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Journal number 4 ∘ Merab Julakidze
Georgian Economic Growth Model

DOI: 10.36172/EKONOMISTI.2022.XVIII.04.Julakidze

Expanded Summary

Microeconomic modeling of the national economy is an analytical tool based on scientifically proven ideas designed to examine the possible growth rates of the gross domestic product (GDP), its rational allocation into consumable and accumulable parts, investment efficiency, and return on capital and labor employed. It can be used to designate the most important long-term indication, such as rate of return. And all of this, in turn, provides starting points for drawing up structural and investment policy at the interstate and interregional level for bringing the designated economic growth rates to fruition.

Scientists have long been engaged in developing the theory of macroeconomic dynamics and its most important elements production function (PF). But several questions remain unanswered: first, the interrelations between the branches of the production and nonproduction spheres have not been specifically established, and the benefits of the activity of the latter are still undetermined. However, the nonproduction branches include those that are considered a “productive force” (science, education and management). So the degree of interaction between the factors of production and nonproductive factors of intensification of the economy must be determined; second, the main goals of socioeconomic development require clarification and correlation in macroeconomic terms; third, these elaborations should be directed at defining and resolving the problems associated with the optimal allocation of resources for developing production and intensification factors and with optimizing the rates and proportions for achieving the designed goals.

PF should form the foundation of a macroeconomic theory designed to examine the dynamics of the aggregate quantities of national economic development based on an analysis of quantitative growth and the level of employment of productive resources, as well as the type and rate of technical progress. This theory will help to calculate GDP dynamics ( as well as other economic indices) in the future and the proportions of its allocation with respect to different types of consumption and accumulation. This applies to forming basic productive and nonproductive assets, to household property, to the amounts of resources used and reproduced, in particular regarding the state of the environment, and to determining investment efficiency.

We built a criterion function and integral socioeconomic criterion of the optimality of macroeconomic development. The parameters of the criterion function were estimated for the base section of the path, presuming that the long-range path should be a smooth continuation of it.

In terms of its content, the criterion of optimality should estimate the paths of economic growth primarily in two vectors: first, prosperity can be specified as the achievement of certain end levels of nonproductive consumption of material goods and services. In this respect, the criterion function reflecting this category can be built as a weighted aggregate of squared deviations of actual consumption of current and semi-durable goods from their standard levels. To this we should add a similar aggregate that measures the social benefits from deviations of effective provision with durable goods and assets of social infrastructure in physical terms from the corresponding standards; second, spiritual development can be examined in the light of two main factors: the per capita asset of work time and development of the scientific-educational and management spheres (relative employment in it). Maximization (in certain proportions) of state consumption should also be added to the social goals of economic development.

Resolution of the optimization problem resulted in obtaining forecasting indices of macroeconomic dynamics that permit an analysis of the main development trends in Georgia’s national economy until 2030.

To sum up, we will list several conclusions drawn from the study:

The spline structure of PF is an efficient tool for establishing the dynamics of its parameters, which, in turn, makes it possible to correlate the efficiency of the production factors and their combination with the potential of the intensification factors: scientific-technical, educational, and organizational.

The PF generalized in this way with three-input TP contribution to economic growth forms the basis of the generalized model of macroeconomic dynamics. It is also based on a generalized system of balanced finite-difference equations (equations of motion) and algebraic equations (restrictions on management). Equations of motion characterize the increments of production assets, social infrastructure and household property assets, intensification potential, and employment in the corresponding spheres under the impact of all types of accumulation (productive and nonproductive) and in the intensification factors. The finite equations express the overall balances of GDP and labor force. All of this taken together forms a balanced and generalized macroeconomic model.

Use of this macro model in the inertial version, that is, with extrapolative forecasting of the management variables and subsequent solution of the system of equations of motion, reveals several significant shortcomings in trend forecasting related to its lack of balance and failure to take resource limitations into account.

The next stage in use of the macro model is estimating the absolute efficiency of investment in production or its intensification fields. The generalized PF and macro model as a whole make it possible to forecast additional (above the inertial version) integral investment efficiency in a particular sphere, The unequal efficiency of the return ratio (per unit of investment) obtained in so doing should be interpreted as proof of the non-optimal allocation of the investments in production and its intensification fields

The algorithm of resource allocation management obtained on the basis of the above-mentioned studies is oriented toward gradual equalization of the return ratio and can be defined as production optimization of the macroeconomic system.

The most perfect version of a macro model is obtained when the socioeconomic criterion of optimality is added to it, which makes it possible to look for the socioeconomic optimum, rather than a purely productive one. It should be oriented toward increasing state consumption, bringing the development of the social infrastructure and augmentation in household property closer to the standards, and raising the consumption of goods to a level that corresponds to a rational consumer budget. In addition, an expedient decrease in work time and expansion of the scientific-educational and cultural-management spheres are envisaged as criteria that will maintain the required level of production.

This type of optimization with the accepted criterion functions of socioeconomic development has shown the extreme consumer orientation of narrow production optimization and the wisdom of shifting the emphasis to spiritual development and intellectual activity (at earlier stages of development) with the creation of the necessary prerequisites and inculcation of a rational attitude toward an increase in “consumption.”

Keywords: Economic Growth,Production function Technological Progress,Generalization Macroeconomic Model, Factors of  Intensification.