Assessment of the effectiveness of the mechanism of financial and budgetary regulation of regional development

Rekunenko Ihor
Doctor of Economics, Professor, Head of the Oleg Balatskyi Department of Management, Sumy State University, Sumy, Ukraine, E-mail:i.rekunenko@biem.sumdu.edu.ua, ORCID: https://orcid.org/0000-0002-1558-629Х

Zavalna Daria
student, bachelor, specialty "Management", Sumy State University, Sumy, Ukraine, E-mail:zavalnaadaria@gmail.com, ORCID: https://orcid.org/0009-0009-9359-2765

Received: 14.04.2025    Аpproved: 23.04.2025    Рublished online: 12.05.2025

Cite this article:

Rekunenko I., Zavalna D. (2025) Assessment of the effectiveness of the mechanism of financial and budgetary regulation of regional development. Ed.: V.V. Kovalenko (ed.-in-ch.) and others [Ocinka efektyvnosti mehanizmu finansovogo ta bjudzhetnogo reguljuvannja regionalnogo rozvytku.: V.V. Kovalenko (gol. red.)], Scientific Bulletin of the Odesa National Economic University (ISSN 2313-4569), Odesa National Economics University, Odesa, No. 4 (329), pp.75-83.

Abstract

This study explores the role of the financial and budgetary regulation mechanisms in the achievement of regional development in Ukraine during the period of 2019-2024, the period of the two crises of the COVID 19 pandemic and the full-scale Russian invasion. The research is relevant since it is known that there is an urgency for understanding the ways fiscal instruments have affected regional economic resilience and recovery in highly unstable conditions. It then studies the problem of lack of empirical evidence to demonstrate how public financial instruments (i.e. budget expenditures, capital investments, social spending and tax revenues) among others influence gross regional domestic product (GRDP) at the sub national level. In the research, these relationships are evaluated using a panel econometric model in order to determine the most important mechanisms and regional disparities of fiscal performance. The study uses a balanced panel dataset of 19 Ukrainian regions (Donetsk, Luhansk, Zaporizhia, Kherson, Crimea are excluded due to the lack of data for occupied areas). The sample includes 114 region-year observations. The key variables are GRDP per capita, budget expenditures, capital investments, social expenditures, and tax revenues. Furthermore, results from econometric model display that capital investment has a strong and statistically significant positive impact on GRDP (β ≈ 1.76, p < 0.01) while social expenditures also have a positive impact, although it is weaker (β ≈ 1.12, p < 0.05). COVID-19 explained the 4,500 of GRDP on average per capita (negative impact) and the war variable showed a stronger negative effect in the amount of 6,200 per capita. GRDP had a dual role of being both an input and an output of economic growth, the performance of which was also positively associated with tax revenue performance. Results also show that GRDP per capita levels remain high in regions such as Lviv, Vinnytsia and Poltava, but decline in frontline regions. The importance of capital and social investment to stabilize regional economies and the need of flexible and well oriented fiscal policies to respond to the particular needs of each region are also stressed. The empirical evidence presented in this research can be used for postwar recovery strategies and regional fiscal planning in Ukraine.

Keywords

regional development, financial regulation, budgetary policy, capital investment, GRDP per capita, crisis resilience.

JEL classification:G380, O180, R580;DOI: https://doi.org/10.32680/2409-9260-2025-4-329-75-83

