Skip to main content Skip to navigation

Economic development in Georgia using applied general equilibrium: Technical revisions and support for publication

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 (READ in more detail here):

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.

The project kicked-off in December 2012 with a first visit, i.e., a Fact Finding Mission, to assess the requirements of the Government of Georgia. In subsequent visits, Dr. Yerushalmi travelled to Georgia to deliver intensive courses in CGE modelling to local MA students at ISET University, work with local academics, and help create links between the local Georgian university and policy institute (ISET and ISET-PI) with government bodies: MoESD and NBG.

The project included collecting and organizing new National Account data for Georgia, updating them later on, and utilizing this new data to develop four different CGE models that focus on four topics:
1. Deep and Comprehensive Free Trade Area (DCFTA) between Georgia and the EU
2. Optimal investment strategies in Georgia
3. Promoting the Georgian banking sector
4. Exchange rate risk exposure in Georgia

The projects were developed in close cooperation between local researchers and Dr. Yerushalmi through regular visits and regular Skype calls.

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, 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.

Project Duration:

Ends August 2015

Principal Investigator, IER:

Erez Yerushalmi