DOI kodi: 10.52340/ekonomisti.2026.02.18

Expanded Summary

This article examines the role of monetary transactions—specifically remittances—in the formation of aggregate demand and the dynamics of the economic cycle, using Georgia as a case study. Although remittances are not conventionally regarded as a direct driver of long-term economic growth, they exert a substantial indirect influence through their effects on consumption, income distribution, and cyclical fluctuations in economic activity.

Applying a Keynesian theoretical framework combined with descriptive macroeconomic analysis, the study demonstrates that in Georgia remittances primarily function as a short- to medium-term stimulus to aggregate demand and as a partial automatic stabilizer during periods of economic downturn. However, in the absence of structural transformation and institutional development, their contribution to sustained long-term economic growth remains limited. The article further argues that remittances and foreign direct investment (FDI) should be considered complementary rather than competing sources of economic development. This issue is particularly relevant for Georgia, where the ratio of remittances to GDP significantly exceeds the global average (approximately 25% compared to 4%, according to the latest available data).

Conceptually, aggregate demand may be expressed as follows:

AD = Y_t+ R

where Y_t_ denotes domestically generated taxable income, and R represents remittances received from abroad.

For an objective assessment of remittance volumes, the analysis relies primarily on data from the National Bank rather than household income and expenditure statistics produced by Geostat. The latter appear less reliable in this context, as the reported share of remittances in total household resources is substantially lower than the figures recorded by the National Bank. In 2024 alone, this discrepancy amounted to nearly an elevenfold difference, raising concerns about underreporting in household survey data.

Empirical evidence suggests that remittances account for approximately one-fifth to one-third of aggregate demand among the Georgian population, depending on the year under consideration. Nevertheless, the impact of remittances on economic growth is not proportional to that of foreign direct investment. Structural constraints—such as the underdevelopment of the financial system, relatively low income levels, and the persistently high proportion of households dependent on social assistance—limit the conversion of remittance inflows into savings and productive investment. Consequently, the growth effects of remittances are largely confined to the short-term demand channel. Moreover, remittances exhibit limited export-generating potential, whereas FDI tends to be more closely associated with export expansion and productivity gains.

Within the Georgian economy, monetary transactions therefore function less as a structural determinant of economic growth and more as a mechanism that amplifies or dampens cyclical fluctuations. Remittances do not independently generate economic cycles; rather, they influence the intensity of existing cycles. During the COVID-19 pandemic, for example, increased remittance inflows played a significant countercyclical role by mitigating the depth of the economic contraction.

At the same time, remittances in Georgia display a dualistic and asymmetric cyclical behavior. During domestic economic downturns, they typically increase, acting as a “safety cushion” that partially offsets negative income shocks. Conversely, during economic crises in donor countries—where Georgian labor migrants are predominantly employed—remittance inflows tend to decline in a procyclical manner, thereby intensifying external vulnerability and fiscal risks.

Although monetary transactions do not independently generate the so-called Juglar business cycle, with an average duration of 7–11 years, they do reinforce or weaken its individual phases. Specifically, during expansionary phases, remittances stimulate demand and accelerate growth, while during recessions they operate as an automatic stabilizer. As a result, the influence of remittances aligns with particular phases of the economic cycle, but remains relatively short-lived in comparison to the overall duration of the cycle.