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OEO-ECONOMICS
Marina ACHELASHVILI
Ph.D. (Econ.), research associate, Paata Gugushvili Institute of Economics (Tbilisi, Georgia)
Klimenti ACHELASHVILI
D.Sc. (Econ.), associate professor, Tbilisi State University
(Tbilisi, Georgia)
REGIONAL ECONOMIC POLICY AND GROWTH (A Case Study of Georgia)
Abstract
This article examines matters relating to the development of a regional economic policy. The authors determine its content and role in promoting regional growth and creating an effective regional structure of the national economy. They substantiate a systems approach to the development of a regional economic policy focused on growth, study the mecha-
nisms connecting regional economic policy and growth, and identify the typological peculiarities of regions constituting the information base for the development of a regional economic policy. Experimental validation of the principles underlying the development of such a policy was performed using information on Georgian regions.
I n t r o d u c t i o n
This article is an attempt to establish the relationship between regional economic policy and growth. The point is that the effective development of individual regions, however progressive, does
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not yet guarantee the effective development of the whole national economic system. Whereas some regions receive support for their development from the center and develop rapidly, other regions, which do not get any government assistance, develop slowly or not at all. But slower growth in any particular region leads to slower growth in the entire national economic system. As a result, high rates of growth in some regions are offset by the underdevelopment or critical state of other regions, so that the overall effect is close to zero, i.e., the desired growth rate of the national economy is not achieved.
In economic literature, as a rule, matters relating to the formulation of a regional economic policy are examined in the context of a study of development in successful regions and an extension of their positive experience to other regions. Here it is a question of the external effects (externalities) of economic development in progressive regions. But in practice it is necessary to assess not only the development effectiveness of individual regions, but also the effectiveness of their joint economic development. That is why we need an objective assessment of regional economic development in general: in the final analysis, the growth rate of the national economy depends on such an assessment. It is important to evaluate not only the development level of individual regions as subsystems of the national economic system, but also the systemic effect of the influence of regional economic development on growth.
Hence, the goal of regional economic policy is to find an “optimal” line of regional economic development from the perspective of growth. That is why the formulation of a regional economic policy implies the development of various alternative options for such a policy and the selection of the most effective one. It should be noted that the logic of regional economic policy as a specific institutional infrastructure consists in determining the “optimal” growth rate not only with due regard for regional economic specifics, but also taking into account the political, social and environmental aspects of regional development. In other words, the formulation of a regional economic policy calls for an eclectic approach, which can significantly alter the growth rate of the national economy.
In this article, we examine the principles that could be used to formulate a regional economic policy with due regard for the growth impact of the entire set of regional factors. The proposed principles reflect the relationship between institutional infrastructure, regional economic policy and growth, helping to achieve a systemic growth-promoting effect of regional economic development.
The Problems of Regional Economic Development
The concept of “region” is an abstract one and has to be specified and given a meaningful interpretation. Territories are divided into regions in accordance with certain goals, problems and princi-ples.1 Evidently, different sciences and areas of practical activity have their own regionalization principles. A region can be seen from different angles: political, economic, social, environmental, etc. Institutional multiplicity, i.e., a multiplicity of institutional structures, is a qualitative attribute of the region. Even if attention is focused on certain aspects of its development (e.g., economic aspects), it is necessary to take into account their interconnection with other regional problems.
As a rule, relations between regions and the world economic system are mostly trade relations, although in recent years regions have been turning into direct participants in interregional
1 See: A.G. Granberg, Osnovy regional’noi ekonomiki, Tacis, Moscow, 2001, p. 16.
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production and international financial relations. In this process, the center uses appropriate economic policies to regulate both relations between regions and their relations with world markets, mainly in the financial sphere.
The historically evolved heterogeneity of economic space has a significant influence on the effectiveness of national economic development in any country. A reduction in the heterogeneity of economic space creates more favorable conditions for development at the national level, for the solution of social problems, and for strengthening the state’s political unity. An increase in this heterogeneity, on the contrary, complicates the formulation of a regional economic policy, increases the probability of regional crises and interregional conflicts, and leads to a weakening of the country’s territorial integrity and to the disintegration of the national economy.
