Baltic Journal of Economic Studies 79 Vol. 11 No. 4, 2025 This is an Open Access article, distributed under the terms of the Creative Commons Attribution CC BY 4.0 1 Ukrainian Catholic University, Ukraine (corresponding author) E-mail: borshchevsky@ucu.edu.ua ORCID: https://orcid.org/0000-0002-1868-4434 2 WSB MERITO University in Gdansk, Poland E-mail: artur.kozlowski@gdansk.merito.pl ORCID: https://orcid.org/0000-0002-5359-192X 3 State University of Trade and Economics, Ukraine E-mail: b.tyrus@knute.edu.ua ORCID: https://orcid.org/0009-0005-3251-0237 DOI: https://doi.org/10.30525/2256-0742/2025-11-4-79-97 INSTITUTIONAL ASPECTS OF THE DEVELOPMENT OF UKRAINIAN-POLISH ECONOMIC CO-OPERATION IN THE CONTEXT OF CONTEMPORARY SECURITY CHALLENGES Viktor Borshchevskyi1, Artur Roland Kozlowski2, Bohdan Tyrus3 Abstract. The objective of this article is to delineate the array of fundamental institutional impediments that curtail the capacity for Ukrainian-Polish economic collaboration in the context of prevailing security challenges, and to formulate recommendations for addressing the identified concerns. The present study investigates the main trends, factors, and components of the development of Ukrainian-Polish economic relations under conditions of heightened global instability. This study focuses on institutional barriers, with a particular emphasis on their role in amplifying systemic risks for the economies of both countries. The article examines the drivers and manifestations of institutional dysfunctions impeding bilateral economic co-operation and analyses their impact in the context of Ukraine's European integration ambitions and the strategic priorities of bilateral collaboration. The research indicates an augmentation in the potential for trade and economic co-operation, as evidenced by actual indicators of mutual trade turnover that exceed the estimated thresholds derived from the gravitational model of bilateral economic attraction. The findings also demonstrate that the most significant institutional dysfunctions negatively affecting co-operation include opportunistic behaviour, institutional traps, information asymmetries, and institutional mutations and anomie. The global institutional context is a key area of focus, with particular attention paid to its implications for bilateral co-operation. The erosion of traditional international institutions has prompted a search for novel forms of institutional collaboration between Ukraine and Poland, both bilaterally and multilaterally. The study proposes directing strategic attention towards the institutional dimensions of Ukrainian- Polish co-operation in sectors such as agriculture, agri-food processing, transport and logistics, energy, defence and security. It identifies the diversification of institutional platforms for interaction among economic actors, government authorities at all levels and civil society institutions in both countries as the most effective tool for overcoming existing institutional barriers. The article argues that modernising governance instruments and reducing the negative impact of information asymmetries, mental stereotypes and social archetypes would reduce opportunistic behaviour and encourage greater engagement between business communities in Ukraine and Poland. Keywords: global economy, security challenges, European integration, Ukrainian-Polish economic co-operation, institutional dysfunctions. JEL Classification: F15, F50, F52, P48, O52, O57 1. Introduction Contemporary global security challenges exert a profound influence on various dimensions of the socio-economic development of modern states and regions. These challenges extend beyond the sphere of international trade and investment co-operation, encompassing currency and financial interactions, humanitarian and social mechanisms of partnership, as well as the institutional foundations that underpin and facilitate deeper collaboration. It is important to note that it is the institutional component which frequently functions as the systemic core within the extensive range of tools and mechanisms that are designed to enhance economic relations among Baltic Journal of Economic Studies 80 Vol. 11 No. 4, 2025 states. Indeed, institutional elements directly shape the legal frameworks governing bilateral and multilateral economic co-operation, while also determining the prevailing modes – both formal and informal – of communication among individuals, enterprises, institutions, and public authorities across countries. In this regard, institutional factors have the dual capacity to either mitigate many of the security-related risks inherent in today's globalised environment by fostering enhanced international economic co-operation, or to constrain the scope and intensity of cross-border business and commercial exchanges, thereby amplifying security threats and exacerbating their destabilising consequences. In the contemporary era, the most evident global security challenges are the mounting resurgence of protectionist sentiments in numerous countries, propelled by a reversion to a form of realpolitik reminiscent of the latter half of the twentieth century. Additionally, there is the weakening – or, in some cases, the disintegration – of several traditional global institutions that formerly played a pivotal role in stabilising international economic relations, balancing key development poles, and preventing the escalation of conflict and systemic crises within the global economy. Finally, there is the intensification of competition over the planet's finite human and material resources. The emergence of realpolitik as an alternative to the paradigm of irreconcilable ideological confrontation between the Western world and the Communist bloc, which was rooted in value- based antagonism, can be traced back to the 1960s. In contrast, realpolitik was characterised by a doctrine of strategic pragmatism and situational adaptability, enabling states to pursue their political interests through the lens of real power balances and prevailing economic conditions. It is widely believed that the disintegration of the global socialist system was in part precipitated by the influence of realpolitik, which gradually eroded the Soviet Union’s hegemonic position by limiting its economic leverage over allied nations – from China to the countries of Eastern Europe (Saaida, 2023). In the current geopolitical context, this approach is closely associated with the United States' strategic reorientation towards prioritising its own economic interests and actively supporting American business operations across various global regions. An inevitable consequence of this shift in paradigm is that security- related challenges will amplify for democratic states in Europe and Asia that have long relied on US military assistance and open trade relations with Washington. Furthermore, contemporary trends give rise to valid concerns regarding a possible reversion to a global order that is characterised by the "law of the strongest"– a reality that was believed to have been consigned to history. In such a scenario, the effective management of national resources alone may no longer be sufficient to ensure competitiveness in the global political and economic arena. Instead, the ability to survive may increasingly depend on the formation of powerful and operationally effective military-political alliances, or the securing of strategic partnerships with dominant geopolitical actors. This dynamic is likely to result in the militarisation of the global economy, accompanied by profound structural transformations and, consequently, heightened risks of systemic crises and market instability at both regional and continental scales. It is conceivable that, for an indefinite period, the global focus may be compelled to shift away from promising avenues of development, including but not limited to green energy, circular economy models, the creative industries, and initiatives in the domain of mental health and well-being. These shifts have the potential to result in a decline in the efficiency of global resource utilisation, particularly due to the suspension or cancellation of international projects aimed at sustainable exploitation. The aforementioned challenges are further compounded by the escalating confrontation among competing global economic centres of influence. This may provoke opportunistic behaviour on the part of smaller states, especially those in the so-called Global South, toward the United States, the European Union, and China. For instance, specific business entities that receive support from the governments of their respective countries may experience an increased emphasis on achieving short-term profits. Consequently, the risks faced by foreign companies operating within these markets are anticipated to rise, primarily due to the propagation of information asymmetries, the escalation of speculative activity, and the excessive utilisation of financial manipulations and market influence mechanisms by national governments. Among the various factors contributing to the escalating systemic opportunism risk are the fabrication of information pertaining to the financial condition of companies, the reliability of external audits, the inaccuracy of credit ratings, and the inadequacy of managerial incentive systems (Szewc-Rogalska, 2015). Another complicating factor, particularly given the escalating security threats, is the potential for paternalistic sentiments to strengthen in many countries. This could lead to limitations on open global competition, including barriers to the free movement of people, goods and services. In this context, the costs associated with market protection, business security, enforcing agreements and complying with international law could rise significantly. It is also conceivable that a new arms race, reminiscent of the Cold War period with its nuclear dimension, may emerge. In the emerging world order, nuclear Baltic Journal of Economic Studies 81 Vol. 11 No. 4, 2025 weapons may be perceived as the only reliable security guarantee, particularly for smaller states. It is not only Donald Trump who has expressed concerns over the collapse of the global trade system, which, in his opinion, has had a catastrophic impact on the world economy. The backlash against globalisation is by no means confined to the United States. The United Kingdom's vote in favour of Brexit revealed that a majority of citizens prioritised immigration control over continued membership of the world's largest trading bloc. Those who supported remaining in the EU accused pro-leave voters of protectionism or even racism. However, much of the concern about immigration stemmed from fears – whether real or perceived – about the number of new arrivals to British shores and the impact this would have on employment, the economy and