Aleksandre Zibzibadze - International Business Confirmation Paper

Georgia’s Journey from Independence to Freedom: The Role of Foreign Direct Investment
GEORGIA’S JOURNEY FROM INDEPENDENCE TO FREEDOM:

THE ROLE OF FOREIGN DIRECT INVESTMENT
INTERNATIONAL BUSINESS CONFIRMATION PAPER OF
ALEKSANDRE ZIBZIBADZE
PAPER SUPERVISOR: DR CONOR CARROLL
WORD COUNT: 12,099
DATE OF SUBMISSION: APRIL 6th, 2018
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I want to express my special thanks of gratitude to:
My not so ordinary family: Mom, Dad and Shota- who spoil me by their endless love and
support in everything;
iGeneration: Irakli Gilauri and Kety Kinkladze for their generosity;

Eka Duchidze, a.k.a. Duchka, who made sure that I survived in Ireland
& all iGeneration scholarship recipients who made my time in Ireland way more enjoyable;
The University of Limerick: Dr. Conor Carroll who was always in his office when I knocked
on the door or emailed in need of an advice or support; all fantastic UL lecturers who taught
me & the Kemmy Business School and the International Education Division staff;
Kakha Bendukidze, with whom I frequently argued and had disagreements with, but who
inspired me to always learn, work very hard and value my personal liberty. Without Kakha,
this paper most likely would not have been written;
My amazing circle of friends who make my life brighter every day and, in this case, Maria
specifically, who spent hours in Skype listening about various articles, interviews and reports
I had read while doing the research;
And many other people: my teachers and lecturers in Georgia; aunts, uncles and cousins who
are spread all over the world; Georgia’s Future Academy: it’s almost irreplaceable staff and
participants of #idebate; many inspiring people I am friends with on Facebook, etc.
“Choose, what type of economic growth do you want?
Know that:
12% annual growth means that in 2040 we will be the leading country in the world. There is
no country as rich today.
10% annual growth- in 2040 we will be amongst the 20 richest countries in the world.
7% annual growth- in 2040 we will be at the end of developed countries list.
4% annual growth- in 2040 we will be weaklings.
2% annual growth- in 2040 there will be no we. We will be nothing. Nothing, nothing,
nothing, nothing…”
-Kakha Bendukidze1
April 19th, 2010
1Kakha Bendukidze was the main architect of economic and institutional reforms in Georgia. After his death in
2014, many started to refer to him as “the man who remade Georgia.”
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INTRODUCTION
In 2003, Georgia was “nearly a failed state”2 with the 6th most corrupt economy in the world. 3
It was ruled by the plutocratic government, many members of which, including President
Eduard Shevardnadze4 were members of the communist elite in the Soviet Union. After
Georgia restored its independence in 1991 and the Soviet empire broke down, very soon the
ex-communist elite regained the power and continued to rule the country. The governance
system, which was based on the extractive institutions and benefitted only a few on top, was
the main reason of the peaceful Rose Revolution,5 which brought to power the new
generation of leaders promising to challenge the status quo.
Over the next few years, Georgia went through significant economic and institutional
reforms, which resulted in the average economic growth of 9.3% 6 and the title of “the world’s
number one economic reformer” by World Bank in 2007. 7 Encouraged by reforms and high
growth, many foreign companies have started to pay attention to the Georgian economy.
Foreign Direct Investments (FDIs) have begun to flow into the country. 8 Many Georgians,
especially youth, have regained the hope of the bright future.
On August 8th, 2008, on the day of the opening ceremony of the Summer Olympic Games in
Beijing, Georgia was invaded by Russia with the pretext of protecting Russian citizens in the
country’s Tskhinvali region. 9 The brief war resulted in the Russian occupation of two
Georgian regions- Abkhazia and Samachablo. The military conflict was soon followed by the
global financial crisis. Georgia’s economic resurgence was in danger.
Nevertheless, on May 26th, 2018 Georgia will celebrate the 100th anniversary of establishing
the first Georgian Republic in 1918 and 27 th Independence Day since the restoration of
independence in 1991. During the last three decades, Georgia has faced enormous political
2 United States International Trade Administration (2018)

3 Transparency International (2004)
4 https://www.britannica.com/biography/Eduard-Shevardnadze
5 https://www.journalofdemocracy.org/article/georgias-rose-revolution
6 See Figure 4: Real GDP Growth of Georgia
7 World Bank (2017a)
8 See Table 7: FDI Net Inflows in Selected Economies (1997-2006)
9 https://www.heritage.org/europe/report/the-russian-georgian-war-challenge-the-us-and-the-world
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and economic challenges, but the Georgian nation has managed to preserve its independence
but still continues on “the journey from independence to freedom,” 10 the challenging path
every newly established nation has to go through.
Without a doubt, building the free and strong economy is one of the most important steps on
this journey. But what is the recipe for achieving economic prosperity for a small open
economy, like Georgia? Does economic theory provide one? If yes, how well did Georgia
perform during the first 3 decades of its restored independence? Was attracting high volumes
of FDI the main success factor in the stories of other small open economies, such as Ireland
and Singapore? Can the same be replicated in Georgia?
HISTORICAL OVERVIEW OF THE GEORGIAN ECONOMY

Colonial Past: The Story of Many Occupations and Fights to Regain Statehood
Many people do not know much about Georgia. So, to set up the initial context a very short
story should be told. One brilliant history teacher once said that Georgia can be characterized
as a post-colonial state and its history can be summarized in one phrase: “The story of many
occupations and fights to regain statehood.” During several thousand years of Georgian
history the country has been frequently invaded or occupied because of its strategic
geographic location. Unwanted guests included the Roman and Persian empires, various Arab
caliphates and Mongol khans, the Safavid Iran and Ottoman Empire. The last monarchical
power to occupy Georgia was the Russian Empire, which annexed the Georgian Kingdom in
1801. Historically, every occupation of Georgian territory, after initial frustration, was
followed by various independence movements and restorations of Georgian statehood. The
Russian occupation was no exception. 11
The Short-Lived First Georgian Republic
The full-scale independence movement against the Russian occupation has started in Georgia
in 1860s. In 1918, following the Russian Revolution of 1917, the Georgian people used the
weakness of the Russian Empire and declared independence on May 26 th, 1918. Thus, the
10 President of Georgia (2017)

