Structural Transformation and Export Performance in Georgia: Is There a Need for the New Industrial Policy?

Abstract

Structural transformation is a widely debated research issue because of its ties with productivity, labor distribution, incomes and other facets of economic development. It is well explored in developing country settings. There are also studies that give thorough analysis of the issues in developed economies. As for the transitional countries the focus of economic policy-making and research has mainly been on the economic and institutional reforms that aim at transition to functioning market economy. Studies that would give a clear understanding of how these reforms have contributed to productivity growth across sectors, their upgrading and shift from low to high value added activities are scarce. These countries also are missing from industrial policy debates. To fill the gap the present paper analyzes Georgia’s economic transformation through the lenses of export performance and discusses the need for new industrial policy. Georgia has been following a trade-centric approach to development (marked with reforms targeted at export-led growth, trade liberalization, trade facilitation and trade agreements as key policies). The potential to diversify exports and increase sustainable employment will be evaluated through the lenses of the new industrial policy. The data on sectoral value-added, sectoral employment shares, sectoral expenditure shares and sectoral net export shares of total GDP will be applied.