British life as it is currently experienced (Gray, 2017). The rise of populist politics in Europe and the United States has sparked opposition to globalised economies and international organisations such as the World Trade Organization (WTO) and NATO. The reputation of these organisations has suffered significantly, with some being criticised for being too powerful and others for being too weak. Founded in the aftermath of the Second World War to "save succeeding generations from the scourge of war", the United Nations (UN) has failed to offer an adequate response to Russia’s war against Ukraine. The organisation is widely regarded as weak and unresponsive, and populist movements tend to ridicule the idea of countries belonging to an international community. In China, globalised infrastructures such as the internet are heavily restricted and have been transformed into tools tightly controlled by the national government. This converts the free flow of information into an extraordinarily effective means of political control. Over the past decade, there has been a significant erosion of international treaties and established norms relating to democracy, human rights and arms control. However, the extent to which this can be attributed directly to deglobalisation is a matter of debate (Kornprobst & Wallace, 2021). Among the institutional projections of the outlined security challenges, which are expected to affect the efficiency of national economies and the nature of their external economic relations, the following should be noted first and foremost: the transformation of the existing system of international institutions and international law as a whole; the growing prominence of bilateral agreements and regional alliances of states; the intensification of local cross-border clusters, particularly in the fields of high technology and defence industries; and the increasing importance of informal institutions, taking place in parallel with the expansion of online communications and accompanied by a rise in the significance of social capital in international economic co-operation among states and regions. Concurrently, there is a strong likelihood of the emergence of a range of new institutional dysfunctions, primarily in the form of institutional traps, mutations, and ruptures (see Table 1). Table 1 Key institutional dysfunctions in international economic co-operation among states Institutional dysfunction Features Examples Institutional traps The phenomenon of stable closed institutional linkage is one that is of benefit to its participants, yet detrimental to society as a whole. Barter transactions, corrupt arrangements and activities in the shadow economy. Institutional mutations A fundamental transformation of an institution's nature while preserving its formal functions and name leads to the actual loss of its functions and essence, despite the institution's formal self- preservation. International organisations that have lost their ability to perform their assigned functions, yet still retain their formal status. Institutional disruptions Institutional divergences manifest as differing economic policy priorities among partner states within international organisations. These divergences generate conflicts in the formulation of these organisations' development strategies. The divergence of development goals among individual states, including those belonging to the same international organisations. Institutional vacuum The institutional (most often normative-legal) lack of regulation of certain social or economic interactions between countries, or the absence of mechanisms to monitor compliance with established rules and norms. There is a lack of mechanisms for international institutions to influence countries that ignore international legal norms or fail to fulfil their obligations. Institutional anomie The weakening of institutions due to their incompleteness, instability, exhaustion or the ambiguity and contradictions of the norms they rely on leads to a decline in their actual significance. The loss of the ability to make timely and effective decisions in the interests of its members by an international organisation. Institutional fetishes Institutions that are endowed with certain "cult-like" attributes that they do not actually possess, or that are expected to fulfil expectations that they are unable to meet. International legal agreements that lack practical mechanisms to ensure their implementation. Source: authors’ own elaboration Baltic Journal of Economic Studies 82 Vol. 11 No. 4, 2025 It is also noteworthy that a number of imminent institutional changes may exert a positive influence on the evolution of contemporary global security and economic institutions. Anticipated institutional transformations are likely to contribute to the gradual obsolescence of certain institutional remnants of the twentieth century. Many of these remnants currently exist in a state of profound anomie, have assumed the character of institutional fetishes, or have undergone significant structural mutations. This primarily concerns the institutional restructuring of the entire system of international organisations, which will be compelled to adapt to the security challenges of the present era. It is inevitable that these organisations will have to abandon ineffective decision-making and governance mechanisms based on achieving consensus among a wide range of actors whose economic interests are often divergent. Such processes are characterised by prolonged deliberation and complex negotiations. However, in today's rapidly changing environment, decisions must be made with urgency, and their implementation must ensure the organisation's capacity to respond promptly to emerging challenges. This is especially evident in the domain of security, which encompasses both military and economic dimensions. Consequently, institutions such as the United Nations, the European Union, NATO, the OSCE, and several others will, in the near future, be compelled to undertake more or less fundamental reforms of their institutional frameworks. Those that act expeditiously and efficaciously will enhance their relevance and influence on the international stage; those that lag behind risk degenerating into organisational relics, gradually fading from the political map of the world. It is important to acknowledge that these institutions initially emerged as a response to the pressing needs of their respective eras. They have since evolved in accordance with the trajectories of those needs. It is imperative to acknowledge that the objective nature and inherent logic of institutional evolution are such that, irrespective of the presence or absence of subjective political will or the intentions of individual governments or national leaders, institutional remnants will inevitably be superseded by new structures that are more attuned to the demands of the modern global economy. This applies, above all, to the emergence of complex decentralised informational, commercial, and financial networks; the widespread use of advanced digital platforms, databases, and media resources to accelerate information exchange and expand international trade flows; the debureaucratisation of numerous managerial processes, accompanied by the introduction of innovations in the field of public administration, including on the basis of cross-sectoral partnerships and the implementation of "noospheric" economics and "noo-management"; the intensification of online communication channels; and the dismantling of institutional foundations of global market cartelisation, which at present significantly reduces the efficiency of economic resource utilisation (both at the level of individual states and at the planetary scale) (see Table 2). Despite their ambiguous impact on the system of international security institutions, the aforementioned potential institutional changes are likely to facilitate the successful "niche" competition of small states and their enterprises with global economic actors. This is likely to occur through the proliferation of localised information exchange systems, the introduction of regional currencies, the emergence of new political elites and the diminishing influence of international bureaucracies and individual state governments on global business cycles. In view of the aforementioned, a primary function of contemporary economic science is to devise efficacious instruments and mechanisms for mitigating the deleterious effects of destructive institutional phenomena and processes associated with the intensification of global security threats. Concurrently, it is imperative to formulate proposals for priority directions aimed at enhancing the efficiency of the planet's existing economic resources through the implementation of adequate institutional transformations. In this context, bilateral economic co-operation between states – particularly those that play a pivotal role in the current global security architecture – is of exceptional importance. Poland and Ukraine are undoubtedly among the most important of these states today. The success of their security coordination and economic collaboration is crucial for ensuring political stability across the European continent and for determining the future direction of continental economic development. As early as in The Grand Chessboard, Zbigniew Brzezinski emphasised the distinctive geopolitical significance of Poland and Ukraine. He argued that forming a Central European economic axis – achieved by integrating Ukraine into the framework of Franco-German-Polish political relations – would make Europe's geostrategic strength undeniable. Furthermore, in such a scenario, the Polish-Ukrainian border would serve as a conduit for the transmission of European democratic institutions, political values and economic systems to those regions of the post- Soviet geopolitical landscape. Without this, Russian neo-imperial ambitions – currently the primary security threat to modern European civilisation – would have little chance of succeeding (Brzezinski, 1997). In this context, the main areas of Ukrainian-Polish economic co-operation that should be prioritised in light of the current global security challenges, and given the existing institutional potential for bilateral Baltic Journal of Economic Studies 83 Vol. 11 No. 4, 2025 collaboration, are as follows: the establishment of joint cross-border and interstate institutions (such as analytical, research, and educational centers; cross- border clusters; intergovernmental and interregional advisory bodies; public councils; and others); the elimination of existing institutional dysfunctions that provoke tensions between political actors and entrepreneurs of both countries (in the agricultural sector, in matters related to historical legacy, and in cross-border interactions); the strategic use of shared transit capacity; the implementation of joint investment projects and participation in technology transfer initiatives aimed at modernising the energy and defence sectors of each country; and the consolidation of efforts in the development of high technologies and the scaling-up of production of advanced machinery, equipment, and armaments in demand on the global market. In view of the above, the primary objective of this publication is to identify the set of challenges that constrain the development potential of Ukrainian- Polish economic co-operation under contemporary security threats, and to elaborate proposals for addressing these obstacles through the enhancement of the institutional environment underpinning bilateral relations. 