Dissecting Export Trade Patterns of Georgian Economy and the Growing Importance of the European Union Market

Abstract

From the very beginning of its rebirth after leaving the Soviet Union, Georgia embarked on a transition to a free market economy and linked its fate to western culture. Since then, strengthening the private sector, creating an attractive investment climate, promoting trade liberalization and above all else fostering exports are the main concerns of the country. Thus, as an export-oriented country, close examination of the Georgian export performance is of great importance. Besides the decomposition of general export trends for the period of 2008-2017, this paper applies Balassa index of revealed comparative advantage (RCA) to identify the key export sectors with comparative advantage and correspondingly with higher growth potential; By this shaping the export promotion policy to prioritize those sectors as the main drivers to increase export earnings. Furthermore, the study employed export product diversification index to gauge the convergence degree of Georgian exports structure by products to the structure of the world; as it significantly affects the resistance of a country towards the trade shocks caused by a price instability of the exported commodities. Eventually, the EU-Georgia trade relationship will be assessed through the trade intensity index to check whether the value of trade between the EU and Georgia is corresponding to the expectations based on their importance in world trade. The results show the comparative advantage for nine products (HS4) that account for -60 percent- of total exports including all the major sectors of Georgian export production. The diversification degree of export products improved over the last decade but still very poor, thus, it is unlikely for Georgia to resist the external trade shocks in case of a price instability of the exported commodities. Furthermore, despite the removal of the main trade barriers between EU and Georgia, it appears that the bilateral trade relationship is characterized by a low-intensity pattern, meaning that there is much to trade between the partners. The problem of low-intensity can be linked to the lack of accessible export-related information that limits the ability of the new entrants to survive. As a result, discouragement of new firms to become exporters limits the diversification of export basket, which in turn negatively affects the level of trade intensity between the trade partners and decreases the potential trade benefits of bilateral agreements.