Saturday, December 27, 2014

Economy of Georgia, end of 2014

The Republic of Georgia is a country I personally have a very close connection to, and have visited since I have friends there through scientific research. As a young political economist, I am extremely interested in their development and how to see their economy grow to a point where they can join the European Union and have a better life for all Georgians. While looking at their economy to see where they are standing relative to other European States, I noticed that their GDP growth in 2013 was only around 2%, while the annual average over the last 10 years has been between 5% and 6% with the exception of 2008 due to the war with Russia.

2013 in Georgia saw a rapid decrease in foreign investment as Georgian Dream came to power after 8 years of being an almost single-party state in its parliamentary make-up, although there were opposition parties which competed in elections and received some seats. This saw a rapid decrease in foreign investment which hurt the economy of Georgia and caused the rapid decline in their GDP growth (although the economy was still growing). 2014 has however seen Georgia return to its historic long-run average and this will hopefully continue as time goes on.  This is from a monumental shift in the Georgian economy from Foreign Direct Investment to more domestic sources, which can be seen how their GDP growth in 2014 returned to it's long run average but FDI stayed constant.

Georgia has an unusually good legal foundation for economic growth. They have an extremely good Ease of Doing Business Index rating, on par with the most developed economies of the world. These reforms which Saakashvili pushed for attracts foreign capital and is what has allowed them to grow so rapidly. Another good thing is their prices have been extremely stable over the last few years, which is highly unusual. Another good thing is Average Monthly Earnings have risen every year since 1999, which stimulates short-run consumption and economic growth in the most effective way possible.  Investment as well has also increased every year for which there is information, which is essential for long-run growth so Georgia will have the capital it needs over the next few decades.

Georgia is in an unusual status-quo which is good for long-run growth. As time goes on they will continue to get to where they need to be, and will hopefully get to join the European Union in 10-20 years from now at the longest extent. The future looks bright for Georgia.

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