Let us note that in speaking of the negative consequences of a heterogeneous economic space we do not mean that various sectors of the economy should be evenly distributed across the country’s regions. In fact, their uneven distribution is an intrinsic property of any organized economic space (in consequence of regional division of labor, concentration and specialization of production, urbanization, etc.). By heterogeneity we mean, in the first place, interregional differences in economic development levels and quality of life.
Since the region is a structural analogue of the national economy, it is characterized in macroeconomic terms using the same indicators as those applied to the national economy. Thus, the regional analogue of the gross domestic product (GDP) that is used to measure growth at the national level is the gross regional domestic product (GRDP), which is calculated by the so-called production method as the difference between gross output and intermediate consumption in the region. In other words, GRDP, like GDP, reflects the market value of all final products and services produced in the region in a given period of time.
Among the other indicators to be used at the regional level are the main components of GRDP (including final consumption), household income in the region, regional unemployment, migration of production factors (labor and capital) between regions, national wealth concentrated in the region’s territory, etc. For the purpose of interregional comparisons of economic development effectiveness and living standards, GRDP for the various regions should be given per capita and per worker.
But there are fundamental differences between the national and regional economies. Thus, the region has limited political and economic sovereignty and functions within the framework of a definite legal, financial and other systems. This should be taken into account in formulating a regional economic policy designed to promote growth.
In regional economics, there is a special concept known as economic base, i.e., basic activities whose development determines the region’s economic potential. In most cases, the economic base consists of firms that account for most of the exports from the region.2 The influence of changes in the economic base on the region’s development is often measured using a regional multiplier. It is similar to the macroeconomic multiplier proposed by J.M. Keynes and is used to predict changes in GRDP or in employment as a result of an increase in some component of aggregate expenditure in the region.
In formulating a regional economic policy, it is necessary to take into account not only the economic component of development, but also its political, social and environmental components, whose goals can be compatible but are usually conflicting. In the final analysis, the goals of regional economic policy, however diverse, are always a compromise between political expediency, economic efficiency, social justice and environmental security. The relationship between these goals, the op-
2 See: M. Kane, Public-Sector Economic Development: Concepts and Approaches, Northeast-Midwest Institute, The Center for Regional Policy, Washington D.C., 2004, p. 7, available at [http://www.nemw.org/econdevelopment.pdf].
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portunities for agreeing them, and the ways of their achievement depends on the concrete circumstances.
The goals of regional economic development can be either “eternal” (traditional) or new. The latter are determined by the economic, geopolitical, institutional and other changes occurring in individual countries at different stages of their development. In post-Communist transition countries, for example, traditional macroeconomic goals are supplemented by new goals associated with the problems of the transition period, such as regional economic stabilization, privatization of regional public property, creation of a proper financial system in the regions, restructuring of border regions, establishment of free economic zones, etc.
The feasibility of regional economic development goals will depend on the degree of their validity. Where goals are set without the necessary legal, organizational or financial backing, this may fail to produce the expected results and will only hinder the solution of growth problems at the national level. If these goals come into conflict with each other, the thing to do is to establish national priorities in accordance with the existing situation and the current level of economic development.
So, the first step is to determine the national priorities and an appropriate growth strategy. The next step is to set regional economic development goal consistent with these priorities and based on a diagnostic study of the nature of political, social, economic and environmental problems in concrete regions. From a national standpoint, the lines of regional economic development should be determined with due regard for the entire range of regional opportunities, the effects of regional agglomeration, the relative advantages of territorial division of labor and regional cooperation, etc.
In formulating a regional economic policy, it may be necessary to combine the principles of social justice and economic efficiency. Regionally speaking, the principle of social justice means that the citizens of the state, regardless of where they live, should enjoy equal opportunities in matters of employment, income and access to public goods. The implementation of this principle requires an interregional redistribution of financial resources, which may naturally lead to dissatisfaction and resistance from some regions. Conflicts between donor regions and recipient regions occur in many countries pursuing this kind of active regional economic policy. Besides, all of this can have a significant effect on regional growth and, ultimately, on the growth of the national economy.