11 https://www.britannica.com/place/Georgia
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first Georgian republic was established after almost 117 years of the Russian occupation.
Unfortunately, Georgia’s independence was short-lived and lasted less than 3 years. In
February 1921 the Russian Red Army advanced into the country and Georgia became an
occupied land again. In 1922 Georgia was forced to join the Soviet Union.
The Soviet Occupation and the Command Economy Experiment
In addition to the political occupation, during the Soviet occupation, which lasted almost 70
years, Georgia’s economy became the hostage of the communism economic experiment.
Before the Soviet rule, Georgia was largely an agrarian market principles-based economy.
But the Soviet Union aimed to “establish communism” and this required many structural
changes in the economy. The major devastating “reform” was the abolishment of the private
property and forceful economic industrialisation resulting in Georgia's economy becoming an
integral part of the unsustainable Soviet model of the command economy.
Unfortunately, the detrimental effects of this experiment are still seen today in modern
Georgia both in economy and mindset of the large part of country’s population- for example,
many people still do not understand the economic meaning of tax or the importance of private
property. Many still demand the Soviet-era factories be reopened, despite the fact that there is
no possible way those can survive the free market competition.
The Restoration of Independence and “Dark ‘90s”
The new independence movement from the Soviet Union began as early as 1924 with the
August Uprising. Eventually, after rivalry with the West during the Cold War, the Soviet
state became very weak and Georgian people seized the moment again: on April 9 th, 1991 the
independence was proclaimed after the referendum, which was held on March 31 st with
99.5%12 of the population voting to restore the Georgian statehood.
Following the declaration of independence, on May 26th, 1991 Zviad Gamsakhurdia, the most
prominent leader of the independence movement, was elected as the first President of
12 Nohlen, D., Grotz, F. and Hartmann, C. (2001) Elections in Asia: A data handbook, Volume I.
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Georgia. But soon after the election, Gamsakhurdia had to flee the country after the bloody
coup, which started in December 1991. The civil war between the supporters of the first
President and organizers of the coup erupted and lasted until the death of Gamsakhurdia on
December 31st, 1993.
Soon after Zviad Gamsakhurdia left the country, Eduard Shevardnadze, the communist leader
of Georgia and last foreign affairs minister of the Soviets returned to Georgia and regained
the power in 1992. During his initial years in power, the conflicts within two regions of
Georgia13: Abkhazia and Samachablo erupted into wars,14 which ended with separatists,
supported by Russia, achieving the de facto independence from Georgia. During the wars,
almost 250,000 Georgians were forced to leave their homes in Abkhazia and around 23,000
in Tskhinvali region.15 These internally displace people are still unable to return to their
homes today. In 1995 Shevardnadze was officially elected as the second President of
Georgia, the position he held until November 2003.
In addition to the political instability and wars, after the Soviet Union broke down Georgia
faced one of the most severe economic downturns in human history (even Germany’s
economic downturns after the WWI and WWII were less detrimental) as the command
economy momentarily collapsed. 16 The nominal GDP per capita shrunk from almost $3,000
per capita in 1989 to $550 in 1993. 17 The country could not sustain itself and soon Georgia
became dependent on the financial help from the western institutions such as the World Bank
and International Monetary Fund.
Initially, Shevardnadze tried to pursue some basic free market reforms. Under his leadership,
trade was liberalized, the stable national currency- lari- was launched, the government was
downsized and some of the state assets were privatized. But that was not enough, and
Shevardnadze was unwilling to pursue further radical changes to transform the economy. The
13 See Map 1: Georgia

14 Jones, S. (2014) The Making of Modern Georgia, 1918-2012.
15 http://www.internal-displacement.org/europe-the-caucasus-and-central-asia/georgia/figures-analysis
16 The output of Georgia shrunk to less than 25% of 1989 output.
17 Author of the case study was, indeed, lucky to be born in 1993.
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corruption flourished, and Georgia became one of the best examples of crony capitalism and
plutocratic rule.18
The Rose Revolution: Economic Transformation and Reforms
In January 2004, soon after the Rose Revolution Mikheil Saakashvili was elected as the third
President of Georgia. And instantly the new government of Georgia started implementing
various broad and comprehensive economic and institutional reforms. The main idea behind
the economic reforms was to liberalize and modernize the economy and to create an
attractive business climate, which would attract a large inflow of FDI that should contribute
to achieving high economic growth. 19
The man behind the economic reforms was Kakha Bendukidze20- famous businessman and
libertarian thinker living in Russia at that time. He was invited by the new government to
become the minister of economy to implement the reforms. Fundamental changes were
proposed by Bendukidze’s team in areas such as taxation system, customs procedures, a
system of licenses and permits in almost all business sectors, privatization of state property,
labour legislation, import barriers, procedures to start business and others. 21
The number of taxes was decreased from 21 to 6 (Individual Income Tax- 20% flat rate;
corporate Profit Tax- 15%; VAT- 18%; Property Tax up to 1% of property value, Customs
Tax- 0%, 5% or 12% of import value and Excise that varies on type of product) and tax rates
were reduced. In addition to this, it became possible to pay taxes online, time and costs
required to pay taxes were significantly reduced and tax dispute system was simplified to
make it easier for businesses to use. Thus, Georgia became one of the most liberal tax
jurisdictions in Europe and the world.22
18http://4liberty.eu/a-brief-economic-history-of-georgia-a-lesson-has-to-be-remembered
19https://openknowledge.worldbank.org/handle/10986/2234
20 The author was fortunate to know and spent quite significant amount of time with Kakha Bendukidze arguing
about various economics and education-related topics while studying at the Free University of Tbilisi founded
by Kakha. Bendukidze was controversial man with brilliant mind who has inspired many. Kakha’s genius is
greatly missed and his contribution to Georgia will never be forgotten.
21 https://www.cato.org/events/georgias-transformation-modern-market-democracy
22 https://openknowledge.worldbank.org/handle/10986/28637
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In the customs procedures, many tariffs were almost completely eliminated, and the cost of
foreign trade was sharply reduced opening Georgian economy to the world. As of today, 86%
of imported products are tariff-free compared to only 26% in 2005. Additionally, customs
administration procedures were simplified to make it possible for firms to import and export
faster. Thus, Georgia became one of the few countries where locally made products are not
prioritised over the imports. 23
Another important reform area was the system of licenses and permits, many of which were
completely abolished or simplified. The total amount of licenses and permits was reduced by
almost 90%.24 Concerning 10% of licenses and permits that were left, the “One-Stop Shop”
and “Silence is Consent” principles were implemented. Those principles mean that all
licenses and permits can be obtained from the same government agency and if an individual
or a firm is not notified of rejection containing argumentation in limited time framework, the
license should be considered as issued. For example, the number of the licenses and permits
for getting the construction permit were reduced to just 3 from several hundred. The approval
process for building, for example, warehouse, became more efficient than in all EU countries
and 4th easiest in the world. 25
Due to the Soviet command economy, most of the property by 2004 was still owned by the
state. The government has introduced the transparent privatization mechanism which was
aimed to attract foreign direct investments. The state property was given to investors for free
or very low cost with contractual obligations to invest in the economy.
Additionally, another hugely important area- labour legislation- was significantly reformed
with the introduction of the new Labour Code. Praising the changes, Heritage Foundation
named the Georgian Labour Code as one of the most liberal labour legislation globally. 26 The
costs of hiring and firing workers were reduced and Georgia became more attractive
investment destination.
24 Bagaudinova, S., Omran, D. and Shavurov, U. (2007) 159 Licesing Activities - Not 909
26 Miller, T., Kim, A. and Roberts, J. (2018) 2018 Index of Economic Freedom
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And finally, the last area of the initial economic reforms aimed to reduce costs and time for
registration of business and property in Georgia. “One-Stop-Shops” were introduced again,
where the most procedures could be done on the same day of visiting the government agency.
In the Doing Business ranking, Georgia was ranked as first in the world by the ease of
registering property and 7th by the ease of starting a business. 27
Another obstacle for Georgia’s economy to grow was the corruption, which made the fast-
economic development almost impossible. As already mentioned in the introduction, in 2003
Georgia was the 6th most corrupt economy in the world. Very harsh “zero tolerance” policies
were introduced by the government and uncompromised fight against the corruption on all
levels began. This fight was successful and as of today, Georgia is one of the least corrupt
countries in the post-Soviet region and even beats some EU countries. Only 0.11% of
surveyed businesses named corruption as a problem while doing business in Georgia in 2017,
while this number was almost 92% in 2003. 28
Thus, the fundamental economic and institutional reforms have touched almost all aspects of
the business environment in Georgia. This resulted in the huge increase of the economic
growth- average 9.3% GDP real growth in the 2004-2007 period.29 The highest growth in
Georgian economic history – 12.3% was achieved in 2007. The GDP per capita rose from
$928 in 2003 to $3,174 in 2007. Overall, just over four years country’s economy expanded
by almost 40%. In addition to that, Georgia’s economy was placed at 16th place in the World
Bank’s Doing Business ranking, up from 112th place it occupied before the reforms. The
country was named as the top business economic and institutional reformer in the world by
the World Bank.
But as the economic reforms were implemented and Georgia was strengthening political ties
with the West, not everyone was happy. The relationship with Russia, which was losing its
economic and political influence, quickly deteriorated. As the result, the Kremlin has decided
“to punish Georgia” and imposed the ban on imports of all Georgian products, most notable
wine,30 into Russia (the largest export market for Georgia at that time) and raised the price of
27 http://www.doingbusiness.org/reports/global-reports/doing-business-2012
28 https://www.transparency.org/news/feature/corruption_perceptions_index_2017
29 See Figure 4: Real GDP Growth of Georgia
30 https://www.nytimes.com/2006/04/06/world/europe/06russia.html
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gas for Georgia in 2006. International Monetary Fund has described this occurrence as a
“significant external shock for the Georgian economy.” But despite the embargo, country’s
economy has shown huge resilience to this external shock, the negative effects of which were
compensated by the large inflow of foreign direct investment in 2006 and 2007. The result of
the embargo was arguably even positive for Georgia, as the country has learned the lesson
and exports were diversified in other markets, such as China, the US and EU.
But there were still some major significant issues that the new government has failed to
adequately address. Those issues had mostly to do with the judicial system, the rule of law
and the property rights. According to the Heritage Foundation:
“The court system in Georgia is highly inefficient, and delays are so long that they deter the use of the
court system. Corruption is present, and the judiciary is influenced by other branches of government.
Expropriation is possible."
Unfortunately, the situation described in the quote remained as the significant problem for the
investment climate in Georgia and no large-scale reforms were implemented by the
government to address the issue. 31 This factor contributed negatively to the country’s
economic development because the rule of law and the property rights are fundamental in the
modern free market economies. Nevertheless, due to other reforms implemented in 2004-
2007 period, many economic and institutional improvements were made in Georgia, which
have transformed it from the “nearly a failed state” to the developing economy.
The Russian Invasion and the Global Financial Crisis
But the positive trends in Georgian economy were soon followed by the Russian invasion in
2008 and the global financial crisis, which struck the Georgian economy. Many have feared
that country’s economy would collapse again. But due to the economic and institutional
reforms described above and relatively effective crisis governance, 32 despite the initial slight
economic downturn in 2009, Georgia has managed to survive the external economic shocks
quite well. As soon as in 2010, the GDP growth has returned and amounted to 6.3%,
31 United States Department of State (2017)