2. Review of the Literature In recent years, there has been an increasing prevalence of security-related issues in the scholarly works of Ukrainian, Polish, and other European authors. This growing relevance is largely attributable to the global institutional and economic transformations that the world has faced following the large-scale Russian invasion of Ukraine. As E. Lazarou and L. Zamfir observe: "Looking ahead, peace and security are becoming increasingly complex. Even on the European continent, the war in Ukraine has shown that the assumption of sustained peace can no longer be taken for granted. Table 2 Institutional aspects of the development of international organisations in the context of global security challenges Current institutions Institutional prerequisites of emergence Basic institutional rudiments Potential institutional alternatives UN It was created after the Second World War (1945) by the victorious countries to maintain peace and security worldwide. The Security Council's leading role is limited by the fact that its permanent members are states with divergent political interests. This limits the effectiveness of responses to challenges. This involves changing the structure and decision-making mechanism by replacing the Security Council with an institution that more accurately reflects contemporary geopolitical realities. NATO It was founded in 1949 as a foundation to protect Western democracies from aggression by the USSR and its satellite states. Its primary goal is to deter potential enemies, including through military means. Following the admission of a significant number of new countries, and given the prolonged period of peace and the absence of an imminent threat, many of the levers and response instruments to potential challenges have become outdated in both a moral and a practical sense. Modernisation of rapid response forces and enhancement of the military potential of European countries within the alliance. The formation of local clusters involving member countries and potential allies, based on a regional- spatial principle. EU The formation began in the second half of the 20th century (1957) as an institutional framework aimed at coordinating the reindustrialisation of the major European states. It served as a foundation for their subsequent economic integration within an evolving geopolitical context. Following several phases of expansion, it now covers 27 countries from different regions of the continent that vary in terms of their level of development. This makes it difficult to achieve consensus, particularly amid economic crises and escalating global security challenges. The institutional system of the European Union should be diversified, including through the formation of various clusters of its member countries. This should take into account their existing economic potential, developmental challenges, and geopolitical and security interests, among other factors. Organisation for Security and Co-operation in Europe (OSCE) It was institutionally established in 1975 with the purpose of ensuring peace and stability in Europe by deepening co-operation between all the continent's countries, including NATO and Warsaw Pact members. The European security space has undergone a complete reconfiguration since the organisation was established. Including a large number of countries with a wide range of interests often makes it impossible to adopt effective security measures. The organisation is decomposed by dividing it into a number of smaller, more effective entities that focus on local issues in specific subregions. Alternatively, the OSCE could be given an advisory and consultative role only. Source: authors’ own elaboration Baltic Journal of Economic Studies 84 Vol. 11 No. 4, 2025 The repercussions of this war are felt across the globe in the form of deteriorating food and energy security, inflationary pressures, economic crises, and global polarization. New types of threats and destabilizing factors – such as pandemics, climate change, foreign interference in democratic processes, cyberattacks, bioterrorism, and various forms of hybrid warfare – require innovative thinking and new types of resources and solutions. While the EU has made considerable progress toward strengthening its presence and effectiveness in the domain of peace and security, much remains to be done. The Multiannual Financial Framework (MFF) for 2021-2027 focuses on enhancing EU programs and instruments to ensure sufficient flexibility in responding to unforeseen threats, as well as on deploying innovative financial mechanisms." (Lazarou & Zamfir, 2022) In recent years, European co-operation in the field of security has undergone a fundamental shift in quality, typified by the concept of "European strategic autonomy", as articulated in the European Union's Global Strategy (Shared Vision, Common Action: A Stronger Europe). This novel strategy is characterised by its emphasis on specific objectives, with a view to addressing the risks and challenges that the EU may encounter in the future. The framework is structured as follows: firstly, the interests of EU citizens; secondly, the principles guiding the Union in the pursuit of these interests; thirdly, the priorities underpinning these actions; and finally, the methods for their implementation. The new security strategy positions the European Union as a key global partner and defender of European values, while also emphasising the growing responsibilities of other international and regional organisations, as well as national governments (Duginets & Busarieva, 2022; Kaca & Szczepanik, 2024). In its broadest sense, security is also considered a natural human right, as is enshrined in numerous international and European legal instruments. It encompasses various spheres of both individual and collective life. In an era characterised by the increasing interpenetration of the private and public spheres, individual security frequently intersects with its collective dimension. The development of a general concept of "democratic security" by international organisations, primarily the Council of Europe, is aimed at ensuring respect for human rights, fundamental freedoms, and the rule of law (Kaczmarczyk, 2019). The primary security challenges currently considered in the context of ensuring the European Union’s economic resilience are identified by researchers and experts as follows: emerging threats to the stability of existing supply chains (including price volatility, shortages of resources or essential goods, and the urgent need to diversify energy sources); risks to the physical and cybersecurity of critical infrastructure (such as potential disruptions to pipeline operations, cable and electronic communications networks, increased probability of failures in energy systems, and transport-logistics bottlenecks); insufficient compliance with technological security standards and the possibility of technology leakage (which pose a threat to technological competitiveness and access to cutting-edge innovations, as well as to the overall technological progress of the EU, in particular through criminal activities in the digital sphere (espionage, theft of knowledge and technology), which in some cases may strengthen the military capabilities of actors seeking to undermine peace and security in Europe, in particular through the misuse of dual-use technologies); and, finally, the strategic use of economic leverage against EU countries as a form of coercion aimed at forcing them to abandon their principles or values, or to alter the core objectives of European integration (Lyzun & Ozarko, 2023). The escalating severity of security challenges has given rise to a series of political initiatives aimed at enhancing the institutional adaptability of the European Union to contemporary and future global transformations. The most significant of these is the necessity to enhance the collaborative relationships among the extant institutions operating within the domain of security and defence. This imperative was clearly reflected in the EU–NATO co-operation declaration, which emphasised such initiatives as the Coordinated Annual Review on Defence (CARD), under which Member States voluntarily align their national defence planning cycles; the launch of Permanent Structured Cooperation (PESCO), designed to enhance the usability of EU Battlegroups and to revise existing operational planning structures within the Common Security and Defence Policy (CSDP). In early February 2022, a novel political and security alliance was formed, comprising the United Kingdom, Poland, and Ukraine. This trilateral initiative is oriented towards broad-based co-operation, ranging from the deterrence of Russian aggression to the consolidation of the entire European security system. Other states, primarily in the Baltic, Scandinavian and Central European regions, are expected to join the newly created alliance. In the long term, this initiative could evolve into a broader strategy for forming small, flexible coalitions, incorporating frameworks such as the "Lublin Triangle" (Ukraine-Poland-Lithuania). At the same time, the United Kingdom's security role in Central and Eastern Europe is expected to increase, particularly in view of potential collaboration with Germany and France – an alignment that could offset any reduction in U.S. involvement in regional security issues (Romaniuk & Romaniuk, 2023). In this context, the present study explores the significance of Ukrainian-Polish institutional and Baltic Journal of Economic Studies 85 Vol. 11 No. 4, 2025 security co-operation in shaping a new paradigm of European integration. The central argument posits that this co-operation is currently one of the key strategic priorities, grounded in the core values of the European Union and directed towards strengthening the defence capabilities of European states against the threat of expansionist totalitarian regimes, particularly that of Russia (Kozłowski & Yankiv, 2021; Bryc, 2023). Poland’s new foreign policy strategy explicitly identifies support for Ukraine in