Finally, mention should be made of growth-related environmental problems. It is known that unlimited growth results in undesirable external effects on the environment. Growth can influence the environment through various channels, including regional ones. That is why in formulating a regional economic policy one should take into account the negative impact of environmental factors, which should be minimized (naturally, at some cost). There are two views on the development of regional economical policy with due regard for growth-related environmental problems:
(1) growth is not limited for environmental reasons, with subsequent use of the resulting revenue to address problems of environmental protection; and
(2) growth is limited, with a significant part of the productive resources used to protect the environment.
Consequently, in formulating a regional economic policy it may be necessary to take into account all the dimensions of regional development: social (evening out regional differences in economic development levels), economic (raising growth rates and efficiency), political (taking into account the political component in formulating a regional economic policy) and environmental (addressing regional environmental problems). Each of these dimensions can be of fundamental, dominant importance at certain stages in the country’s development and can influence the content of regional economic policy. For example, regional political problems and excessive disparities in
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the socioeconomic conditions of regional development pose a threat of the state’s disintegration. That is why a solution of these problems may prove to be of particular importance to countries where restoration of the state’s integrity and easing of socioeconomic tensions in the regions are among the priorities. All of this will naturally affect the formulation of a regional economic policy and growth rates.
The Content of Regional Economic Policy
Regional economic policy is a system of economic measures implemented by the state to promote growth. There are two lines of regional economic policy. First, “soft” regional economic policy designed to create generally favorable conditions for the development of concrete regions with potential for growth. And second, targeted regional economic policy designed to regulate and promote regional economic development through investments, subsidies and subventions for addressing specific tasks.
With the help of an appropriate regional economic policy it is possible to find a compromise between the development of various regions and to ensure sustainable growth of the national economy. For this purpose, regional economic policy should be formulated based on the principle of balanced growth, which means maximization of regional growth and minimization of regional growth variations, with a reduction in development disparities between the regions. The policy of balanced growth is aimed at reducing the contradictions of regional economic development.
However, it should be borne in mind that since economic space is heterogeneous, balanced regional growth is unattainable. Regional economic policy that promotes national economic growth is always a policy of uneven regional growth. Its main principle is selectivity, as manifested in support for the development of regions which, on the one hand, make the biggest contribution to national economic growth and, on the other, problem regions impeding this growth. In other words, the existing constraints dictate the need to “optimize” the functioning of both the various regions and the national economy as a whole.
Consequently, regional economic policy, first, is more concrete than macroeconomic policy; second, it reflects the social, political and environmental problems of regional development; and third, it is directly connected with other kinds of economic policy because they are implemented through the regions. Regional economic policy, on the one hand, addresses national problems (looks for weak points in the economy) and, on the other, seeks to resolve not only economic, but also a whole range of important attendant problems of regional development.
The formulation of a regional economic policy implies the need to establish a system of regional goals consistent with the national growth strategy at the current stage of development. This system of goals should be agreed with the national priorities, and their implementation should help to achieve “optimal” growth rates of the national economy. The effectiveness of the practical implementation of a regional economic policy will depend on whether the authorities are able to find a compromise between the national growth strategy and regional development trends, make correct use of economic instruments (tools) to achieve the projected growth rate, adequately assess the long-term results of their decisions, etc.
The practical implementation of a regional economic policy implies the use of a wide range of instruments, economic instruments above all. The ultimate purpose of their use is to lay the groundwork for sustainable regional growth and, accordingly, for national economic growth as a whole. Given the diversity of the regions, it is necessary to differentiate the use of economic instruments in
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order to offset the growth impact of adverse regional factors while stimulating the effect of favorable regional factors.
The economic instruments of a pro-growth regional economic policy could include the budget system; taxation; the financial system; government procurement; price regulation; bonuses for increasing regional employment; organization of migration processes; economic support for problem regions or their firms; regional economic audit; creation of free economic zones, etc.
The most comprehensive economic instrument of regional economic policy can be the budget system, which includes two tiers: federal and regional. In the general case, two-tier fiscal federalism, i.e., the relationship between the center and the regions, implies the need to implement the following conditions:
■ distribution of power between the center and the regions;
■ allocation of the necessary financial resources to different levels of authority;
■ correction of regional budget imbalances through intergovernmental transfers made according to the established rules.