32 Gilauri, N. (2016) Practical Economics
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followed by 7% growth in 2011. 33 An additional reason for such successful resilience to the
crisis was the ability of Georgian government to secure the considerable financial aid from
the US and various international financial institutions.
“Georgian Dream”: Since the First Electoral Transition of Power
On October 1st, 2012, the ruling United National Movement Party of the President Mikheil
Saakashvili lost the election after 9 years in power. The victory belonged to the opposition
alliance Georgian Dream. 34 For the first time, the transition of power in Georgia occurred as
the result of the election- an extremely important step on the rough pass of building
democratic institutions.
The new government in many areas continued the economic path of its predecessor by
sustaining or deepening most of the economic and institutional reforms implemented with
slightly more inclusive social policy focus (For example, the universal health care was
introduced).35 An important corporate Profit Tax reform took place, reducing the tax rate
from 15% to 0% in case of the reinvestment of profits back into the firm.36 But despite that,
the country was unable to return to the high growth levels of the 2004-2007 period. The
regional economic crisis caused by the Russian-Ukrainian military conflict and significant
worsening of the economic and political relations between Russia and Turkey was the main
reason for that according to the World Bank. The average economic growth in the 2013-2017
period was just 3.5%, despite some improvements Georgia made in many international
rankings.37 For example, in the 2018 Doing Business report Georgia raised as high as the 9th
position by improving the property rights related indicators. But because of the regional
economic downturn, the nominal GDP per capita stood at only $3,853 at the end of 2016. 38
On the bright side, in 2014 Georgia has signed the Deep and Comprehensive Free Trade Area
(DCFTA) agreement (part of the EU-Georgia Association Agreement) with the European
Union. As the result of the agreement, the EU became the largest trading partner of Georgia
33 See Figure 6: GDP per capita and Real GDP Growth of Georgia (2009-2017)
34 https://www.economist.com/node/21564277
36 See Figure 17: Reinvestment Rate of FDI Enterprises
37 See Table 12: Georgia in Selected International Rankings
38 See Table 10: Selected Economic Indicators of Georgia (2013-*2020)
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with more than 25% share in total trade turnover. 39 On the other hand, the trade with the
Commonwealth of Independent States, economically and politically led by Russia further
decreased. Additionally, the free trade agreement between Georgia and China was signed in
May 2017 and the free trade agreements are being negotiated with many other countries,
including the US. As of 2018, Georgia’s economy is more open than it has ever been before,
and Georgia’s businesses have gained tariff-free access to many world markets.
FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH

Economic Growth Theories
After the brief economic history of Georgia was told that set the initial context for this case
study, it is not time to focus on the principal aspect- FDI and the role it has played in
Georgia’s economy.
It has been empirically proven that happiness of humans generally increases with the higher
GDP per capita. 40 Thus, for developing nations the economic growth is very important. But
what is the best way to achieve the economic growth? Unfortunately, the economic theory
does not provide the universal answer to this very important question as there are various
conflicting theories, none of which have been empirically proven to work in all settings.
After the WWII, the economists were not happy with the answers provided by the classical
economic theory about the economic growth. So in 1950s Robert Solow 41 and Trevor Swan42
developed the most famous economic growth theory- the Solow-Swan model. Their model,
which is also called the neoclassical model of economic growth is still widely used, despite
imitations, such as its exogenous nature and inability to explain the nature of investment
flows into the economy.
Unhappy with the exogenous nature of the Solow-Swam model, many economists, most
notable Paul Romer 43 and Robert Lucas 44 worked on the endogenous model of economic
39 http://ec.europa.eu/trade/policy/countries-and-regions/countries/georgia
40 Wilkinson, W. (2007) In Pursuit of Happiness Research: Is It Reliable? What Does It Imply for Policy?
41 Solow, Robert M. (1956) A Contribution to the Theory of Economic Growth.
42 Swan, Trevor W. (1956) Economic Growth and Capital Accumulation.
43 Romer, P. (1986) Increasing Returns and Long-Run Growth.
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growth in the late ‘80s and early ‘90s. The theory included mathematical explanations of such
factors as technology, human capital, skills and knowledge. But the model failed to explain
the entire process of economic development.
To address the failures of the exogenous model, an Israeli economist Oded Galor created the
unified growth theory,45 which united the exogenous theory with part of the endogenous
theory. Unified growth theory was the first theory consistent with the entire process of
economic development, but despite that, there were many economists who fundamentally
disagreed with the process of growth described in the model.
Another famous theory is the big push model formulated by Kevin Murphy, Andrei Shleifer
and Robert Vishny in the 1980s. Their model suggests that countries need to jump from one
stage of development to the new one using the “virtuous cycle.” The jump occurs in the result
of significant investments in infrastructure and education. The economy should move to a
more productive stage as the result of the jump. The model was not tested empirically.
The Schumpeterian economic growth model, named after the founder of “the creative
destruction” concept is based on the technological progress. It explains growth as the
consequence of innovation and its main theoretical foundation is the Aghion-Howitt model
developed in the 1990s. 46 The issue with the model is, that there are many economic
development examples, where technological progress played little or no role.
And the last model that is popular today is based on the institutions and growth theory. 47 The
authors of the model argue based on the historical examples that economic growth depends
on the state institutions: the inclusive institutions result in growth, while the extractive ones
hinder it. Many neoclassical economists do not agree with this explanation and instead
suggest that economic freedom creates inclusive institutions and not the opposite way around,
as the institutions and growth theory advocates.
44 Lucas, R. (1988) On the Mechanics of Economic Development.

