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Journal number 4 ∘ Murman Kvaratskhelia

Expanded Summary 

In Conditions of open economy categorization of countries according to the degree of economic freedom is very important. Its indicator differs from region to region. Countries are divided into two categories by the freedom level – from most free or open to the most closed. The first five countries having the open economy are: Hong Kong, Singapore, New Zealand, and Austria.  The closed economy countries are: North Korea,   Venezuela, Cuba, Republic of Congo, and Eritrea. The most significant is the fact that the freedom economy index tends to decrease. 

The level of freedom of economy is as a rule assessed on the basis of the qualitative and quantitative factors, which in their turn are divided into four categories. Among them the most significant are: the supremacy of law, government measure, and freedom of business, labor and currency, freedom of trade, investments and finances. In this present paper, index of economic freedom is analyzed according to the separate countries reflecting the positive connection with the economic freedom and other social and economic targets. In general, together with the other factors, it helps overcome poverty.      

In order to achieve the economic freedom and benefit it is necessary to carry out different system reforms, enabling improvement of separate, average indicators. This is an important orienting point for accelerating the economic development of a country.

The indicators of freedom of the leading countries are analyzed in the paper. The governments of those countries by using the consistent economic policy and active industrialization aim at fiscal stimuli, increase the State investments, thus attracting the foreign investors. High safety of property is of a paramount importance.  

In the paper is discussed the conditioning factors   of the tendency for economic freedom growth in leading countries. The crucial factor is increase of the levels of trade and labor freedom. They consequently follow the long-time market oriented policy, being one of the   decisive factors for economic growth.         

The paper studies the situation in Georgia, from the economic freedom point of view. For Georgia the most vulnerable and crucial point is overcoming of poverty. According to the statistical data by the economic freedom index in 2019, Georgia occupies the 16th place in the world and 8th place in Europe. Increase of the index level conditioned decrease of the poverty level. Separate components, especially the rights on property, integrity of government, effectiveness of court,   business, labor, and monetary and financial freedom indexes are very interesting.        

The rating of Georgia in 2012-2019 is shown in the tables, as well as the scores according to the separate components reflecting the economic freedom. The index of dynamics of the level of life is also analyzed, which in its turn is conditioned by the improvement of the index of freedom.  The index of the life level is characterized by the growth tendency.  The part of the population being below the line in 2017 in Georgia comprised from 21, 9% to 20, 1% in 2018. The dynamics of the median consumption decreased from 60% to 40%. Besides, the indicator of Gini coefficient is  also  analyzed. The conducted analysis   demonstrates, that the positive tendencies of the freedom dynamics is the result of the life level growth parameters.

The present work enabled us to draw the following conclusions: 

  • Existence of the economic freedom is the necessary precondition of the country development, without which is reaching of the economic growth is impossible. 
  • According to the separate components the indicatorsof the economic growth in Georgia  have been improved, consequently having the positive impact on the life level.
  • The experience of the developed countries confirms, that they have to carry out the active economic policy on the State level for supporting the economy growth. This is first of all associated with the fiscal stimuli, increase of State investments and attraction of investors. At the same time, high level of property safety  is of a paramount  importance, which is the stimulating factor for increase of the economic freedom level in the Georgian reality.
  • Poverty reduction is directly linked to higher education. In most cases, people with higher education are living in less poverty, as proven by practice. Such a result is driven by the development of critical thinking and the acquisition of valuable skills that make it more competitive in the marketplace.
  • World practice confirms that according to the Index of Economic Freedom, the top five fastest-growing economies have a much longer life expectancy than countries ranked last.
  • Increasing the degree of economic freedom of the country has a special role to play in protecting the environment, which is also highly correlated with environmental pollution.
  • In a market economy, freedom of economic activity is conditioned by the existence of private property, which increases freedom of choice, promotes free competition and free exchange on the market.
  • In the context of a market economy, real economic freedom requires dominant private ownership. Because the market economy is built on the principle of private ownership.
  • In general, for economic freedom as well as for the economic system as a whole, it is important for the market to be privately owned, where people make deals to maximize their profits without any interference by third parties. Private transactions are the basis of competition, and competition is the key to quality and progress. The existence of a market still does not mean that there is free exchange in that market, even if it is a private market. Freedom of the private market depends on independent and voluntary exchange, transactions that are not influenced by any other non-market environment.
  • If the state restricts economic freedom, human welfare declines and consequently the income of the society decreases, their level of freedom decreases, and society in general becomes less purchasable, which has a negative impact on a number of macroeconomic indicators, especially savings.
  • State ownership, which emerges from the market, undermines economic freedom, limits the existence of a free market and free competitive prices. Thus, with the protection of private property, the level of private property formation is very important.
  • Economic freedom, which is focused on the free market (free exchange and pricing), has a positive effect on economic growth rates and enhances public welfare, both on purely economic characteristics and on the criteria of general public good of life.
  • Studies on the dependence of economic growth and economic freedom indices have shown that economic freedom indexes in Georgia have improved recently, which unfortunately does not reflect economic growth. Therefore, it cannot be reflected in the main unambiguous indicator of prosperity and economic success - real GDP growth.
  • There is in fact no specific information on the proportional relationship between private and public property. Thus, proven methods and indicators for calculating economic freedom indices do not accurately reflect reality and produce incomplete (sometimes overly positive and sometimes vice versa) assumptions about the level of economic freedom.
  • In summary, we can say that for developing countries like Georgia, it will be crucial to find the golden balance between economic freedom and state regulation. Proper steps taken by the state to improve the economic system and stimulate the rational behavior of market players may play a crucial role in the country's economic growth. In turn, the development of economic freedom will help to create a competitive market environment. Competition, however, produces progress.