The nature of fiscal federalism is determined by the regional structure of the state. It necessitates a mechanism to regulate the distribution of tax revenues between the center and the regions. Tax sharing, i.e., the division of taxing power between the center and the regions, is an extremely difficult problem currently on the agenda of economic science. Today there is still no unified or equally acceptable model of tax sharing: “in the developed countries with a federal system of government there are various tax sharing arrangements in the absence of a single criterion for selecting the best (most effective) arrangement.”3
From the perspective of regional economic policy, appropriate lines of evolution of the budget system include its decentralization, a striving for greater autonomy and independence of regional budgets, an advance toward deficit-free budgets, a reduction in intergovernmental cross-flows, an increase in the role of regional budgets in addressing regional economic development problems, reorientation of the financial base of regional budgets toward direct promotion of growth, control over the proper and effective use of financial resources in the regions, etc.
Special purpose funds for addressing concrete regional problems, insurance guarantee funds, trust funds, etc., should also be included among the economic instruments. They could be financed both by the federal and regional budgets and by sponsor organizations and private individuals. Other instruments of regional economic policy could include various kinds of loans, diverse forms of use of regional property, etc.
Depending on their universality and area of impact on growth, economic tools can be divided into macroeconomic and microeconomic ones.4 Macroeconomic tools are those which influence the behavior of regions and regional actors by creating favorable conditions for their efficient economic operation and development, i.e., they are general purpose tools. Macroeconomic tools primarily serve to create a favorable investment climate in concrete regions. As for microeconomic tools, they have a direct influence on regional actors and are geared to address specific tasks of regional economic development, i.e., they are targeted tools.
In formulating a regional economic policy designed to promote national economic growth, it is necessary to take into account the development specifics and diversity of the regions. The national economy as a system of regions consists of unequal regional subsystems (in terms of geographical position, scale of production, labor resources, physical and human capital, etc.), which leads to the
3 V.G. Papava, T.A. Beridze, Ocherki politicheskoi ekonomii postkommunisticheskogo kapitalizma, Delo i servis, Moscow, 2005, p. 200.
4 See: H. Armstrong, J. Taylor, Regional Economics and Policy, Blackwell Publishers, Oxford, 2001.
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emergence of dominant regions (engines) that lay down the “rules of the game.” These regions, which increase the production potential and regional growth rates, have a powerful “pull effect” and so modify regional development and the regional structure of the whole national economy. As a rule, dominant regions do not require any active regional economic policy, because they have a developed physical and information infrastructure and are self-sufficient as regards development prospects and attractive for investments and innovations.
At the same time, there are problem regions whose state, functioning and development can have a very negative influence on regional growth and impede growth on a national scale. They can be divided into backward (underdeveloped), depressed and crisis. Backward regions, as a rule, are in a state of long-term stagnation: they are characterized by weak economic activity, low diversification of the sectoral structure of the economy, inadequate production potential, lack of the necessary infrastructure, undeveloped social sphere, political and ethnic conflicts, crime-related and environmental problems. Some of these regions may have a significant production potential, but for one reason or another do not make full use of it. Those of them that have to some extent adapted to market conditions are capable of developing without special government support, in contrast to sparsely populated and undeveloped regions endowed with natural resources but lacking the necessary starting conditions and financial resources for their development. Such regions are rightly regarded as problem regions, and their development can be effectively regulated through targeted state regional programs.
Depressed regions are in a worse economic position than the country as a whole. The most frequently used indicators of depression are regional unemployment and regional income per capita. Persistent labor migration from the region can also be regarded as a characteristic of depression. A fundamental difference between depressed regions and backward ones is that in the past the former were developed and in some sectors and lines of production even had a leading place in the national economy. But due to a drop in demand for their core product or a decline in its competitiveness, depletion of natural resources, etc., these regions have lost their competitive and comparative advantages and their former economic position.
It is advisable to distinguish problem regions based on the severity of the crisis, which may cause irreversible political, economic, social and environmental distortions. In the general case, crisis regions should include: regions with large-scale political and ethnic conflicts resulting in the destruction of the accumulated production potential of the national economy and significant forced migration of people; and regions subjected to the destructive impact of natural disasters. Moreover, the severity of the crisis may not only impede regional growth, but also pose direct threats to national security and the territorial integrity of the state.