45 Galor, O. (2005) From Stagnation to Growth: Unified Growth Theory.
46 Aghion, P. and Howitt, P. (1992) A Model of Growth Through Creative Destruction.
47 Acemoglu, D., Johnson, S. and James, R. (2005) Institutions as a Fundamental Cause of Long-Run Growth.
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Recently, some economists have also argued that human capital, which is determined by the
skills of workforce, is the major factor explaining the economic growth and main weakness
of the most prominent neoclassical model.48 Since then, the human capital was added to the
neoclassical growth model but the universally accepted theory still has not been derived.
To conclude, today there are many economic growth theories that contradict each other and
there is no generally accepted one. But where does the FDI component fit in those models?
FDI Theories
Before the WWII there was no such thing as the FDI theory and small investments made by
the multinational corporations were explained by scholars according to the classical
economic theory and macroeconomic principles. This changed after the WWII, mainly
because new financial institutions, such as the World Bank and International Monetary Fund,
were created under the Bretton Woods system. The new institutions started to invest heavily
in projects all over the world. Very soon they were followed by the multinational
corporations. Thus, FDI rose to prominence in the international economy and academic
researchers started to study the reasons behind FDIs and soon created new area in the
economic theory.49
The famous FDI theories include the pioneering Production Cycle theory50 created in 1966,
the Internalization theory51 introduced in 1976 and the Eclectic Paradigm (O-L-I) theory52
proposed in 1977. The O-L-I theory soon because the most used one, as it basically united
three FDI theories into one: the ownership component was based on the production cycle, the
internalization component on the internationalization theory and the location component used
the Heckscher‐Ohlin model. But again, even though the Eclectic Paradigm is the most
accepted theory today, it fails to empirically explain which exact factors determine the levels
of FDI inflows and outflows. So many economists restrain from using it. So today there is no
generally accepted FDI theory.
48 Mankiw, G., Romer, D. and Weil, D. (1992) A Contribution to the Empirics of Economic Growth.
49 Denisia, V. (2010) Foreign Direct Investment Theories: An Overview of the Main FDI Theories.
50 Vernon, R. (1966) International Investment and International Trade in the Product Cycle.
51 Hymer, S. (1983) The International Operations of National Firms: A Study of Direct Investment.
52 Dunning, J. (2001) The Eclectic (OLI) Paradigm of International Production: Past, Present and Future.
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Reviewing the Empirics: FDI and Growth
So there is no generally accepted economic growth theory as well as FDI theory. This means,
that there is only one scientific method left to identify the role FDI plays in economic
growth- reviewing the empirical data.
Firstly, for the past few years FDI had more impact on the development of emerging
economies than trade53 due to the increased volumes of international investments. 54 This
trend can easily be observed in the recent World Investment Report,55 the most prominent
FDI-related document produced by the UN annually. Because of the increases in volumes of
FDI, almost all policymakers believe that FDI became the most important catalyst of
economic development for emerging economies.56
Concerning economists, all of the agree that FDI inflows have an important long-term effects
on the economic growth of emerging economies, though they disagree on assessing this
effect. Many empirical studies showed that FDI inflows provide the necessary capital for
development. Through the provision of this capital many positive effects are achieved: new
jobs are created, productivity is increased, technology spillovers occur, knowledge is
accumulated, competition becomes more efficient and most importantly, all of these positive
effect together results in the increased economic growth for the developing nations. 57
Obviously, there are economists who disagree with the idea that FDI inflows result in the
economic growth. They argue that the effects of foreign capital inflows into domestic
economies is very minimal and in some cases is even negative. 58
Despite this debate, the data shows that competition between countries to attract FDIs,
especially between developing ones, became very brutal during the last few years and
governments literally hunt for investments. Many argue that the competition to attract FDIs
53 See Figure 15: Financial Inflows in Developing Countries ($ billions)

54 See Figure 16: World FDI Trends
55 United Nations Conference on Trade and Development (2017) World Investment Report 2017.
56 See Table 3: Net Inflows and Annual Growth Rate of FDI by Country Groups
57 Melnyk, L., Kubatko, O. and Pysarenko, S. (2014) The Impact of Foreign Direct Investment on Economic
Growth: Case of Post Communism Transition Economies.

58 Mencinger, J. (2003) Does Foreign Direct Investment Always Enhance Economic Growth?
17
even reaches the levels of competition between firms in many industries. 59 This means that
attracting flows of FDI today has become harder and the national policies promoting
investment (the primary source of comparative advantage for countries) are the determinants
of success in this process. Challenges the developing countries face today are linked to
building the investment architecture that would attract investors to their economies.
So What Attracts FDI?
Now it is important to establish the key factors that attract foreign investors. Several studies
were conducted in this field and all of them show that political stability and investment
security together with a stable regulatory and legal environment are the most important
factors multinational corporations consider when investing internationally. Surprisingly for
many policymakers, low taxes and labour costs are significantly less important for
investors.60
FDI IN GEORGIA
The Pipeline
It was already mentioned, that the first years of independence (first half of the ‘90s) were
extremely dramatic in Georgian history because of several military conflicts and huge
economic downturn. Obviously, not many investors were interested to invest in Georgia and
the total amount of foreign direct investment from 1991 to 1996 was only $8 million.
The situation changed in 1997, when the construction of the Baku-Tbilisi-Ceyhan (BTC)
1,768 kilometres long pipeline transporting crude oil from Azerbaijan to Turkey via Georgia
was initiated. The cost of construction of the pipeline was estimated at $3.9 billion and
various multinational companies and financial institutions funded the project.
59Stopford, J., Strange, S. and Henley, J. (1991) Rival States, Rival Firms: Competition for World Market Shares.
60See Figure 25: Main FDI Decision Factors, Figure 26: FDI Decision Factors: Investment Climate, Figure 27: FDI
Decision Factors: Political Risks, Figure 28: FDI Decision Factors: Incentives and Figure 29: FDI Decision Factors:
Barriers to Entry
18
As the result, Georgia received its first significant portion of FDI inflows- $546 million
during the 1997-2003 period.61 BTC pipeline’s contribution to Georgia’s FDI stock was more
than 80% in those years. Thus, some Georgian journalists started to associate foreign
investment with the pipeline and for many the two became synonymous.
The World’s Number One Economic Reformer
The Rose Revolution changed the dynamics. Initially, in 2004 and 2005, investments inflows
did not increase in comparison with the pre-Revolution levels. But soon after the news about
Georgia’s comprehensive economic and institutional reforms started to spread around and
positions of Georgia in many international rankings improved significantly, investments
started to flow into the economy of small country in the Caucasus. In 2006 and 2007 alone
the amount of FDI accumulated in the Georgian economy exceeded 1.5 times the amount of
entire FDI stock accumulated since the independence. In 2007 the highest volume of FDI was
achieved of almost $2 billion62 that equaled to 60% growth in comparison with 2006. The
volume of FDI in 2007 as the percent of GDP reached 18%63 and the economic growth in that
year exceeded 12%.
Economists of the World Bank and International Monetary Fund concluded that large inflows
of FDI were the major driving factor behind the rapid economic growth in Georgia since the
Rose Revolution. 64 There were two main reasons for this success: the liberal investment
climate created in country as the result of implemented economic reforms and equal approach
given to both local and foreign investors, without no discrimination towards foreign capital.
Increased inflows of FDI played an important role during the Russian economic embargo in
2006 and in offsetting the effects of negative current account balance Georgia had throughout
its history, because it imported more than exported. Substantial capital inflows from abroad
managed to offset the negative effects of the embargo and negative current account, 65 even
allowing Georgian currency to appreciate.

