English / ქართული / русский /

Journal number 4 ∘ Luka Lazviashvili
The Characteristics of Inclusive Economic Development of Georgia

Expanded summary

International organizations like United Nations Organization, International Monetary Fund, The World Bank and The Organisation for Economic Co-operation and Development frequently hold events and conferences to discuss an economic  problems of the world and to provide countries with helpful package of instructions. Inclusive Growth (IG) became the most accentuated aim of the world economies since the concept of it was firstly widely considered in report published by The World Bank's Commission on Growth and Development (CGD) in 2008, entitled The Growth Report: Strategies for Sustained Growth and Inclusive Development.

According to OECD Inclusive Economic Growth creates opportunities for all segments of society and distributes gained utility fairly to the whole society. According to The World Bank to eliminate poverty totally and quickly there is necessity of inclusive growth what gives to the whole society a chance of being involved in the process of economic growth and to get utilities from that process. The effect of high economic growth will be long lasted only in case when the various sectors of economy and the majority of labor force are involved in growth process. Different from previously popular Pro-Poor Growth inclusive economic growth implies not only help of low income part of society with just income distribution but besides and more importantly long term economic growth with a focus on high-productive employment, decreased unemployment, equal opportunities for all firms and individuals and fairly arranged business environment.

I want to place an emphasis on one of the main enemies of inclusive economic growth. It's income inequality what strongly hinders the levels of inclusiveness in various economies. In 1999 and 2008 an American prominent economist Robert Joseph Barro published the two articles about the relation between income inequality and economic growth. In both cases Barro found out a negative relationship between economic growth and income inequality in low GDP countries (GDP per capita < 2000$ in 1999 when the world GDP per capita was approx. 8000$), and positive but not sound relationship in high income countries (GDP > 2000$). In 2008 Barro also refers to Simon Kuznets and says that his curve is the robust discovery what works through the whole period of 1960 - 2000s. Above all, according to econometric analysis of Barro, increase of income inequality hinders economic growth in low GDP countries.

Returned back to the inclusive growth, it's important to make clear how inclusiveness of economies are assessed and estimated. The main source I am relying on is the "World Economic Forum: The Inclusive Growth and Development Report 2017". The report estimates an indicator of inclusiveness: Inclusive Development Index. There are three main directions of estimation: Growth & Development, Inclusion and Intergenerational equity & sustainability. All the three directions have their four components. Growth & Development: GDP per capita, labor productivity, healthy life expectancy and employment. Inclusion: net income Gini coefficient, poverty rate, wealth Gini coefficient and median income. Intergenerational equity & sustainability: adjusted net savings, carbon intensity, public debt  and dependency ratio. Countries are grouped as a developed and developing countries and there are drawn rankings in each of the groups relied on  assessments of  the components and the inclusive development index which is derived from that assessed components. Countries are sorted by descending order considering their index and the whole ranking is divided as quintiles, five equally compiled groups with 20% of the total amount of countries. Considering the number of developing countries in ranking what is 79 there are 16 countries in each quintiles.

Now, it's time to analyze the condition of inclusiveness in Georgia. In overall ranking of developing countries Georgia is placed on 31th spot. Specifically by the direction of  Growth & Development Georgia is 36th, by inclusion 36th as well and by intergenerational equity & sustainability it's 21th. In view of all the components of inclusive development index the current condition of the country seems not satisfying. Non of the level components are placed in first quintiles, there are only healthy life expectancy and dependency ratio placed in second quintiles of their rankings what means they are in relatively better condition in Georgia respectively with 66.4 years in healthy life expectancy and 45.7% in dependency ratio what calculates percentage of working age people in whole population. The two worst components are employment and poverty rates respectively being 56.6% and 25.3%. They are placed in fourth quintiles. The rest of the components are all in third quintiles of their rankings what are the medium zones of rankings. Considering the fact that we are talking about rankings of only developing countries 31th spot in overall ranking and such arrangement of components in quintiles can't be assessed as a good performance.

There is much better condition in ranking of 5 year trends. The 6 from total 12 components are placed in the first quintiles of their rankings. There are the 6 components which have significantly improved during the last five years: GDP per capita has shown 6.2% growth, labor productivity - 4.5%, employment despite of being very low rated in static data has highly rated improvement rate 3.1%, net income Gini coefficient (-5.0), despite of negative static condition poverty trend has shown big decline in 5 years (-13.3), and adjusted net savings has raised by 8.3%. Only bad performance in trend rankings has shown the trend of dependency ratio placed in fourth quintile and what is more demographic factor than economic one. Other 5 factors are placed in the second and third quintiles of their rankings. Opposite of level rankings in trend rankings Georgia has shown very positive tendencies.

According to the instructions of the prominent international organizations there are 7 major directions on which country's economic policy should be addressed. First of all, high employment is one of the main goals for economic growth and inclusiveness of it. Increased employment especially in the sectors of economy where many work places can be created is the promoting factor for economic inclusiveness. Second, structural changes and focusing on highly productive sectors of economy is an important encouraging factor for economic growth and it's inclusiveness. Third, investments in human capital is the vital factor of a long-term inclusive economic growth and a potential level of economic development. There are the five most important components of development of human capital: the active labor market policies, an affordable good quality education, a gender equality, bonuses and unemployment insurance, and an effective "from school to job" mechanism. Fourth, it's a well organized labor market policies. Fifth, it's a deregulation of markets, abolishing of laws what hinders free markets. Sixth, the highly developed social security system is very important for economy in short-terms. Seventh, it's the independent and strong institutions what is significant for having high involvement of society in economic processes.

Georgia has followed the international tendencies and inclusive economic growth is set to be the main goal of near future. In 2015 Georgian government issued an official resolution entitled "Georgia 2020". Inclusive economic growth and development is referred as a major economic intention of the upcoming years. There are the economic aims named in declaration: 1. Decrease of unemployment; 2. Raise of living and working standards; 3. Forming of a good social security system; 4. Development of human capital. Besides, relying on growth diagnostic method the major problems of Georgian economy are the low competitiveness of the private sector, undeveloped human capital and the low availability of financial recourses. Combined with the promotion of inclusive growth, elimination of these issues is planned as well.

As a conclusion, Georgia has not a satisfying condition in economic inclusiveness but there are several positive factors promising us a better future: a very good 5 year trends and the tendencies of improvement, the positive tendencies of other economic indicators (highly raising export, decreasing unemployment and etc.), inflation targeting and intended 3% inflation from 2018 and predicted 6% economic growth from 2019.