Problem regions should also include border regions, whose economy is influenced by the state border, which performs “barrier, filtering and contact” functions.5 These regions have a significant influence on the development of the national economy as a whole and play a particularly important role in ensuring national security and developing international economic cooperation. Many of the geopolitical, geo-economic and humanitarian transformations are most pronounced precisely in border regions.
Free economic zones are seen as a “variety of problem regions of a vanguard type.”6 The advisability of their creation depends on the competitive advantages of some regions (special geographical position, transportation functions, opportunities for developing export sectors and lines of production, organization of health-resort and tourism industries, etc.), which can be realized in a very short time through the creation of favorable economic conditions for investment in the development of re-
See: A.G. Granberg, op. cit., p. 332.
5
6 Ibid., p. 321
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gional infrastructure and industry. But there are a number of critical works noting the negative aspects of the operation of free economic zones in the context of strategic political interests and national security, which can prevent their spread.7
A form of regional economic organization known as offshore zones, which are used to attract financial capital, should also be included among the problem regions. The main incentive to invest in offshore zones is provided by low tax rates, which may result in significant losses of tax revenue for the federal and regional budgets. Moreover, enterprises registered in offshore zones mostly conduct their core business in other regions or even countries. That is why leading international organizations and business circles of industrial countries take a negative view of the consequences of the existence of offshore zones in the context of market competition and globalization of world economic processes.
The crisis situation in problem regions can be overcome, as a rule, only with the help of an active regional economic policy, in particular, by redistributing financial resources between the regions. But it should be borne in mind that some problem regions may have objective conditions for accelerating growth through their own efforts, by using their own competitive and comparative advantages, and this should be taken into account in formulating a regional economic policy. The identification of the competitive and comparative advantages of individual regions and the selection of effective ways to realize these advantages with due regard for national priorities can be seen as the information base in formulating a pro-growth regional economic policy.
As noted above, the formulation of a targeted regional economic policy implies the development of alternative options for such a policy and an integrated assessment of their effectiveness. This makes it possible to determine the most effective line of regional economic development from the perspective of growth. The options approach to formulating a targeted regional economic policy was experimentally validated based on a case study of Georgian regions.
Experiment in Developing Policy Options for Georgian Regions
The procedure for developing alternative options for a targeted regional economic policy implies the use of static production functions. In this case, we used a linear production function, which is the most convenient one for interpreting the econometric parameters being calculated and for practical application. Its use has made it possible to significantly simplify the predictive calculations for various policy options and to compare the results of these calculations for the options obtained. This ensures the validity of the conclusions that follow from a comparative analysis of targeted regional economic policy options.
Each of these options represents, on the one hand, the projected levels of capital and labor inputs by region and, on the other, the corresponding values of GRDP, which can be added up to obtain the projected level of GDP and the growth rate of the national economy as a whole. To illustrate the practical possibility of using linear production functions in developing alternative options for a targeted regional economic policy, we derived and analyzed the following regression equation:
' See: T. Beridze, E. Ismailov, V. Papava, Tsentral’nyi Kavkaz i ekonomika Gruzii, Nurlan, Baku, 2004, pp. 79-87.
Y = 22.599 +1.193 K+ 0.187L,8
where Y = GRDP (million lari),
K = regional capital inputs (million lari), and L = regional labor inputs (thousand people).
Based on this production function, we performed a series of conditional calculations in order to formulate alternative options for a targeted regional economic policy for the set of Georgian regions. As a result, we obtained three such options differing in capital and labor inputs in the various regions. In the event, we took into account the advisability of increasing capital inputs in each region from the standpoint of the supply of capital (physical and human) in this region and the efficiency of its utilization. If a region lagged significantly behind other regions in capital inputs per worker and their increase was justified, it made sense to stimulate investment and innovation processes in this region. In this case, in increasing capital inputs we took into account the capital-labor ratio and gave preference, as a rule, to regions with the lowest ratio. The same with labor: priority in formulating regional economic policy options was given to regions where the unemployment rate was sufficiently high compared to other regions.
