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Journal number 1 ∘ Nino Sagareishvili
The Factors Affecting Production of Domestic Agricultural Goods and Export Promotion

Expanded Summary

Countries use different strategies to develop domestic production and get positive trade balance. Economic development of the country highly depends on international trade. To make an in depth analysis of this topic, we can discuss two alternative strategies:

  1. Import substitution;
  2. Export promotion.

The paper overviews both strategies and determines its positive and negative aspects. It mainly concentrates on direct and indirect effects of export promotion on increase of domestic production.

Import substitution is a government strategy that stimulates increase of domestic production and substitutes import. It is worth mentioning that import substitution strategy does not mean increase of export of agricultural goods. It is beneficial for increasing employment rate, for decreasing demand on foreign currency and for giving an opportunity to the country to satisfy market demand by domestic production.

At the same time export promotion stimulates export. It gives producers an opportunity to satisfy not only market demand, but develop their products in such way that they can increase export. Promotional programs help producers to understand and implement international standards and get know-how from international producers.

As mentioned, both strategies have positive and negative sides. Main advantages of import substitution are the following: it protects domestic production, increases competitiveness of domestic production, stimulates producers to develop quality, and increases self-sufficiency of the economy.

At the same time export promotion gives an opportunity of diversification, getting know-how and experience from international producers, entering international markets and etc.

Agriculture is one of the most important sectors for Georgian economy and it takes an important role in Georgian Economy. Georgia produces agricultural products, but most of them are seasonal goods. Therefore, agricultural goods are imported  during the whole year. Nowadays domestic production of agricultural goods is very low. Georgia imports agricultural goods from other countries. Georgian trade balance is negative, it means that import volume exceeds export volume and domestic production is not stimulated enough to increase export.

The main goal of the research is to discuss factors that stimulate an increase of domestic production of agricultural goods and to determine influence of export promotion activities on it.

Analyzing the data and current policies underline the factors that stimulate domestic production:

  • Implementation of import substitution strategy;
  • Sharing of international experience;
  • Introduction of new technologies;
  • Implementation of export promotion strategy and etc.

The analysis shows that problem of scarce resources can be overcome through stimulating productivity and promoting export. In order to stimulate export, the following methods are being used:

  • Export subsidies;
  • Remove international trade barriers;
  • Create special financial services;
  • Export finance and insurance.

Main conclusions from the research are the following:

  • Georgia has a potential to increase domestic production;
  • Increasing amount of domestic production can substitute import and promote export at the same time;
  • Export promotion programs increase domestic production, but produced goods are for international market, not for local market;
  • Export promotion increases costs;
  • International knowledge and experience is needed to implement export promotion strategies;
  • Increased export volume has positive impact on trade balance;
  • Increased export volume has positive impact on GDP growth

The following recommendations are prepared for government and private sector as well:

  • Develop export promotion strategy for short-run and long-run period;
  • Buy new technology, which will decrease costs and increase the quantity of produced goods;
  • Train the labor force to make them more experienced and competitive;
  • Develop infrastructure to increase domestic production and promote export;
  • Increase quality of agricultural products to satisfy International standards.