62 See Table 6: Georgia's Net FDI Inflows by Quarters (2005-2017)
63 See Figure 19: FDI Dynamics of Georgia
65 See Table 10: Selected Economic Indicators of Georgia (2013-*2020)
19
Occupation and Crisis
The large volumes of FDI inflows were maintained even in 2008, despite the invasion of
Russia in August. This was because of the very strong FDI accumulating performance in the
first half of the year. In 2009 though, FDI inflows decreased together with the economic
growth due to the political instability caused by the military conflict that was soon followed
by the world financial crisis.
But the decline did not last very long. Investments started to flow again into the Georgian
economy from the second half of 2010 as the political stability has returned and the negative
economic dynamics caused by the crisis started to disappear. Nevertheless, as in the case of
economic growth in the 2009-2011 period, investment inflows also did not recover fully to
the pre-war and pre-crisis levels.66
More Free Trade and Europe- More Inward Investment
After the change of government in 2012, the FDI inflows decreased again in 2012 and 2013.
The new government mostly continued the economic course of the previous one and
maintained fiscally health economic and stable political environment. Some assurances were
also given in relation of respecting the property rights and the corporate Profit Tax reform
was implemented. Soon investments began to flow again into the Georgian economy. The
positive trend was also supported by the newly signed free trade agreements, first with the
EU and later with China. Those agreements meant that international companies could use
Georgia as exports base with access to the EU, CIS and Chinese markets.
In 2014 the highest FDI inflows in history were recorded- more than $1.8 billion, the record
that was again beaten in 2017 with the accumulated FDI stock in that year reaching $1.86
billion (in 2015- $1.65 billion and $1.6 billion in 2016). But despite the upward trend in total
FDI inflows, in the 2014-2017 period, FDI in terms of percentage of GDP was within 10-
12% range, below the 2006-2007 numbers.67

67 See Table 2: FDI Factsheet of Georgia
20
FOREIGN DIRECT INVESTMENT SUCCESS STORIES

The Case of Singapore
After looking through the performance of Georgia to attract FDIs from 1991 to today, it is
important to shift focus on other small open economies that were successful in developing
through attracting large volumes of FDI. Singapore, which is one of the richest countries in
the world today based on the purchasing power parity GDP per capita, with the highly
developed free market economy is an obvious candidate. It ranks consistently on the top of
all major economic rankings. But this was not always the case.
After Singapore gained independence from the British Empire in 1959, Singaporeans quickly
realized that they were located on a small island with no natural resources with huge portion
of country’s population being illiterate and living in poverty. This was then when its
government decided that attracting high volumes of FDI was the only way to foster economic
growth in the country. This case resembles Georgia, (both countries are ex-colonies do not
have many natural resources) but the reality of Singapore was probably even worse.68
Singapore was one of the first countries in the world to establish a governmental agency that
focused on attracting investments as a ‘one-stop investment shop’- the Economic
Development Board. In parallel comprehensive economic and institutional reforms were
initiated aimed to create an attractive business environment for manufacturing firms. As the
result, during the 1964-1974 period, the inflows of FDI in Singapore rose from $90 million in
1964 to $1.24 billion in 1974.
The initial surge allowed the government of Singapore under the leadership of Lee Kuan
Yew to initiate structural educational reform: the primary language of teaching was changed
to English and the education system focused on the STEM disciplines. 69
Well-educated workforce, together with political stability, clear economic policy, simple tax
and labour codes and the transparent judiciary allowed Singapore to attract even more FDIs,
despite its small market size. This development that made Singapore one of the richest
68 Eudelle, P. and Shrestha, A. (2017) Foreign Direct Investment and Economic Growth: The Cases of Singapore..
69 Siddiqui, K. (2010) The Political Economy of Development in Singapore
21
countries in the world would have been impossible without FDI, the importance of which is
visible in the country's ratio of FDI stock to GDP at almost 300% in 2017- one of the highest
in the world. The case of Singapore can be used as a guide for many economies. 70
The Case of Ireland
In 1987 Ireland was the poorest country in the EEC (renamed as the EU in 1993) and was an
extremely unstable economy. Servicing Irish debt consumer 30% of the government
revenues, unemployment was almost 20% and Irish GDP per capita wass less than 70% of
the EEC average.71
Ireland of 1987 and Georgia of 2003 had many things in common: both were post-colonial
nations, with relatively the same territory size and population. The economy in both nations
relied heavily on the agriculture and internal capital was not enough for the economic
development.
The Ireland of 1987 went through the startling economic transformation from one of the
poorest countries in Europe to one of the richest and it has managed to do so in just one
decade. The unbelievable story of the Celtic Tiger economy again was largely attributed by
the vast majority of scholars to attracting the huge numbers of FDI, particularly from the US.
As in case of Singapore, the investment promotion agency- Ireland Development Authority