The final results of the development of three targeted regional economic policy options are given in tables 1-3. These tables present GRDP, capital inputs and labor inputs by region before and after the implementation of regional economic policy. In the first option, the Tbilisi Region was excluded from consideration. In the second and third options, the main emphasis was on the Tbilisi Region, which makes the largest contribution to national economic growth in Georgia. According to earlier studies, the metropolitan region accounts for over 70% of GDP growth.9
Based on GDP growth rates alone, it is impossible to draw a definitive conclusion as to which targeted regional economic policy option is preferable, because each of these options is associated with certain transaction costs. That is why the results of various regional economic policy options should be compared with these costs. For this purpose, GDP growth in absolute terms is divided by the transaction costs. The indicator obtained is an integrated assessment of the effectiveness of this regional economic policy option.
The results of calculations made to obtain integrated assessments of the effectiveness of the targeted regional economic policy options proposed above are given in Table 4. As the table shows, the second option of a targeted regional economic policy is the most effective one.
So, a targeted regional economic policy entails an increase in capital and labor inputs in the regions, which leads to the growth of GRDP, regional capital-labor ratios and regional labor productivity, and eventually to faster GDP growth. At the same time, the scope of regional economic policy may be much wider than is considered in the context of this article, because this policy is often aimed at creating the general conditions for the development of the regions, particularly for small and medium business, without substantial public financing. In our experiment, we assessed the growth impact only of that part of regional economic policy which is specially targeted and whose results can actually be measured in quantitative terms. But regional economic development will also be influenced by “self-sustaining” development of the private sector without active government intervention but driven by the creation of favorable political and economic conditions for the development of concrete regions. As is often noted in the literature, the state should mainly focus precisely on the creation of such conditions, which means that a synthesis of the market and institutional approaches to regulating the development of the national economy should prevail over state paternalism.
8 See: M. Achelashvili, K. Achelashvili, “Regional Management of Economic Growth,” The Caucasus & Globalization, Vol. 1 (5), 2007, p. 63.
9 Ibid., pp. 60-61.
Table 1
First Regional Economic Policy Option and Projected Results of Its Implementation
Regions GRDP, million lari, Y Capital: value of productive assets, million lari, K Labor: number of employees, thousand, L
actual level after policy implementation growth rate, % actual level after policy implementation actual l evel after policy implementation
Tbilisi 3,069.9 3,069.9 100.0 2,479.4 2,479.4 318.1 318.1
Ajaria 377.7 386.1 102.2 231.5 280.0 166.3 170.0
Guria 31.5 31.5 100.0 33.3 33.3 76.8 76.8
Racha- Lechkhumi, Kvemo Svaneti 19.0 19.0 100.0 9.6 9.6 21.0 21.0
Same- grelo, Zemo Svaneti 258.7 277.0 107.1 189.1 190.0 199.2 200.0
Imereti 411.8 476.3 115.7 335.9 350.0 367.2 400.0
Kakheti 116.7 142.9 122.5 68.5 80.0 196.6 200.0
Mtskheta- Mtianeti 98.7 118.0 119.6 60.6 62.0 52.9 55.0
Samtske- Javakheti 117.2 128.7 109.8 33.2 70.0 103.9 105.0
Kvemo Kartli 583.1 583.1 100.0 441.1 441.1 209.7 209.7
Shida Kartli 298.1 298.1 100.0 126.8 126.8 175.8 175.8
National economy as a whole: million lari 5,382.4 5,530.6 4,009.0 4,122.2 1,887.5 1,931.4
growth rate, % 102.8 102.8 102.3
N o t e: The table was calculated from the primary data of the State Statistics Department of Georgia.
Table 2
Second Regional Economic Policy Option and Projected Results of Its Implementation
Regions GRDP, million lari, Y Capital: value of productive assets, million lari, K Labor: number of employees, thousand, L
actual level after policy implementation growth rate, % actual level after policy implementation actual level after policy implementation
Tbilisi 3,069.9 3,217.5 104.8 2,479.4 2,600.0 318.1 330.0
Ajaria 377.7 377.7 100.0 231.5 231.5 166.3 166.3
Guria 31.5 31.5 100.0 33.3 33.3 76.8 76.8
Racha- Lechkhumi, Kvemo Svaneti 19.0 19.0 100.0 9.6 9.6 21.0 21.0
Same- grelo, Zemo Svaneti 258.7 258.7 100.0 189.1 189.1 199.2 199.2
Imereti 411.8 411.8 100.0 335.9 335.9 367.2 367.2
Kakheti 116.7 142.9 122.5 68.5 80.0 196.6 200.0
Mtskheta- Mtianeti 98.7 118.1 119.7 60.6 62.0 52.9 60.0
Samtske- Javakheti 117.2 117.2 100.0 33.2 33.2 103.9 103.9
Kvemo Kartli 583.1 594.2 101.9 441.1 450.0 209.7 210.0
Shida Kartli 298.1 300.9 100.9 126.8 210.0 175.8 176.0
National economy as a whole: million lari 5,382.4 5,589.5 4,009.0 4,234.6 1,887.5 1,910.4
growth rate, % 103.8 105.6 101.2
N o t e: The table was calculated from the primary data of the State Statistics Department of Georgia.
