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Journal number 1 ∘ Nino Zhorzhikashvili
The influence of direct foreign investments on the economy of Georgia


Expanded Summary 

Foreign investments are one of the ways to achieve economic growth for the country. Foreign investment increases the stock of capital in a country, leading to higher productivity and higher levels of employment. Foreign investments also allow developing countries to learn about and use the latest technologies that are produced and used in countries with developed economies. In the modern conditions of globalization, attracting foreign direct investments is a vital necessity for Georgia, since it leads to the growth of investments in infrastructure, technologies and other important sectors, which is the main stimulator of economic growth. In addition, FDI facilitates both the creation of new businesses and the expansion of existing ones, which increases employment opportunities for the local workforce, lowers the unemployment rate, and increases household income.

   When we talk about the impact of direct foreign investments in terms of the economy as a whole, it is also important to know which sectors in the country are the most attractive for investors and which sectors are developing with the support of foreign investments. It should be noted that the sectors of transport and communication, processing industry, trade are attractive for investors in the economy of Georgia, therefore the largest share of the investments is made in these sectors. When it comes to the impact of foreign investments on the economy of our country, a number of factors should be taken into account: first of all, how developed is the country's economy, what is the degree of development of market mechanisms, how orderly is the legal framework, and others. Depending on which sector of the economy is invested in and what forms and methods of investment are used, the economy will be affected in different ways. The impact of investments can be manifested in: the growth rate of the economy, the revitalization of investment activity, the growth of technological progress, the development of the country's infrastructure, the effective use of labor resources, and others. It should be noted that direct foreign investments in Georgia are growing visibly. According to preliminary data, the volume of direct foreign investments made in Georgia in the first quarter of 2023 amounted to 496.6 million. USD, which is 13.7 percent less than the preliminary data of the I quarter of 2022, and 53.3 percent higher than the data of the IV quarter of 2022. Foreign direct investment has many positive factors. Among them is the increase in employment. Any new investment means the entry of additional resources into the country. And the resource needs to be managed, processed, described or used by other types of human resources, therefore, more investment means more employment. The second important factor is the inflow of foreign currency. On the one hand, it plays a positive role in the balance of payments, and on the other hand, more foreign money means more income and a stronger national currency. Any new investment increases competition. This is expressed in lower prices, increased quality of the product or service, technological progress and sector improvement. Each positive effect converges in one of the most important criteria for the country - economic growth.

   Any country, no matter how organized it is, cannot attract investment if property rights are not protected. Protection of property rights is directly related to such factors as:

• Geopolitical situation - the most important factor for investment is the country's political and economic situation. The greater the probability of force majeure (such as war, coup d'état, conflict zones, etc.), the less incentive an investor has to start a business in such a country.

• Judicial independence and effectiveness - property disputes, whether between private sector representatives or against the state, are common in any country or society. The investor chooses the country where the court will make a fair decision and his property will not be unjustly confiscated or damaged. Also, the court should effectively resolve disputes and the so-called Also the issue of overcrowding of the court. Since time is money, the longer a dispute drags on, the more costly it is for both parties.

• Crime rates - in a market economy, in order for a business to create wealth, it is necessary to have fair rules, where its property and activities will be protected as much as possible from racketeering, robbery, robbery, financial machinations and other types of criminal activities.

• Level of corruption - the investor makes a decision based on what costs and benefits he will have to invest and start operations in this or that country. The more corrupt the country, the higher the cost to the investor.

   Thus, direct foreign investments are one of the main indicators of economic development. Foreign investment brings in capital from external sources, which is especially valuable for countries with limited domestic savings, as this capital is used to finance many infrastructure projects and businesses.

   Finally, all this is important for the economic development of Georgia, with the help of foreign investments, our country is connected to the global economy, which will ultimately lead to economic stability and adaptation.