was established, which pursued the very aggressive work in seeking investment projects.
IDAs activity together with Irish stable macroeconomic policy, the low corporate tax rate and
the free access Ireland had to the European Union’s market, due to its membership in the EU,
resulted in huge growth of the FDI stock in Irish economy. An average of $2.5 billion of
inward investments were attracted during the ‘90s and the Irish FDI per capita stock became
the second highest in the world and more than twice the EU average.
70 http://unctad.org/en/pages/PublicationArchive.aspx?publicationid=455
71 Alfaro, L., Dev, V. and McIntyre, S. (2005) Foreign Direct Investment and Ireland's Tiger Economy (A).
22
Again, Irish success in attracting FDI can be used as an important guide72 for countries with
small open emerging economies like Georgia. The key factors of Irish success were the
consistency of its policy towards FDI, the extremely proactive approach in seeking FDI and
the access to the EU market. These benefits clearly outweighed the small market size of the
Irish economy.
THE FUTURE OF THE GEORGIAN ECONOMY
Today Georgian economy can be characterized as an emerging free market economy in the
middle-income category that went through the remarkable transformation from the command
economy to the free market economy through the “nearly a failed state” stage during the
1991-2018 period.73 Georgia’s continuous journey from independence to freedom so far was
not an easy one and will probably last many years. Achieving the economic prosperity is the
crucial destination on this journey. This can be very easily realized by understanding the
context of the opening quote of this case study that probably made little sense when it was
first read.
Identifying the causes of the initial failures and later Georgian economic resurgence is crucial
to sustain the growth phase today. Georgia’s future depends on this process. If the Georgian
growth was driven by FDI, then the country should continue in the current direction and
improve its work of attracting more FDI. But what if FDI was not the primary cause and for
example, improved institutions were instead? Can the government of Georgia spend its scarce
resources more efficiently then? Policymakers have many choices going forward, but there is
only one choice for Georgia today- the journey from independence to freedom.
72 Buckley, P. and Ruane, F. (2006) Foreign Direct Investment in Ireland: Policy Implications for Emerging
Economies.
73 See Table 1: Georgia- Economic Profile
23
EXHIBITS: TABLES, FIGURES AND MAPS

Table 1: Georgia- Economic Profile
24
Table 2: FDI Factsheet of Georgia
Source: UNCTAD Country Fact Sheets 2017

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx
25
Table 3: Net Inflows and Annual Growth Rate of FDI by Country Groups
Table 4: Georgia's FDI Stock Shares by Countries
26
Table 5: Top Countries by FDI Net Inflows in Georgia
Table 6: Georgia's Net FDI Inflows by Quarters (2005-2017)
Source: Geostat.
27
Table 7: FDI Net Inflows in Selected Economies (1997-2006)
Table 8: FDI Net Inflows in Selected Economies (2007-2016)
28
Table 9: FDI Net Inflows in Selected Economies (2016)
29
Table 10: Selected Economic Indicators of Georgia (2013-*2020)
Source: World Bank World Development Indicators available at https://data.worldbank.org/
30
Table 11: Selected Fiscal Account of Georgia (2013-*2020)
31
Table 12: Georgia in Selected International Rankings
Source: Created by author using data collected from various reports.
32
Figure 1: GDP of Georgia (nominal)
Figure 2: GDP of Georgia (PPP)
33
Figure 3: GDP per capita (PPP) of Georgia
Figure 4: Real GDP Growth of Georgia
34
Figure 5: GDP per capita (PPP) of Selected Economies
Figure 6: GDP per capita and Real GDP Growth of Georgia (2009-2017)
35
Figure 7: GDP Structure of Georgia by Sectors (2017)
Source: Geostat.
.
Figure 8: Real GDP Growth of Selected Countries
36
Figure 9: General Government Gross Debt of Georgia (% of GDP)
Figure 10: General Government Gross Debt of Georgia ($ billions)
37
Figure 11: General Government Net Lending/Borrowing of Georgia (% of GDP)
Figure 12: Gross Tax Revenues of Georgia ($ billions)
38
Figure 13: Government Expenses of Georgia (% of GDP)
Figure 14: Government Expenses of Georgia ($ billions)
39
Figure 15: Financial Inflows in Developing Countries ($ billions)
Figure 16: World FDI Trends
40
Figure 17: Reinvestment Rate of FDI Enterprises
Figure 18: Net FDI Inflows in Georgia
41
Figure 19: FDI Dynamics of Georgia
42
Figure 20: FDI and Capital Formation in Georgia
Source: https://openknowledge.worldbank.org/handle/10986/29389
43
Figure 21: Decomposition of Real GDP Growth
44
Figure 22: Annual Average FDI as % of GDP of Selected Countries
Figure 23: Overall Score of Selected Countries in Index of Economic Freedom 2018
Source: Heritage Foundation Index of Economic Freedom 2018
45
Figure 24: Top 5 Problems of Doing Business in Georgia
Figure 25: Main FDI Decision Factors
46
Figure 26: FDI Decision Factors: Investment Climate
Figure 27: FDI Decision Factors: Political Risks
47
Figure 28: FDI Decision Factors: Incentives
Figure 29: FDI Decision Factors: Barriers to Entry
48
Map 1: Georgia
Source: CIA World Factbook
49
Map 2: Index of Economic Freedom 2018- Europe
Source: Heritage Foundation Index of Economic Freedom 2018
50
Map 3: Corruption Perceptions Index 2017
Source: Transparency International Corruption Perceptions Index 2017
51
TEACHING NOTE
SYNOPSIS
On May 26th, 2018 Georgia will celebrate the 100th anniversary of establishing the first
Georgian Republic in 1918 and the 27th Independence Day since the restoration of
independence in 1991. During the last three decades, Georgia has faced enormous political
and economic challenges, such as military conflicts, economic embargos and occupation, to
name a few. Nevertheless, the Georgian nation has managed to preserve its independence but
still continues on “the journey from independence to freedom,” the challenging path every
newly established nation has to go through.
Without a doubt, building the free and strong economy is one of the most important steps on
this journey. Friedrich Hayek, the recipient of the Nobel Prize in Economics, elegantly
argued that “You can have economic freedom without political freedom, but you cannot have
political freedom without economic freedom.” His statement, indeed, has been historically
proven for many nations.
But what is the recipe for achieving economic prosperity for a small open economy, like
Georgia? Is there one? Unfortunately, economic theory does not provide a definite answer to
this question- various conflicting theories exist and none is universally excepted by academic
circles. Despite that, historically, attracting high volumes of Foreign Direct Investment has
proven to be an important factor in the success stories of other small open economies, such as
Ireland or Singapore.
Thus, is a high volume of Foreign Direct Investment an important part of the solution to the
economic prosperity piece of the puzzle for Georgia? For some economics scholars the
answer is ‘no’, but for many more, the answer is ‘yes.’ Then how can Georgia attract more
investments and what are the issues preventing it from doing so?
The case study Georgia’s Journey from Independence to Freedom: The Role of Foreign
Direct Investment tells the economic story of young Georgian nation, full of successes and
failures. The story told is aimed at setting up the context and equip the reader with the
necessary information, which should make it possible for students and scholars to answer all
the questions asked above.
52
KEY THEMES
Georgia; Development Economics; Economic Growth; Growth Strategy; Emerging Markets;

Foreign Direct Investment; Economic Policy; International Economics; International Finance.
LEARNING OBJECTIVES
The following case study can be used to achieve various teaching objectives, such as:
• To learn about the performance of Georgian economy;
• To illustrate the key economic growth and FDI theories;
• To appreciate the importance of FDI for emerging economies;
• To understand advantages and disadvantages of investing in Georgia;
• To demonstrate the best practices of attracting FDI in other small open economies.
TEACHING PLAN
The case study Georgia’s Journey from Independence to Freedom: The Role of Foreign
Direct Investment is a complex multidimensional story that deals with number of different
academic topics, such as Georgian economic history, development economics, economic
growth, growth strategy, emerging markets, foreign direct investment, economic policy,
international economics and finance. It can serve as an appropriate teaching tool for students
of business, economics and finance-related majors at both undergraduate and postgraduate
levels.
There are various teaching approaches advocated by author:

