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Journal number 2 ∘ Giorgi Gaganidze Badri Ramishvili
Causes of Georgias negative foreign trade balance and ways of overcoming them

Expanded summary

The aim of the work is to identify the foreign trade problems of Georgia. For this purpose authors selected the way of analyzing of international experience. They have identified those countries which are relevant for Georgia in terms of trade.
Out of economic problems of Georgia, the negative trade balance is considered as the most anomalous by the authors. They devoted several researches to the mentioned problem. In the present article, Georgia's trade problems are discussed at the background of analysis of relevant quantitative data of major trading partners.

Georgia's economy is facing a permanent crisis after the collapse of the Soviet Union. Time is going on, governments and visions are changing, in particular periods, even a hope for the revival of the economy appears, however the final solution to the problem remains as the issue of ephemeral perspective.

One of the most important criterion for the economic development evaluation of any country is the situation existing in foreign trade. When this situation is negative, we are dealing with the structural problems of the economy, which, in case of keeping it for a long period of time, may develop into the systemic crisis, slowing down economic growth and even causing recession. In countries where the trade balance deficit is high, the problems associated with the lowest rate of saving are arising, due to which the capital saved by the population is so small that it does not meet the investment requirement and, in this case the attraction of foreign trade investments take place, in case if we are facing problems in this field, then we deal with the reducing of the economy. In countries the population of which is rich enough to save more financial resources, there takes place a trade balance surplus.

Based on the presented data, it is possible to identify several groups of countries, out of which the authors are especially interested in those which include Georgia together with Tajikistan, Kyrgyzstan, Moldova and Armenia. Each of them has a sharply negative trade balance and the share of the import in the trade turnover is higher than 60%. It should be noted that, according to this indicator, the best country of the group is lacking 5 percentage points to the nearest country data. Such negative balance not only points to economic problems but also structural degradation of the economy, the cause of which should not be seen only in the economy. In fact, each of them had a massive state-political destabilization - civil war, state turn over, ethnic conflict or some of them at the same time.

The analysis provided in the article is conducted on the basis of rich quantitative data. Authors use traditional and relatively new indicators for identifying problems such as: indicators of goods, services and general export and import, trade balance, import share in trade turnover, share of export and import in GDP, emount of export and import per capita, current balance of payments, etc. During the study, the authors are focused on Georgia's most important problem, such as anomalously large negative balance in commodity trade.

Authors in the paper stress the firm position of Georgia in terms of trade service. It is the only country among the discussed ones, whose service exports significantly exceed the commodity exports. This emphasizes it's unique potential in terms of tourism and transportation. It is also noteworthy that, from the perspective of trade balance, Georgia has a sharp $ 1.6 billion surplus and export of services 2 times exceeds their import.

Based on the indicators presented in the final part of the article, it is clear that the main problem in Georgia is the biggest negative balance existed in the sphere of commodity trading that has been continuing for years. Starting from 2012, this indicator always exceeds $ 5 billion. That is why the authors make the correspondent conclusion at the end of the article, that it is necessary to reduce anomalously large negative trade balance in commodity direction. And in their opinion, on the one hand, it should be reached by means of encouraging of export and, on the other hand, at the expense of the import substitution through the improvement of the import structure. For which the formation of export promotion and import substitution strategies should be made. At the same time, should take into consideration that in the event of joint formation of these two strategies, they will have the mutual forcing effect. It is necessary to take into account the fact that often, the strategy of export promotion involves an innovative component as well. This, in turn, can be the basis for opening a new local market. In this case the replacement of imported substitutes will happen with a great possibility. That is why the good result will be reached through the joint development of export promotion and Import substitution strategies.