its resistance to Russian aggression as a national priority. Moreover, Polish policymakers recognise the strategic importance of Ukraine's swift accession to the European Union (Szczepanik & Zając, 2024) and, eventually, its membership of NATO or a future pan- European defence alliance. A prominent slogan that has gained traction in this context captures the essence of this approach: "A secure Ukraine means a secure Poland, and therefore a peaceful Europe." (Kovalchuk & Matviichuk, 2023) Poland is one of the countries providing Ukraine with the largest quantities of military equipment. The two countries also enjoy strong economic ties, with bilateral trade having increased significantly in recent years. This upward trend has persisted even amidst wartime conditions. In the initial months of the war, in particular, imports from Poland increased sharply due to the relocation of enterprises and the search for new suppliers, following the severance of trade relations with Russian companies. There was also a sharp decline in maritime trade through the Black Sea, due to the Russian blockade (Fechko, 2024). Poland and Ukraine also have shared strategic interests in developing the energy sector and co-operating in industrial production (Nowak, 2024). Both countries have significant industrial capacity, but this remains heavily dependent on fossil fuels. In the context of the European Union’s efforts to boost its global competitiveness by promoting a low-carbon economy, this dependency poses unique challenges. Poland’s alliances within the EU and its relations with key partners could undergo significant reconfiguration, particularly given that the gradual shift away from coal towards a low-carbon model has long been a controversial issue in Poland due to the substantial short-term economic and social costs involved. Although Poland has made notable progress in recent years, particularly with regard to investing in renewable energy and reducing emissions, the pace of transformation has not been sufficient, given the magnitude of the challenges and the need to align with EU climate policies. Against this backdrop, Ukraine is set to become a substantially more attractive partner for joint investment projects in the industrial sector (Buras & Matlak, 2025). Polish scholars also emphasise that if Poland seizes the current opportunities to deepen its co-operation with Ukraine, it could soon emerge as one of the gravitational centres of the European Union, which is likely to shift eastwards. Furthermore, both countries are set to become major players in the future European economic and security community. Conversely, if Poland fails to capitalise on this window of opportunity, it risks being relegated to the periphery of the EU, positioned at the frontier with the aggressive, authoritarian regimes of Russia and Belarus (Zaborowski, 2024). 3. Methods and Approaches The study's theoretical and methodological framework is based on the fundamental principles of institutionalism and neoclassical economic theory. It also draws on the concepts and ideas of theories in international economic relations, economic security, human and social capital, the spatial distribution of productive forces, and regional economics. In particular, institutional theory formed the basis for analysing the role of existing institutions and formal and informal institutional arrangements in developing Ukrainian- Polish economic co-operation. Its core principles were also used to identify and evaluate the effect of significant institutional dysfunctions on the effectiveness of bilateral relations between Ukraine and Poland. The methodology of neoclassical economics, complemented by insights from contemporary regionalist thought and the fields of economic security and international economics, was applied to outline the priority areas for diversifying the two countries' foreign economic relations, particularly in response to global security challenges. Empirical data and analytical inputs were accumulated by processing and using primary sources available on open-access platforms. These sources included scholarly publications by Ukrainian, Polish and other international authors, analytical materials from public authorities, international institutions, expert organisations and academic institutions, journalistic articles, structured statistical datasets, and the published results of sociological surveys and expert assessments. The methodological approaches employed to analyse the collected data and formulate the corresponding conclusions were based on a combination of general scientific and specialised research methods. Scientific abstraction was used to identify key factors and trends in the development of Ukrainian-Polish economic co-operation in the context of contemporary security challenges. Meanwhile, the processes of analysis and synthesis formed the basis for organising the information obtained and integrating the separate research findings into a coherent conceptual system. This system was aimed at identifying economic trends and regularities in institutional support for bilateral Baltic Journal of Economic Studies 86 Vol. 11 No. 4, 2025 co-operation within the context of European integration. The combined use of historical and logical methods revealed long-term patterns and historical trajectories in the interaction between international co-operation institutions and the security-related aspects of state and regional functioning. This ultimately impacted the effectiveness with which resources were utilised, including human, natural and material resources. Among the specific economic methods employed in the preparation of this article were multivariate analysis and scenario forecasting (used to determine strategic alternatives for the development of the security environment in the context of Ukrainian– Polish economic relations); the method of absolute and comparative advantages (applied in formulating recommendations regarding the priority directions of economic specialisation for each country in the process of intensifying bilateral co-operation at the current stage of European integration); and tabular and graphical modeling (used for visualising particular aspects and outcomes of the study). Additionally, economic process modelling was conducted by constructing a gravity model of Ukrainian- Polish economic co-operation and formulating a scientific hypothesis regarding its short- and medium- term development trends. Primary data on socio- economic and administrative processes in Ukrainian- Polish relations was collected through statistical observation. An in-depth examination of institutional processes and the factors influencing the development and expansion of Ukrainian-Polish trade, economic and investment co-operation was conducted using the monographic method. It also proved instrumental in analysing the investment climate and the quality of human and social capital in both countries, particularly with regard to the prospects for strengthening bilateral economic relations. 4. Trend of Global Transformations The global transformations currently affecting the European continent are impacting various aspects of its countries' and subregions' socio-economic development. The aggressive Russian neo-imperial dictatorship, supported by the authoritarian regime in Belarus, poses security threats that necessitate the formation of a new institutional model. This model must be capable of preserving Europe's traditional system of democratic values and shielding its economy from the shocks induced by an emerging geopolitical reality. The global order – or disorder – taking shape in the 21st century does not align with the EU's DNA, its history, or its preferences. The European Union (EU) is the world's foremost multilateral institution, founded on a comprehensive set of well-defined rules, including those that regulate international trade. Consequently, the EU's security is firmly anchored in the Transatlantic Alliance. The structural challenges it faces are both geopolitical and geoeconomic in nature. The global balance of power and the architecture of authority are shifting in numerous unpredictable ways, often to the EU’s disadvantage. Following the 2024 presidential elections, the shift in U.S. political orientation has exacerbated these challenges and dilemmas by introducing additional unpredictability, disorganisation and anti-European rhetoric, all of which have a negative effect on transatlantic relations. Nevertheless, the EU is entitled to a central role in the modern global system. In order to achieve this objective, it is imperative that the EU learns to navigate an increasingly multipolar world and mobilises the necessary resources for collective action in critical areas (Laffan, 2025). In this regard, Ukraine's inclusion within the geopolitical and geoeconomic orbit of the European Union constitutes one of the principal priorities in shaping a new security strategy for the entire European continent. Concurrently, the incorporation of Ukraine's economy will delineate the primary contours of the EU's prospective economic framework and ascertain the priority directives for the evolution of its markets. In this context, Polish-Ukrainian economic relations will carry particular strategic importance in the initial phase of such integration. 