Table 3
Third Regional Economic Policy Option and Projected Results of Its Implementation
Regions GRDP, million lari, Y Capital: value of productive assets, million lari, K Labor: number of employees, thousand, L
actual level after policy implementation growth rate, % actual level after policy implementation actual l evel after policy implementation
Tbilisi 3,069.9 3,255.1 106.0 2,479.4 2,650.0 318.1 330.0
Ajaria 377.7 410.7 108.7 231.5 300.0 166.3 180.0
Guria 31.5 31.5 100.0 33.3 33.3 76.8 76.8
Racha- Lechkhumi, Kvemo Svaneti 19.0 19.0 100.0 9.6 9.6 21.0 21.0
Same- grelo, Zemo Svaneti 258.7 258.7 100.0 189.1 189.1 199.2 199.2
Imereti 411.8 411.8 100.0 335.9 335.9 367.2 367.2
Kakheti 116.7 136.8 117.2 68.5 75.0 196.6 200.0
Mtskheta- Mtianeti 98.7 98.7 100.0 60.6 60.6 52.9 52.9
Samtske- Javakheti 117.2 117.2 100.0 33.2 33.2 103.9 103.9
Kvemo Kartli 583.1 583.1 100.0 441.1 441.1 209.7 209.7
Shida Kartli 298.1 298.1 100.0 126.8 126.8 175.8 175.8
National economy as a whole: million lari 5,382.4 5,620.7 4,009.0 4,254.6 1,887.5 1,916.5
growth rate, % 104.4 106.1 101.5
N o t e: The table was calculated from the primary data of the State Statistics Department of Georgia.
Table 4
Effectiveness of Regional Economic Policy Options: Integrated Assessments
Transaction Policy results by option Assessment
Policy costs of GDP growth Growth, % of effective-
options policy implementation, lari thou- sand lari % capital-labor ratio labor productiv ity ness of policy options
First 40,000 148,200 102.8 100.5 100.4 1 3.7
Second 50,000 207,100 103.8 104.4 102.6 4.1
Third 70,000 238,300 104.4 104.5 103.1 3.4
C o n c l u s i o n
In this article, we have examined the paradigm of regional economic policy as seen from the perspective of national economic growth and capable of playing a key role in strengthening regional and macroeconomic stability. In order to achieve these goals, a pro-growth regional economic policy should be evolutionary, i.e., it should ensure:
(a) as far as possible, continuity of policy,
(b) an adequate response to political, economic, social and environmental changes, and
(c) steady progress in implementing the national strategy geared to ensure sustainable growth with due regard for the peculiarities of regional economic development.
Under these conditions, regional economic policy should become a key institutional factor in enhancing the effectiveness of national economic development. The formulation of a regional economic policy should be based not on a fragmentary approach to regional development, but on an aggregated systems approach focused on growth as the final result of national economic development. That is why regional economic policy can be regarded as a determinant of national economic growth.
In practice, however, the effectiveness of the implementation of a regional economic policy from the perspective of growth in individual countries will depend on how their ruling political elite views the problem of economic development in general, on the actual economic, political, social and environmental situation. At the same time, the solution of problems related to the formulation of an appropriate regional economic policy may also be distorted by lobbying for the interests of various political and bureaucratic forces in society. One should also bear in mind that the development of a regional economic policy may be complicated by market failure or malfunctioning of the market mechanism for subjective reasons, as often happens today in post-Communist transition countries.
The problem of regional economic policy and growth has been presented in the context of the national economy. But the principles underlying the formulation of a regional economic policy are
