Empirics of investment – social and economic development causal nexus in Ukraine (case study of the Lviv region of Ukraine).

Abstract

The development of regional socio-economic systems relies on investments as a key factor for expanded reproduction, creating a cyclical process in which investments drive development, generating resources for further investments. This paper aims to empirically investigate the nexus and causal link between investments and the socio-economic development of a region in Ukraine (Lviv region as a case study). The research methods include VAR modeling (to assess the elasticity of investment processes to environmental factors), Forward Stepwise (to examine the impact of investment on socio-economic development), and extrema (to determine optimal investment resource points). The data for the Lviv region of Ukraine from 2005 to 2023 serve as the information and analytical basis of the study. The article identifies key economic factors, such as employment growth (elasticity: 2.65%) and the number of large and medium-sized enterprises (1.39%), and financial factors influencing investment processes. Financial factors include the growth of personal income tax revenues (4.78%), economic activity expenditures (0.81%), and subsidies (0.49%) in the short term, while tax independence (1.35%), local taxes and fees (2.47%), and economic activity expenditures (0.94%) are significant in the long term. It is estimated that a 1% increase in capital or foreign direct investment boosts socio-economic development by 0.12% and 0.5%, respectively, with foreign direct and capital investments ensuring socio-economic development at 0.45%. The use of constructed models for forecasting and planning investments in the Ukrainian regions allows for optimizing resource allocation, avoiding excessive costs, and ensuring economic stability in the face of global shocks and crises.