5. Ukrainian-Polish Economic Co-Operation Medium-term challenges include reconstruction, investment mobilisation, and the modernisation of infrastructure along the Polish-Ukrainian border. In order to facilitate economic recovery and ensure deeper integration with Europe, it is essential that Ukraine rebuilds its transport infrastructure (Dzierżanowski & Szeligowski, 2024). Multimodal transport solutions will be essential. It would be beneficial for Ukraine to expand the Trans-European Transport Network (TEN-T) along the shortest possible route to Poland, via Lublin. Beyond economic co-operation, Polish partners could play a key role in introducing EU institutional experience to Ukraine. This is particularly pertinent to reforms aimed at improving the investment climate, accelerating the transfer of advanced European technologies to the Ukrainian market, eradicating corruption and dismantling monopolies (Stronger Together, 2023). In order to outline the prospects for strengthening and advancing Ukrainian–Polish economic relations in the context of ensuring both market efficiency and the security resilience of the European Union, it is essential to focus primarily on the bilateral trade co-operation between the two countries (Flissak, Yankiv & Kozłowski, 2020). In this respect, the positive Baltic Journal of Economic Studies 87 Vol. 11 No. 4, 2025 trends in mutual trade turnover and the growing integrative potential of the Ukrainian and Polish economies warrant particular attention. Specifically, Ukraine’s exports to Poland more than doubled between 2016 and 2024 (from 2.2 billion USD to 4.709 billion USD). During this period, imports of Polish goods to the Ukrainian market increased by 2.6 times (from 2.693 billion USD to 6.988 billion USD). Consequently, Poland’s share of Ukrainian exports reached 11.3%, while its share of Ukrainian imports reached 9.9% (compared to 6.1% and 6.9%, respectively, in 2016) (Geographical structure, 2025). It is noteworthy that during this period, Ukraine's foreign trade with Poland exhibited a growth rate that surpassed both the global average and that of EU Member States. Furthermore, the trade growth exhibited notable stability and consistency, with no substantial fluctuations, thereby substantiating the resilience and dependability of bilateral economic relations (see Fig. 1). With regard to the composition of Ukraine's exports to Poland, the predominant categories comprise ferrous metals and their by-products (approximately 25%), animal or vegetable fats and oils (in excess of 10%), cereals (approximately 10%), wood and wood products, including furniture (approximately 10%), as well as ores, slag, and ash (8–9%). In contrast, the primary categories of imports from Poland encompass fuel and lubricants (exceeding 20%), reactors, boilers, and machinery, including electrical equipment (approximately 10%), land transport vehicles (up to 10%), plastics and polymeric materials (7–8%), and fertilisers (5–6%) (Trade and economic cooperation, 2023). Comparing Ukraine’s foreign trade dynamics with Poland from 2022 to 2024 with those from 2007 to 2008 reveals that Poland’s share of Ukraine’s total foreign trade turnover has more than doubled over fifteen years (10.4% in 2024 compared to 4.1% in 2008). Furthermore, Poland’s share of Ukrainian exports has almost quadrupled during this period, rising from 2.9% to 11.3%. Despite this considerable growth, the structural composition of bilateral trade between Ukraine and Poland has remained largely unchanged over the past fifteen years: Ukraine continues to export primarily raw materials (iron ore and concentrates, cereals, ferrous metals and their products), while importing predominantly energy resources and manufactured goods – most notably those in the machine-building, instrument-making, and electrical engineering sectors (Borshchevskyi, 2009). It is also worth noting that Ukraine traditionally occupies a significantly smaller position in Poland’s export and import profiles than Poland does in Ukraine’s. For example, between 2022 and 2023, Polish exports to Ukraine accounted for around 3% of the country's total exports, while imports from Ukraine made up approximately 1.5%. Ukraine’s share of Poland’s total foreign trade turnover was 2.1% in 2022 and 2.3% in 2023 (Wymiana międzynarodowa, 2025). In comparison to 2008, when Poland’s total exports amounted to 171.9 billion USD and imports to 210.5 billion USD (giving a total foreign trade turnover of 258.6 billion USD), trade with Ukraine reached the following levels: exports of 6.4 billion USD (3.7% of the total), imports of 2.4 billion USD (1.1% of the total), and a total trade turnover of 8.8 billion USD (3.4% of the total). A certain decline can be observed, Figure 1. The dynamics of Ukraine’s foreign trade for the period 2016–2024 Source: authors’ own elaboration 75,6 92,9 104,5 110,9 103,5 140,9 99,4 99,7 112,5 30,6 38,3 43,4 45,8 42,5 55,7 54,9 55,9 60,5 4,9 6,2 6,9 7,4 7,4 10,2 12,1 11,3 11,7 2016 2017 2018 2019 2020 2021 2022 2023 2024 Baltic Journal of Economic Studies 88 Vol. 11 No. 4, 2025 particularly in terms of Poland’s export share (Handel zagraniczny, 2009). At the same time, it is important to note that, as was the case fifteen years ago, there is still a significant discrepancy between the figures reported by the Ukrainian and Polish statistical agencies regarding the volume of Polish exports to Ukraine (and Ukrainian imports from Poland). For instance, in 2023, data from the Polish statistical authority indicates exports to Ukraine totalling 12,266.1 million USD, while Ukraine's statistical service reports imports from Poland amounting to only 6,577.8 million USD – nearly half as much. A similar disparity was observed in 2008–2009, indicating a consistently high level of shadow exports from Poland to Ukraine during this time. It is noteworthy that the trade data concerning Ukrainian exports to Poland and Polish imports from Ukraine are closely aligned between the statistical institutions of both countries, suggesting a virtual absence of shadow imports of Ukrainian goods into Poland. In order to provide an objective assessment of the level of development of Ukrainian–Polish trade co- operation, it is useful to apply a model for determining the gravitational potential of mutual integrative attraction between the two economies. This should then be compared with the actual export and import indicators for each country. The formula used for these calculations is as follows: Where ID denotes the depth of integration (or the integrative potential of the two economies); GDP₁ and GDP₂ represent the gross domestic products of each country, and φ is a correction coefficient (which may reflect the volume of shadow economic operations, existing informal institutional barriers, the degree of opportunistic behavior, among other factors); r indicates the distance between the countries (typically measured as the distance between their capitals). Calculations based on the gravitational potential model of the Polish and Ukrainian economies suggest that the volume of bilateral trade should fluctuate within the range of 12–15 billion USD, of which 4–5 billion USD would represent Ukrainian exports to Poland, and 8–10 billion USD would represent Polish exports to Ukraine. In reality, the total value of Ukrainian–Polish merchandise trade in 2023–24 was around 17 billion USD, with Ukrainian exports to Poland reaching 5 billion USD and Polish exports to Ukraine exceeding 12 billion USD. In other words, the actual indicators of foreign trade between the two countries in recent years have, on average, exceeded the calculated values derived from the gravitational model by 20-25%. While Ukrainian exports fall within the projected optimal range, Polish exports exceed the estimated gravitational optimum by approximately 30% (see Fig. 2). This deviation can be attributed to a significant shift in Ukrainian imports, with a notable increase observed in the trade of goods with EU Member States, as opposed to the Russian and Belarusian markets. Poland has been identified as a key player in this transition, particularly in the short term. The issue of further integration of the Ukrainian market into the European economic space will remain a key concern and a significant challenge for Poland's policy on EU enlargement. Concurrently, the incremental incorporation of Ukraine into the European market will serve as a pivotal component of the EU's policy towards Ukraine during the pre-accession period. Finding the right balance is politically sensitive in Poland and may lead to tensions and crises in the coming years (Buras & Matlak, 2025). The potential post-war integration of Ukraine into the EU single market would significantly increase its size, while also intensifying competition. This will primarily affect trade acceleration between Ukraine and EU Member States that are geographically close and have strong economic integration potential. Poland clearly occupies the leading position among them (see Table 3). Table 3 Gravitational potential of Ukraine’s economy with respect to neighboring EU Member States, % 2007-2008 2022-2023 Dynamics Poland 22,14 27,17 + 5,03 Romania 4,14 9,57 + 5,43 Hungary 3,61 3,31 – 0,3 Slovak Republic 1,63 1,85 + 0,22 Source: authors’ own elaboration As with previous EU enlargements, the anticipated improvement in the welfare of the Ukrainian population will create a receptive market for goods from Poland and other EU countries. This will contribute to GDP growth in those states through increased domestic production and employment, among other effects. Institutional and economic reforms will also open up new opportunities for foreign investment. Although the liberalisation of movement may lead to further labour migration to the EU, the significant outflow of people from Ukraine in recent years – including labour migration since 2014 and the refugee wave that began in 2022 – combined with ongoing demographic challenges, means that the scale of this migration is likely to be limited. Tensions may arise in sectors where Ukrainian goods and services compete directly with those from the Baltic Journal of Economic Studies 89 Vol. 11 No. 4, 2025 EU, particularly in agriculture. Although integrating Ukrainian agricultural production into the EU would make the Union more competitive in global markets, EU producers are less competitive than their Ukrainian counterparts in certain segments. This applies to Polish producers in the grain, oilseed, sugar and poultry sectors, for instance (Kaca, 2024). At the same time, in order to mitigate existing risks and make the most of potential opportunities for economic co-operation between Ukraine and Poland in the near future, particular attention must be paid to improving the institutional framework for this co- operation. This is particularly important when it comes to eliminating existing institutional dysfunctions at various levels of hierarchy: between states, regions (including cross-border areas), and local self-governing bodies, as well as between civil society institutions, business associations, and entrepreneurs in both countries. Since June last year, Ukraine has held partner- participant status in the Three Seas Initiative, in which Poland is playing an increasingly prominent role (full membership is reserved for EU countries only). The main focus of institutional co-operation within this framework is developing infrastructure, particularly transportation projects. The Three Seas Initiative also promotes energy co-operation, for instance by constructing new regional liquefied natural gas terminals, which are intended to reduce Europe’s reliance on Russian gas. At the same time, Poland is seeking to establish an alternative centre of influence within the EU in order to strengthen its negotiating position with its western neighbours. Ukraine, meanwhile, is facing a security vacuum and may therefore align itself with the formation of a military-defence alliance capable of countering Russian expansionism. Against this backdrop, the Three Seas Initiative could help to deepen institutional co-operation between Poland and Ukraine, strengthening both countries' position in ensuring continental security (especially given the recent institutional challenges faced by NATO). In addition to multilateral formats, the bilateral dialogue track remains critically