• The case can be utilized in a tutorial setting with small group of students (up to 30
students). The case with discussion questions and bibliography (which also serves the
list of suggested literature for further study) should be sent to students in advance, so
they can read the materials before attending the tutorial and think about answers to the
discussion questions. Each student who reads the case then will develop her/his
opinion and perspective about various issues of the case, which should serve as the
basis for the fruitful discussion in class or in series of classes allocated for this case
study. During the tutorial students should be divided into small groups of up to 5
53
people and each group should be allocated one of the discussion questions. This
means, that each question would be allocated to at least two different groups. The
groups should be given some time (at least 10 minutes) to discuss their questions and
come up with the solution. Subsequently, each group would present their solution to
the entire class and the discussion should emerge between class members facilitated
by the instructor. Instructor should guide the discussion to make sure that relevant
questions are asked and answered for the particular module type, while relevant
theories and concepts are addressed during the discussion.
• The lecturers can use this case study as the basis for the individual written assignment
in variety of modules related to disciplines outlined above. Students should be sent
case study together with the assignment question or questions after the relevant
material has been covered in class. Lecturer may ask students to analyze the case and
produce written reports of various lengths answering the assignment questions, which
could be graded by the instructor as part of the continuous assessment of the module.
The type of assignment questions asked, and size of the paper should depend on the
module type and learning objectives. Students should be given at least couple of
weeks for this assignment, so they can produce independent research and answer the
assignment questions in appropriate academic manner. This type of teaching is aimed
to engage students in independent learning, so they have the opportunity to utilize the
materials learned in class and studied during independent research in written papers.
• The case can also be used as the basis for the group assignment in a variety of
modules. Group assignments are very important, as they help students to learn how to
effectively work as in team setting. Students should be asked to form groups of up to
five members each. Each group can be assigned to analyze the entire case study or the
particular aspect of it. This can be done by asking groups to create written reports or
presenting their findings to the class, followed by Q&A session or the combination of
both activities. Students should have at least two weeks to complete this type of
assignment to make sure they produce thought-through insightful answers in reports
and/or during presentations.
All teaching methods outlined above can serve as useful teaching tools to achieve the
learning objectives instructor has and should be selected carefully depending on class type.
54
Additionally, it is important to mention that this case and teaching note were developed
solely as the basis for teaching in class. The case has not been developed to serve as
endorsement or source of primary data for investing in Georgia.
SUGGESTED ASSIGNMENT AND DISCUSSION QUESTIONS
Please note that due to the multidimensional nature of the case study, suggested assignment
and discussion questions have been created with aims to include all major topics covered in
the case study and to present the questions in the form of real-life scenarios, which enable
students can relate to various roles, such as investment analyst, academic researcher or
economist when working on their answers. The underlined parts of the questions can be used
as direct assignment/discussion questions if the class instructor does not wish to use the real-
life scenario context. Instructors can amend assignment and discussion questions based on
their teaching needs.
Q1. You are an investment analyst of the multinational firm, which focuses on expanding
operations into emerging markets. One day you receive an email from company CFO telling
you that company plans to build new operation unit in one of the developing economies and
asking you to critically analyse advantages and disadvantages of investing in Georgia.
Provide key arguments for your analysis.
Q2. You are postgraduate student of economics. You are approached by Georgian friend you
met on Erasmus to write an article that would be publish in one of most-read Georgian
journals that will outline key economic growth and FDI theories related to the developing
economies and empirically test those theories on Georgian economy. You agree and start the
initial research. Please discuss important points you will include in the article after
completing the initial research.
Q3. You are an economist working for the World Bank. The Georgian government has
announced its intent to evaluate current strategy towards attracting FDI with the support of
international financial organizations. You are asked by your manager to critically evaluate
Georgia’s performance of attracting FDI and suggest how it can be improved based on the
success stories from other small open economies, such as Ireland and Singapore.
55
SUGGESTED ANSWERS TO ASSIGNMENT AND DISCUSSION QUESTIONS
Please note that due to the multidimensional nature of the case study, suggested answers to
the suggested assignment and discussion questions are not definite and do not include all
potential answers. They should be used by class instructors as a guide only to grade
assignments and direct discussion in a tutorial setting. Bibliography that encompasses all
major academic and non-academic sources author has used to prepare the case study and the
exhibits, which include various data tables, figures and maps, provide useful information
sources for students to better understand the topics addressed in the case study and should be
made available to students together with the assignment and discussion questions.
Q1. CRITICALLY ANALYSE ADVANTAGES AND DISADVANTAGES OF INVESTING

IN GEORGIA.
To answer this question, firstly, it would be beneficial to identify the various types of foreign
direct investment and focus on the types applicable to the Georgian economy. Then the most
important factors used in making the FDI decisions by managers of multinational enterprises
should be determined. Finally, the concrete advantages and disadvantages can be analysed.
Academic research has identified four main types of FDI based on underlying motivations of
investors: natural-resource-seeking FDI, market-seeking FDI, efficiency-seeking FDI and
strategic-asset-seeking FDI (Rugman 1975; Barro 1996; Dunning 2001). Based on the recent
findings, a different type of investors need a different type of care by the local authorities
working on attracting FDIs (United Nations Conference on Trade and Development 2011).
Georgian case is quite simple- there are only two types of FDI investment that country can
attract, which are the efficiency-seeking and strategic-asset-seeking investments. This is
because there are no significant reserves of natural resources and the local market is too
small, thus the other two types of investments automatically disqualify. This means that the
efficiency-seeking and the strategic-asset-seeking FDIs are the only types Georgia’s
government should focus on (World Bank 2018b).
56
There are many academic sources that present various theoretical and empirical evidence
determining the most important factors taken into consideration by multinational firms when
making the investment decision. The Global Investment Competitiveness Report produced by
the World Bank (2018e) is arguably the best document to search for the FDI decision-making
factors, because of its aggregate and comprehensive nature and incredibly large amount of
data analysed by economists while preparing it. Based on the investor survey, which is
probably the largest single survey conducted in the field of FDI, the political stability and
security is the most important component followed by the stable legal and regulatory
environment and the domestic market size (see Figure 25). Obviously, large domestic market
size is something small open economies like Georgia cannot offer, meaning that they must try
to offset this negative factor. Interestingly, such factors as low taxes and labour costs are not
even in the top 5 most important ones. Macroeconomic stability, available skilled workforce
and infrastructure are the remaining member of the top 5.
So political factors, regulatory risks and the level of legal protection that collectively can be
branded as the macro risks are the most important (see Figure 26 and Figure 27). Without
reduced levels of macro risks, reduced project (micro) risks such as the incentives and
barriers to entry will not lead to the increased stocks of FDI and economic growth for the
developing economies (United Nations Conference on Trade and Development 2009b; World
Bank 2018e).
Based on the last paragraph, some may decide that the investment incentives (see Figure 28)
and barriers to entry (see Figure 29) are of secondary importance (Bellak and Leibrecht
2009). Theoretically, that may be true and these factors should be used only in situations
when multinational firms are choosing between countries with similar macro characteristics.
But in reality, those factors end up being the decisive ones in many cases, because the
competition amongst countries to attract FDI flows is higher than ever and investors have an
advantage of selecting the investment location from many options (Stopford et al. 1991).
Thus, secondary importance does mean that no attention should be paid to investment
incentives and barriers to entry when working on the policy to attract FDI, on the contrary,
those can end up being the decisive ones. For small economies which additionally lose out on
the market size factor, they can even serve as the compensation tool (Narula and Dunning
1996).
57
Other academic research papers also provide similar conclusions, with market size, stable
economic and political environment being the key factors followed by the favourable
investment climate and efficient doing business procedures (Alfaro, et al., 2004)
This brings as to identifying the last part of answering this question: the advantages and
disadvantages of investing in Georgia. Let’s start with discussing the advantages:
• Georgia is one of the world’s leading countries in terms of improvements made in all
aspects of the investment climate, which are the macro factors (World Bank 2018a).
This has resulted in huge improvement of Georgia’s position in many rankings, (see
Table 12) such as the Ease of Doing Business and the Corruption Perceptions Index.
In the most economic rankings, Georgia consistently occupies top spots with
developed economies (see Map 2 and Figure 23). Simeon Djankov, one of the
creators of the Doing Business, said that “no other country has made so many deep
reforms in so many different areas so consistently.” According to Anderson &
Gonzalez (2012), investment climate improvements seen through rankings, play an
important role in the decision-making process by many investors;
• The strategic geographic location of Georgia is an important factor is another macro