UD classification: 336.1:352

References

1. Al Jasimee, K. H., & Blanco-Encomienda, F. J. (2024). Decoding task uncertainty: Moderating effects on participative budgeting and budgetary slack dynamics. Total Quality Management & Business Excellence, 35(7–8), 739–757.
2. Alhasnawi, M. Y., Said, R. M., Daud, Z. M., & Muhammad, H. (2023). Enhancing managerial performance through budget participation: Insights from a two-stage A PLS-SEM and artificial neural network approach (ANN). Journal of Open Innovation: Technology, Market, and Complexity, 9(4), 100161.
3. Azam, M., & Bouckaert, G. (2024). Performance-based budgeting reform and evolution of performance information quality: Empirical analysis of Indonesia. Journal of Public Budgeting, Accounting & Financial Management, 37(1), 25–47.
4. Bchennaty, B., Nauman Khan, M., Massoud, M., & Elhassan, T. (2024). Appraising the role of strategic control in financial performance: The mediating effect of the resource allocation process- the case of the ministry of finance-north lebanon. International Journal of Financial Studies, 12(3), 90.
5. Canavire-Bacarreza, G., Martinez-Vazquez, J., & Yedgenov, B. (2020). Identifying and disentangling the impact of fiscal decentralization on economic growth. World Development, 127, 104742
6. Douglas, S., & Overmans, T. (2020). Public value budgeting: Propositions for the future of budgeting. Journal of Public Budgeting, Accounting & Financial Management, 32(4), 623–637.
7. Drepin, A. V. (2021). Formation of local budgets in the system of socio-economic development (Doctoral dissertation, Kyiv National University of Trade and Economics). [Specialty 072 "Finance, Banking and Insurance"]. [in Ukrainian]
8. Felix Júnior, L. A., Costa, W. P. L. B. D., Guimarães, L. G. D. A., Pereira, G. R. B., & El- Aouar, W. A. (2020). Social participation in the definition of budgetary instruments. Transforming Government: People, Process and Policy, 14(5), 737–755.
9. IMF. (2024). Global Financial Stability Report. https://data.imf.org/?sk=388dfa60-1d26-4ade-b505-a05a558d9a42
10. Khalaf, L., Kouki, R., & Algebaly, E. A. M. (2023). The bidirectional relationship between MFIs’ financial and social performance: Sustainability and outreach perspective. Cogent Economics & Finance, 11(1), 2173123.
11. Khoo, S. V., Rahman, N. H. A., & Kamil, N. L. M. (2024). An evaluation of the influence of budgeting process on budget performance in Malaysia. Public Administration and Policy: An Asia-Pacific Journal, 27(1), 31–44.
12. Koldovskiy, A. (2024). Strategic infrastructure transformation: Revolutionizing financial sector management for enhanced success. Acta Academiae Beregsasiensis. Economics, 5(2024), 323–332. https://doi.org/10.58423/2786-6742/2024-5-323-332
13. Korotun V., Kaneva T., Drepin А., Levaieva L., Kucherenko S. (2020). The impact of fiscal decentralization on economic growth in Central and Eastern Europe. European Journal of Sustainable Development, 9 (3). 215-227.
14. Ministry of Finance of Ukraine. (2025). Official website. https://www.mof.gov.ua/uk (Accessed: April 5, 2025) [in Ukrainian]
15. Ministry of Social Policy of Ukraine. (2025). Official website. https://www.msp.gov.ua/ (Accessed: April 5, 2025) [in Ukrainian]
16. Prokopenko, O., Koldovskiy, A., Khalilova, M., Orazbayeva, A., & Machado, J. (2024). Development of Blockchain Technology in Financial Accounting. Computation, 12(12), 250. https://doi.org/10.3390/computation12120250
17. Rekunenko, I., Koldovskyi, A., Babenko, K., & Subačienė, R. (2025a). The impact of financial regulation on financial control efficiency: A comparative analysis of economies. Accounting and Financial Control, 6(1), 13–24. https://doi.org/10.21511/afc.06(1).2025.02
18. Rekunenko, I., Koldovskyi, A., Hordiienko, V., Yurynets, O., Abu Khalaf, B., & Ktit, M. (2025b). Technology adoption in government management: Public sector transformation analysis. Journal of Governance & Regulation, 14(1), 150–160. https://doi.org/10.22495/jgrv14i1art14
19. State Statistics Service of Ukraine. (2025). Official website. https://www.ukrstat.gov.ua/ (Accessed: April 5, 2025) [in Ukrainian]
20. World bank. (2024). The World Development Indicators. https://datatopics.worldbank.org/world-development-indicators/