important. Contact between the Polish and Ukrainian sides remains consistently intense. As well as embassy-level diplomacy and regular high-level visits, Kyiv and Warsaw have a number of intergovernmental mechanisms in place, including the Coordination Council on Interregional Cooperation, the Commission on Economic Cooperation, the Advisory Commission on Education for National Minorities and the Youth Exchange Council. Other notable formats include the Ukraine- Poland Presidential Advisory Committee and the Ukraine-Poland Parliamentary Assembly, as well as sustained engagement at the regional level (Kovalchuk & Matviichuk, 2023). A key area of co-operation between the two countries is making the most of their shared transport, logistics and transit potential. Significant progress has been made in recent years in co-operation between Ukraine's and Poland's railway systems. New passenger routes have been launched, freight transportation issues have been resolved, and border crossing operations have improved. However, the current focus must shift towards strategic projects and resolving the most pressing challenges in this area (Kolisnichenko, 2024). Poland is aiming to strengthen its role in transport logistics between the European Union and Ukraine. The EU plans to allocate up to 50 billion EUR for Ukraine’s recovery and economic transformation. These funds could be used to develop the transport network, which is particularly important given the destruction of roads and restricted access to seaports. The Euroterminal in Sławków and the Sławków– Medyka transshipment terminals are located at the junction of the 1520 mm broad-gauge and 1435 mm standard-gauge railways. This makes them strategically Figure 2. Foreign trade indicators of goods between Ukraine and Poland, considering the integration potential of the economies of both countries in 2023 (in billions USD) Source: authors’ own elaboration Baltic Journal of Economic Studies 90 Vol. 11 No. 4, 2025 significant for freight flows. Poland has already outlined a number of infrastructure projects aimed at improving transport connectivity with Ukraine. As part of the national road construction programme running until 2030, the S12 (Piaski– Dorohusk) and S17 (Piaski–Hrebenne) expressways will be built. In addition, the Ministry of Infrastructure plans to extend the railway network along the Rzeszów–Medyka and Lublin–Dorohusk lines. A standard-gauge (1435 mm) railway is to be constructed from Lviv to Medyka on the Ukrainian side, which will optimise freight transport. However, Polish companies are also facing certain difficulties. The expansion of transshipment capacities in Ukraine may reduce the volume of operations in Poland, and Ukraine’s shift to a 1435 mm gauge could reduce the competitiveness of Polish railway operators. Nevertheless, Ukraine’s potential accession to the EU and the simplification of border controls could create new opportunities for Polish companies, particularly with regard to participating in the construction and modernisation of Ukraine's transport infrastructure (Poland is preparing…, 2025). Discussions are also underway regarding the use of the Ukrainian-Polish cross-border area to import energy resources from Azerbaijan to European countries via Ukrainian and Polish pipelines. This initiative has generated significant interest within the EU and has been endorsed by the European Commission (Łoskot-Strachota, Matuszak & Rudnik, 2024). Conversely, Ukraine is seeking to import significant quantities of American liquefied natural gas (LNG) via Germany, Greece, Lithuania and Poland, particularly in the aftermath of Russian missile strikes which partially damaged Ukrainian gas storage facilities. The modernised pipeline's available capacity will depend on supply flow direction, alternative export route utilisation, and demand from power plants and storage facilities in southern and south-eastern Poland (Strzelecki, 2025). Priority investment projects involving the joint participation of Ukrainian and Polish businesses include those in the energy sector, the defence industry, IT technologies, agriculture and agri-food processing, mechanical engineering, bioengineering, electronics, scientific and educational activities, and the leisure and recreation industry. The advantages of collaboration between Polish and Ukrainian businesses are becoming increasingly evident. Companies from both countries can achieve substantial results by working together. For example, transferring know-how could be a key part of Poland’s support for Ukraine in revitalising its economy after the war. Another important issue is harmonising technical standards for industrial production. For Ukraine, which is aspiring to integrate into the EU’s economic space and is already undergoing a transformation of its technological structure, collaborating with Poland to adapt EU institutional standards for product quality regulation and abandon outdated post-Soviet certification rules represents an excellent opportunity to boost investment. At the same time, it increases the competitiveness of joint business projects with Polish partners in Europe and around the world ( Jak pomagać, 2023). This phenomenon is especially evident in the western regions of Ukraine, which have experienced comparatively less devastation from the war and have largely retained their pre-war economic capabilities, even achieving growth in some cases. This is primarily attributable to the relocation of a portion of the business sector and human capital from regions adjacent to the combat zone to areas less impacted by the conflict. It is evident that the attraction of investment and technology transfer from Poland and other EU countries is instrumental in ensuring accelerated development in key sectors of the Ukrainian economy. These sectors include IT, creative industries, household and tourism services, science, and education. This co-operation could be especially impactful in the case of expanding the transport and logistics potential of the Ukrainian-Polish border region and constructing new market-driven infrastructure facilities (auto ports, exhibition and trade centres, logistics modules, etc.) (Borshchevskyi, Chemerys, Khomiuk & Liublin, 2022). Poland is also a market that remains highly open to investment, including companies operating in the fields of IT, financial services, renewable energy solutions, medical services, and food production. Concurrent with the rising standard of living in Poland, there is an increasing demand for high-quality services that are rooted in new social and technological trends. The high-tech sector appears to hold particular promise in larger urban agglomerations, whereas many smaller cities and regions continue to face challenges related to access to high-speed Internet and analogous services. The gradual digitalisation of most aspects of life necessitates the existence of companies that can deliver services in this domain (Multan, 2024). A significant emerging strategic priority in the context of bilateral co-operation between Ukraine and Poland pertains to the defence-industrial complex. For an extended period, the predominant belief among the majority of EU countries that the probability of war in Europe was negligible had a deleterious effect on the capacity of both Poland and Ukraine to develop their defence industries. The perception of the region has been fundamentally altered by Russian aggression. Both countries now clearly recognise the need to modernise their defence capabilities and have a clear understanding of their specific requirements. According to the European Defence Agency (EDA), defence equipment procurement spending among EU Member States – which was recommended to increase Baltic Journal of Economic Studies 91 Vol. 11 No. 4, 2025 to 35% back in 2007 – stood at 11% in 2020 and 18% in 2022. EDA data also reveal that, since 2007, over 60% of annual EU defence expenditures have been allocated to the procurement of weapons from outside the Union, even in cases where equivalent equipment was available from European manufacturers. This situation has led to such a deepening collapse of the European defence sector that it is now unlikely to be able to meet the growing demand for arms and ammunition, even after the war in Ukraine ends (Kozioł, 2024). In February 2025, a Memorandum of Understanding on co-operation in the armaments sector was signed between JSC "Ukrainian Defense Industry" and the Polish Armaments Group (PGZ). The present document delineates the overarching framework for collaboration between the defence industries of the two aforementioned countries. Specifically, it encompasses joint production of ammunition, maintenance of armored vehicles and artillery systems, and the strengthening of air defence capabilities. The development of financial instruments to attract funding is also envisioned within the framework of the European Defence Industrial Strategy (EDIS) and the European Defence Industrial Programme (EDIP) (Ukraine and Poland…, 2025). 6. Economic Co-operation in Agricultural Sector Another highly promising area for Ukrainian-Polish economic co-operation is agriculture. This primarily involves modernising agricultural market infrastructure through investment in roads, energy supply systems, irrigation systems, water supply and drainage systems, and improving internet connectivity in rural areas. Furthermore, co-operation in technology exchange, training of qualified personnel, and enhancing the prestige of agricultural labour is essential. It is equally important to reduce the payback period of investments in the agricultural sector through tax incentives and simplified access to credit. Particular attention should be given to mitigating the financial risks faced by farmers by developing and diversifying co-operative ties between Ukrainian and Polish farmers and food processing enterprises, improving agricultural insurance systems and managing price volatility in the agricultural market (Levchuk & Yurchyshen, 2024). Poland is a highly innovative country, particularly in the agricultural and processing sectors, which is of critical importance to Ukraine. There is significant potential for reconstruction efforts in this area, especially given the urgent need to address climate change, the impact of which is particularly felt in agriculture. Moreover, Poland is not only a food producer; it also has a well-developed technological base for food production, including machinery and logistics. This provides ample opportunity for expanding co-operation with Ukraine, particularly with regard to exporting to third countries. A particularly promising area of agricultural co-operation is the joint preservation and restoration of the fertility of Polish and Ukrainian soils, particularly the chernozem. According to Oleksijenko (2022), these are goals that Ukraine and Poland can achieve more effectively through mutual support and complementarity than through competition. Concomitantly, it is imperative to acknowledge the prevailing institutional challenges that impede the capacity for fostering economic collaboration between Ukraine and Poland. It is evident that a number of institutional dysfunctions are of primary importance in determining the manner in which Ukrainian and Polish entrepreneurs engage with one another in sectors of pivotal significance, such as agriculture, energy, transport, and logistics. 