Akaki Tsomaia
The University of Georgia
Head of Economic Institute
Affiliated Professor
ORCID: 0000-0002-4332-5767
Akaki Tsomaia
The University of Georgia
Head of Economic Institute
Affiliated Professor
ORCID: 0000-0002-4332-5767
The Economic Impact of Georgia’s Integration into the Euro-Atlantic Community
Abstract
In the pursuit of integration into the Euro-Atlantic community, Georgia stands on the way of substantial economic growth and inclusive development, poised to manifest through significant advancements in technical progress. It is becoming increasingly apparent that, in a relatively short period, the nation has the potential to approximate the living standards currently observed in Eastern European countries. The dependent variable, technical progress, is influenced by several independent factors, including the institutional environment, high-tech foreign direct investment (FDI), the inflow of foreign financial capital, the development of small businesses, and financial support from the European Union.
Institutional reforms play a crucial role in bolstering fundamental human rights, the rule of law, and democracy, which, in turn, significantly enhance economic freedom and establish fair competition. Technological progress is most pronounced in countries where there is unwavering public confidence in fair and impartial justice. Moreover, the government, in collaboration with the non-governmental sector, is dedicated to addressing public issues rather than exacerbating them. Presently, the country faces significant challenges, including quasi-democracy, kleptocracy, and, most notably, oligarchic informal governance.
FDI is poised to qualitatively transform the structure of the nation's economy. As the country advances toward EU quality standards, there is an increasing likelihood that it will transition from a raw materials and re-export dependent economy to one characterized by high-tech and green production. This shift will significantly enhance economic efficiency. The country has been afforded a unique opportunity to pivot from the post-Soviet, particularly Russian, trade influence towards integration with the EU economic sphere. The expansion of high-tech multinational corporations within the country will elevate the demand for a highly skilled labor force, thereby fostering the alignment of educational programs with labor market requirements. Consequently, the development of human capital will lead to increased labor productivity, positively impacting the magnitude of technical progress and, subsequently, the rate of economic growth. Furthermore, high-tech investments will improve labor safety conditions and bolster social protection guarantees, ultimately enhancing the quality of life.
Enhanced access to both banking and capital markets resources is anticipated. As the country's international credit risk diminishes, a gradual decline in interest rates on credit is foreseen, promising favorable effects on both credit availability and economic activity.
Small business support programs offer solutions to challenges concerning the quality of goods and services. International licensed enterprises will aid in fostering the growth of agriculture, tourism, and other sectors
The attainment of candidate status affords the country the opportunity to avail itself of direct benefits from EU financial mechanisms, notably the Instrument for Pre-accession Assistance (IPA III) with a budget totaling 14 billion euros. For instance, the Eastern Partnership Economic and Investment Plan (EIP), endorsed in 2022, aims to mobilize 17 billion euros in collaboration with international financial institutions. To date, the European Union has allocated 1.7 billion euros in investment to Georgia under the EIP, including 194 million euros in grants. Key investments encompass support for 80,000 small and medium enterprises (SMEs) in Georgia, the installation of submarine fiber optic and electrical cables in the Black Sea, the establishment of a regular ferry service linking the European Union and Georgia via the Black Sea, renovations of public and residential buildings to enhance energy efficiency, and the development of high-speed broadband infrastructure in rural areas
This study aims to develop a dynamic-stochastic endogenous economic growth model drawing from the experiences of Eastern European countries. This model aims to forecast potential output growth by projecting the trajectory of technical progress. Additionally, within this framework, the study seeks to evaluate the economic implications of Georgia's integration into the Euro-Atlantic sphere.