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Computable General Equilibrium (CGE) modelling in Georgia

The use of economic modelling in public policy is a common practice in developed countries. Many ministries are equipped with highly qualified researchers that support policy makers in planning and forecasting, using various types of modelling techniques. This is, however, not the case in developing countries, such as Georgia, who have only the basic resources available, but aspire to develop them further. Furthermore, countries such as Georgia have weak dialogue links between local academic institutions and the government, but are open to develop them further.


To address these issues, i.e., capacity building and knowledge transfer, Dr. Erez Yerushalmi (IER Research Fellow) in partnership with the funder, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Private Sector Development South Caucasus (PSD SC), and various Georgian stakeholders, the Ministry of Economics and Sustainable Development (MoESD) and the National Bank of Georgia (NBG), have setup a project to develop Computable General Equilibrium (CGE) modelling for Georgia.

CGE models are analytical tools commonly used by countries and international institutions to simulate policy interventions. They view the many markets of goods and inputs as an interrelated system, whereby values at equilibrium for all variables are simultaneously determined. These models are not limited to any particular policy area, and are useful when simulating policy intervention that have not yet occurred (i.e., What If? scenarios). Common policy applications include large-scale public infrastructure projects, fiscal policy, trade policy, social policy, regional policy, education, and healthcare reforms.

Outputs:

(Powerpoint Presentation) for a short presentation of the project and its main results

(PDF Document) for a Summary of the Fact Finding Missions: Phase 1

The overall goal of this project is to build local capacity in Georgia in economic policy analysis. Newly trained local economist will use a state of the art methodology suited for macro-level economic policy analysis, namely, Computable General Equilibrium (CGE) modeling. They will design and simulate various alternative policies, and convey results to policy makers to assist them in steering Georgia towards economic growth. The main governmental ministries that are involved are Ministry of Economy and Sustainable Development (MoESD), Ministry of Finance (MoF), and National Bank of Georgia (NBG), and others are also welcome.

Erez Yerushalmi and members from the ISET Policy Institute will construct the CGE model for Georgia.

The project began in 11 December 2012, and will end around 15 October 2012. It includes three phases:

1) Fact finding mission: A one week visit by Erez Yerushalmi was held in early December 2012. Its purpose was to assess the policy priorities in Georgia and coordinate with GIZ, ISET and ISET-PI on future teaching, supervision and research activities. (Completed) (See summary report Summary of fact finding missions (PDF Document)) [COMPLETED]

2) Training measures: An intensive CGE course was taught in the ISET MA program in the January-February 2013 timeframe by Erez Yerushalmi from the IER. (30 hours of student contact through classes and computer seminars). The course will engage second year ISET students, research fellows with the ISET Policy Institute, NBG and MoESD staff (mostly ISET alumni). [COMPLETED]

3) Policy papers: Five researchers were selected to work with Erez Yerushalmi on the construction of the CGE model for Georgia. Each team will analyze one of four topics: (a) Deep and Comprehensive Free Trade Area (DCFTA) between Georgia and the EU; (b) Optimal investment strategies in Georgia; (c) Promoting the Georgian banking sector; (d) Exchange rate risk exposure in Georgia. [COMPLETED] Projects (a) and (b) is a collaboration with staff from MoESD and ISET-PI, while projects (c) and (d) are co-authored with heads of departments from NBG.

Erez Yerushalmi will mentor the four teams through a combination of visits and online discussions. Several workshops involving MoESD and NBG stakeholders were held in spring and summer 2013 to make sure that project results (up to four policy papers) serve client needs. A final presentation was held in mid-November (read here).

Selected researchers will be provided with a paid internship covering seven months of work on the project (March-October 2013). Once the project is over, two-three researchers will be offered research fellow positions with the ISET Policy Institute in order to ensure the project’s sustainability.

4) Knoweldge Transfer: We are now at the final stage of the project, which is expected to end by August 2015.

We have decided to further focus on the first three (of the four) projects. This includes updating the National Accounts data from 2011 to 2013, and surveying the views and opinions of exporting firms on the expected effects of the new DCFTA between EU and Georgia.

Our main focus, however, is to transfer the knowledge to the Georgian Ministry of Economics and Sustainable Development (MoESD). This means that they will be able to run the models in-house, and will be able to apply various counterfactual policy experiments. For example, they will be able to assess which investment strategies could lead to the highest benefit for Georgia, and which economic production sectors could gain (or lose) from the DCFTA between the EU and Georgia.

ISET-PI (a local academic research institute) is now equipped in updating the National Accounts data as soon as they are available from GEOSTAT (the main national statistics office in Georgia). Links have been created between MoESD, NBG, ISET-PI and other relevant local non-governmental bodies.

The project in Georgia has been a great success, and motivates Azerbaijan (a neighbouring country) to copy it. Dr. Yerushalmi will be visiting in May 2015 for a first visit and discussions.

Useful Links:

National Bank of Georgia (NBG)

National Statistics Office of Georgia (GEOSTAT)

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)

Ministry of Economy and Sustainable Development (MoESD), Georgia
Ministry of Finance (MoF), Georgia
CGE Course

Project team:

Erez Yerushalmi
Rob Wilson

Duration:

2012-2015

Project Funder:

GIZ Logo

 Georgia country

Picture from http://www.orexca.com