7. Institutional Dysfunction For instance, there are vivid memories of the blockade of the Ukrainian-Polish border, which had an adverse impact on various dimensions of bilateral co-operation. The underlying causes of this phenomenon remain largely unresolved, particularly in terms of identifying and mitigating the informal institutions that engender mutual distrust and erode the quality of social capital in the Ukrainian-Polish cross- border region. These include prevailing informational asymmetries (especially concerning issues of historical heritage), opportunistic behaviour (often fuelled by actors from various political milieus), and a divergence in existing mental archetypes and behavioural stereotypes, which becomes especially pronounced during periods of security and migration crises. Another institutional phenomenon worth highlighting is the dysfunctionality of the state, which is currently particularly evident on the Ukrainian side. This phenomenon is grounded in three fundamental preconditions: – Social (including the demographic situation, migration processes, institutionalised exclusion of certain social, religious, ethnic, and racial groups, and the outflow of intellectuals and scientists abroad). – Economic (such as the uneven development and distribution of national wealth, a state of permanent economic collapse that results in population impoverishment and provokes revolutionary sentiment). – Political (manifested in the oligarchisation and autocratisation of decision-making structures, a gradual deterioration in the provision of public goods in healthcare, education, and utilities, as well as an increase in the repressive nature of the ruling regime) Baltic Journal of Economic Studies 92 Vol. 11 No. 4, 2025 (Olejarz & Stępniwski, 2024). In Ukraine, this issue has manifested in various forms throughout the entire period of state independence. Notwithstanding the fact that the issue has been somewhat overshadowed by other matters due to the prevailing martial law, certain aspects continue to manifest in both domestic and foreign policy. These manifestations have a detrimental effect on specific dimensions of Ukrainian-Polish economic and security co-operation. Furthermore, despite Poland's military and political support for Ukraine and the shared security challenges posed by Russia's current expansionist neo-imperialist ambitions, the two countries remain competitors on the European market. A comparison of Ukraine and Poland reveals numerous similarities, extending beyond language and history to encompass their respective markets and resource bases. Consequently, the two countries are poised to engage in both co-operation and competition for access to their respective markets, particularly within the internal market of the European Union. In the event of Ukraine's integration into the EU's economic space, Polish farmers will be confronted with new challenges. Furthermore, should Ukraine become a viable location for foreign companies during the post-war reconstruction phase, particularly due to the presence of a substantial and cost-effective labour force, this would not only represent an additional opportunity for Polish investors but also a new risk of losing part of the investment interest in the Polish market. A further element of economic competition between the two countries is the struggle for human resources. Ukraine has expressed a desire to facilitate the return of its citizens who have sought refuge in Poland in the aftermath of the Russian invasion. In contrast, Poland is keen to retain a portion of this skilled workforce, as the availability of quality and relatively affordable labour is crucial for the acceleration of economic growth. The competition for human capital between Ukraine and Poland is not a recent phenomenon. The disparity in economic opportunities and living standards on either side of the Ukrainian- Polish border (and, more broadly, between Ukraine and the EU) has given rise to this issue. While Ukraine has significant labour reserves, Warsaw can offer more attractive working conditions and higher wages. This leads to an ongoing outflow of Ukrainian professionals into the Polish labour market. Furthermore, competition for Ukrainian labour migrants is expected to increase year on year (Kovalchuk & Matviichuk, 2023). In the contemporary world, the economic space of bilateral co-operation between states is largely derived from the interaction between their institutional domains. The institutional approach to defining the nature of cross-border economic space enables the identification of a number of its core characteristics (properties), such as size or volume (determined by the number of institutional units and the dynamics of interaction among them in the course of their operational activities); density or integration (the level of concentration of economic activity within the economic space and the intensity of transactions between institutions localised therein); and hierarchy or spatial order (the multiscalar nature of spatial economic formations, which allows for the delineation of various levels of homogeneous economic structures; hierarchy is also associated with the identification of subspaces and the establishment of their hierarchical positioning) (Kukhar, 2018). Over an extended period, both positive (stimulating) and negative (restrictive) institutional factors and processes have developed within the Ukrainian-Polish cross-border space. The former include linguistic proximity, cultural affinity, similar economic legacies and a shared geographical location within a shared geopolitical area, to name a few. Conversely, restrictive institutions encompass existing institutional traps, such as smuggling, corruption and skillset deformations among borderland community populations, as well as negative psychological expectations. They also encompass divisive elements of historical memory and destructive political phenomena, such as populism, the instrumentalisation of 'enemy images' by politicians, the incitement of public discontent and the encouragement of various forms of opportunistic behaviour. Ukrainian experts also emphasise that serious institutional dysfunctions, such as corruption and government incompetence, have led to a significant proportion of the population and business community distrusting the government. These dysfunctions are deeply rooted in Ukraine's political and social environment. Foreign partners often encounter difficulties in comprehending the nation's developmental strategy, its economic and social priorities, and the regional particularities of its economic operations. This phenomenon is also projected onto them. The situation is further compounded by the persistent volatility of the legislative framework, the ineffectiveness of the judicial system, and bureaucratic arbitrariness. For instance, Ukraine’s fiscal legislation has been amended over 150 times in the last 10–12 years. The country consistently ranks among the lowest globally in terms of ease of doing business, accounting practices and tax compliance. Licensing and permitting rules are subject to constant change, and the time it takes to obtain such permits is frequently criticised. Furthermore, any Ukrainian business may be arbitrarily disrupted or blocked by law enforcement or tax authorities (Amelin, 2023). In the context of developing Ukrainian-Polish economic co-operation, a distinct area of institutional Baltic Journal of Economic Studies 93 Vol. 11 No. 4, 2025 dysfunction pertains to the global institutional dimension. In light of recent developments in Europe and the United States, it is reasonable to assume that the world is gradually entering an era of "deglobalisation", or at least a "reconfiguration of globalisation" (Baldwin, Freeman & Theodorakopoulos, 2024). The events of 2024-2025 have merely served as the culmination of a protracted historical process that began at the dawn of the new millennium. Restrictive measures in the global economy, compounded by a conducive sociopolitical environment, have the potential to markedly diminish the economic efficiency of states such as Poland and Ukraine. Consequently, the intensification of economic co- operation between the two, particularly on a renewed institutional foundation, has the potential to mitigate a substantial portion of existing security-related risks. This is particularly relevant in the context of enhancing market-driven incentives for their joint participation in global, continental and economic processes (Borshchevskyi, 2021). Thus, to overcome the institutional problems described above and prevent them from spreading further into Ukrainian-Polish economic co-operation, it is crucial to pay special attention to institutional interactions between the two countries today. This must primarily entail a reconsideration of their roles within the broader institutional framework of the European Union. As researchers have noted: "What we are currently witnessing is better described as ‘institutional integration’. Until the late 1990s, integration was largely centered around trade, whereas now it is better described as institutionally oriented... New policy domains include social, labor, competition, environmental, and technological issues. Moreover, these areas of policy have extended far beyond those encompassed by traditional trade agreements, to such an extent that it is worth questioning whether trade remains the sole driving force of integration initiatives – or whether this role is now shared with global value chains, migration, capital flows, and foreign direct investment. The European Union represents the clearest example of institutional integration... At the same time, the concept of deep integration is beginning to lose its relevance, and this is largely due to a transformation in the very nature of integration itself. Integration, particularly in the context of EU enlargement, now typically occurs not through trade agreements, but by way of shared institutional platforms for jointly addressing the most important issues." (Coricelli, Franceschi & Campos, 2021) Accordingly, emphasis should be placed on the priority sectoral dimensions of institutional co- operation between Ukraine and Poland within the economic domain, especially in the context of shaping a new paradigm of European integration. In light of the challenges outlined above, the main target sectors for intensifying institutional interactions between the two countries should be security, agri-food, energy and transport logistics. In the context of security, it is imperative to contemplate the prospect of establishing a collaborative defence coalition involving other European states. The effectiveness of this approach is predicated on the integration of advanced Western military technologies with Ukraine's human resources, particularly its personnel with significant experience in combat operations against the Russian army. It should be noted that the Russian army remains the principal potential adversary for both Poland and other EU Member States. The establishment of such a coalition would be capable of coexisting with NATO without hindering the fulfilment of its foundational functions. Furthermore, it would be capable of carrying out a range of defence tasks at the pan-European level. These tasks may prove unmanageable for NATO due to its existing institutional and political constraints. The institutional dysfunction evident in the context of Ukrainian-Polish collaboration within the agricultural sector ought to be addressed within the broader institutional framework, particularly in the context of Ukraine's European integration policy and the EU enlargement agenda. In light of the multifaceted and multi-actor nature of aligning Ukraine's national agricultural policy with EU standards and practices, it is considered advisable to develop a multi-tiered matrix for harmonising Ukrainian agricultural policy with the EU's Common Agricultural Policy (CAP). This harmonisation process should take into account ongoing reforms within the EU itself and encompass all levels of the process: strategic, institutional, infrastructural, and sectoral (with respect to individual segments of the agri-food complex). Previous EU enlargement experience shows that agriculture is usually the most complex and sensitive issue in negotiations, as well as in reconciling the positions of existing EU Member States with those of candidate countries. In order to simplify this negotiation process and find common ground within the agricultural context, it is crucial to present Ukraine’s agricultural sector to Poland and other EU countries as an asset that could bolster their positions in global markets. Moreover, Ukraine’s agricultural sector could be crucial in helping the EU achieve its strategic objectives, particularly with regard to food security, strategic leadership and autonomy in key economic sectors, and its role in the bioeconomy and green economy, as set out in the current Green Deal framework (Trofimtseva, 2024). Another important aspect of addressing the existing challenges within the institutional framework of Ukrainian-Polish economic co-operation, particularly with regard to diversifying and developing the current Baltic Journal of Economic Studies 94 Vol. 11 No. 4, 2025 system of informal institutions that govern bilateral relations, is to enrich and revitalise the Ukrainian- Polish sociocultural discourse. For two nations with a passion for music, it may serve as a significant element of mental rapprochement. In this regard, modern popular and rock music is more important than traditional folk festivals. If Ukrainian music finds an audience in Poland and Polish music finds an audience in Ukraine, the cultural dialogue will transcend its typically grant-driven and often constrained framework and enter the realm of dynamic, market-based entertainment, which is governed by the principles of the music industry. For example, if an agreement were reached as part of Ukrainian-Polish co-operation to broadcast a selection of Ukrainian music hits on Polish radio stations, and vice versa for Polish hits on Ukrainian stations, then a broad audience would emerge on both sides of the border within just a few months. Through habitual exposure, these individuals would unconsciously internalise and accept the neighbouring culture, eventually becoming its carriers themselves (Andriychuk, 2005). This institutional convergence algorithm could also be applied effectively to theatre, cinema, contemporary literature, sports, scientific and technical exchanges, and educational co-operation between the two cultures and nations. 8. Conclusions The current stage of global economic development is largely defined by security-related aspects of globalisation. A series of systemic global transformations that have emerged over the past decade have essentially ushered in a new era of international relations. The defining features of this new era include: heightened security risks and threats, particularly as a result of the expansionist ambitions of several authoritarian regimes; the intensification of protectionist trends in the global economy; the declining influence of many traditional international institutions; the expansion of cryptocurrencies, online communication, and digital technologies; and the growing significance of bilateral treaties and agreements, intergovernmental economic relations, and interregional co-operation. In this context, the importance of bilateral economic co-operation between states that play a pivotal role in shaping the development trajectories of key geopolitical subregions – or even entire continents – increases, particularly when such significance is rooted in their geographic location and geo-economic weight. Poland and Ukraine are among these countries. The effectiveness of their interaction today is crucial not only for advancing the potential of the European Union as a democratic project, including its security architecture, but also for shaping economic development opportunities within the EU. This is due to the significant role that both countries play in contemporary Europe in terms of resources, transport logistics, and spatial considerations. Accordingly, the priority sectors for developing Ukrainian-Polish economic co-operation in both the short and long term include: agriculture and the processing of raw agricultural materials as well as food production; the development of transport and logistics capacities, including for ensuring the transit of sufficient volumes of energy resources and essential raw materials and components for European companies from the Caucasus-Caspian region, Turkey, and various Asian countries; the security sector, particularly the production of innovative weapons in co- operation with other EU Member States, as well as the establishment of effective security institutions, some of which may perform military functions; and the energy sector – both traditional and renewable – including the energy modernisation of infrastructure objects in Ukraine that have been damaged due to missile strikes and combat operations. This modernisation is of particular importance for the restoration of Ukraine's energy transit potential in the context of its ongoing European integration efforts. At the same time, the effectiveness of utilising the existing potential for economic co-operation between Ukraine and Poland in these and other key economic sectors will depend largely on the capacity of both countries to address institutional problems and dysfunctions hindering the deployment of their internal resources for mutual economic development. This particularly concerns mitigating and eradicating various institutional traps (such as corruption and the shadow economy), overcoming harmful institutional mutations and institutional anomie (by enhancing the functionality of traditional institutions of bilateral co-operation and establishing new institutional platforms to advance this, particularly in the security domain), and countering the destructive effects of informational asymmetries and opportunistic behaviour (by dismantling damaging mental stereotypes, transforming certain administrative models and discarding political fundamentals within the discourse on European integration). A priority direction in overcoming these institutional dysfunctions in Ukrainian-Polish economic co-operation lies in enhancing the efficiency of existing governance tools and mechanisms. In the contemporary context, active engagement in novel institutional frameworks encompassing the domains of security, energy, and entrepreneurship assumes particular significance. For instance, in the agricultural sector, collaboration with Polish partners may prove to be a pivotal factor in facilitating the adaptation of Ukrainian farmers to the requirements and standards Baltic Journal of Economic Studies 95 Vol. 11 No. 4, 2025 of the EU agricultural market. Furthermore, Ukrainian and Polish agricultural producers, with the support of the EU, have been able to successfully co-operate in the development of agricultural market infrastructure, as well as in the exchange of technologies related to soil and crop protection and environmentally sustainable agricultural practices. It is imperative to acknowledge the pivotal role of Polish enterprises in the development of food processing industries within the Ukrainian territory, with a particular emphasis on the southern and central regions, particularly in the aftermath of the cessation of hostilities. In the domains of energy and transport logistics, the potential for institutional collaboration between Ukraine and Poland is significant, particularly with regard to facilitating the transfer of advanced, innovative technologies from the European Union to Ukraine. In this context, it is advisable to foster the development of relevant cross-border clusters, scientific and industrial parks, business incubators, innovation accelerators, and related infrastructures. Such structures may also prove highly valuable for co-operation in the sector of defence technologies. In this instance, it is recommended that both countries consolidate their efforts to establish a joint defence coalition, with the potential involvement of other European states. The primary strength of such a coalition would be the synergy between the European Union's technological resources and Ukraine's military potential, underpinned by the extensive combat experience gained by Ukrainian soldiers in engagements with the Russian army. An equally significant institutional aspect of Ukrainian- Polish economic co-operation is the expansion of the domain of bilateral socio-cultural interaction. The aforementioned developments would assist in establishing a conducive societal foundation for deepening partnership relations between the two countries, encompassing the spheres of business, cross- border co-operation, intersectoral linkages, and inter- municipal collaboration. References: Amelin, A. (2023). What foreign investors are interested in? Investory News. 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