factor. The country is located at the crossroads of Europe and Asia and serves as the
shortest corridor for the transportation of goods between the two continents. In
addition to that, Georgia offers investors access to the EU, Chinese and the CIS
markets through the free trade agreements (International Monetary Fund 2016) This
can be an important factor for export-oriented investors, who may want to use
Georgia as the export base to those markets. For example, Ireland was famous for its
role in serving as the export base for American IT companies to export into the EU
countries (Georgian National Investment Agency 2016);
• The stable macroeconomic environment (obviously, macro factor (Gvindadze, 2017))

is one of the most important factors for investors (World Bank 2018d). In case of
Georgia, the country was experienced the high economic growth during the past
decade and its government operates in the fiscally efficient and stable manner (see
58
Figure 9 and Figure 11). The fiscal health of Georgia is legally ensured by the
Economic Liberty Act, which sets the fiscal constraints for the government. The Act
has the constitutional law status and is extremely hard to amend. The purpose of
creating the act was to ensure the stable macroeconomic environment in the country
(Government of Georgia 2011);
• The tax system (micro factor) currently in place in Georgia is characterized by few
taxes and low rates. There are only 6 taxes government collects in Georgia and tax
rates are very low: Individual Income Tax- 20% flat rate; corporate Profit Tax- 15%
and 0% in case of reinvestment; VAT- 18%; Property Tax up to 1% of property value,
Customs Tax- 0%, 5% or 12% of import value and Excise that varies on type of
product (European Bank for Reconstruction and Development, 2009). The Heritage
Foundation has assessed Georgia’s tax system and concluded that it is simple and
highly efficient. Georgia is one of the least tax-burdened countries in the world
(Miller et al. 2018);
• The ease of obtaining licences and permits in all business sectors in dealing with the
government is another attractive factor (micro) for business according to the World
Bank (2018a). For example, obtaining construction permits in Georgia is easier than
in all EU countries and the country is ranked 4th in the world in this regard
(Bendukidze and Saakashvili 2014; Bagaudinova et al. 2007; Gilauri 2016).
The disadvantages of investing in Georgia should be highlighted based on the Global

Competitiveness Report (see Figure 24) and other reports:
• The level of human capital is a very important factor for investors, especially for the
capital-intensive projects- the type of investments Georgia is working to attract.
Those investments (for example pipelines, motorways or railways) require adequate
workforce both during the initial investment phase, as well as during the operation
stage (OECD, 2003). Georgian economy has problems with the workforce, which is
not adequately educated for the type of investments made into the Georgian economy.
This is one of the most problematic factors (micro level) of investing in Georgia and
59
can only be solved by deep reform in the education sector (World Economic Forum
2017; World Bank 2013a);
• Other micro-level factors also include poor access to finance, insufficient capacity to
innovate and poor work ethics of the national labour force (World Bank, 2018b).
Those factors as of today, are relatively secondary importance ones for the investment
types Georgia tries to attract, but still should be considered for the future, when the
window for attracting other types of investments will open (United Nations
Conference on Trade and Development 2008);
• The macro level risks in the economy include weak independence of the judiciary
system, improving but still weak protection of the property rights and the threat of
Russian military intervention (United States Department of State 2017; United States
International Trade Administration 2018). Unfortunately, the Georgian government is
not capable of doing much about the Russian military threat. But the other two issues
must be addressed if Georgia plans to diversify its investor base. The judiciary system
and the property rights are of utmost importance to the investors because they have a
colossal effect on the perception of investor about how secure the potential
investment will be and are the cornerstone institutions on which the modern states are
built (Acemoglu and Robinson 2013).
To conclude, it would be safe to suggest that theoretically, the advantages of investing in

Georgia outweigh the disadvantages for the most investors and investment types, especially if
investing in Georgia is analysed in the context of the regional or emerging markets by
comparing it with countries in those groups. But the negative factors exist that need the
careful attention of the government. The fundamental reform of the education system is
necessary to improve the quality of the workforce. Brave decisions should also be made to
improve the quality of judiciary and the protection of property rights because these factors
are of crucial importance for investors and even more important for building the modern,
functioning, inclusive, democratic state. And finally, the factor of Russia is present, but not
much can be done about this one.
60
Q2. OUTLINE KEY ECONOMIC GROWTH AND FDI THEORIES RELATED TO THE
DEVELOPING ECONOMIES AND EMPIRICALLY TEST THOSE THEORIES ON
GEORGIAN ECONOMY
Unfortunately, there is no universally accepted and empirically proven economic growth

theory that emerging economies can use for development (Helpman 2009). The same can be
said about the FDI theories (Denisia 2010). All theories in both fields frequently contradict
each other or fail to answer very important questions, such as if there is the strong link
between FDI volume and economic growth (Lucas 1990; De Mello 1999). Thus, the quest of
development through is not set in stone and every country has to find its own unique
approach based on theories that apply the best to its economy (Laar 2014; Gilauri 2016).
The economic growth theories are distributed into several groups. The most prominent today
is the neoclassical, endogenous, institutional and Schumpeterian theories (Mankiw et al.
1992). All of those theories have their merits and weaknesses, but in this case, their
application to the FDI theories and Georgian economy will be examined.
The most prominent is the neoclassical group of theories, such as the famous Solow-Swan
model (Solow 1956; Swan 1956). This group of theories assumes that FDI should benefit the
accumulation of capital stock that should eventually contribute to the economic growth- a
view that is consistent with the main FDI theory, such as Dunning’s eclectic paradigm (OLI)
(Dunning 1995). This assumption can only be true if the efficiency of domestic capital equals
the efficiency of foreign capital (Galor 2005). But in the majority of world countries, the
domestic capital is more efficient than foreign capital as it is usually preferentially treated by
local governments (World Bank 2018g). But luckily for the neoclassical theories, Georgia is
one of the rare cases where its assumption holds (Gvindadze 2017) and this is supported by
empirical analysis (Melnyk et al. 2014).
Concerning the endogenous theories which differ from the neoclassical theories in a way that
it does view human capital and technology as exogenous (external cause) type of variables
and tries to incorporate them into the growth equation with the capital stock (Lucas, 1988;
Romer, 1986). This has an implication on how the theory views the role of FDI in economic
growth. Instead of just viewing inflow of foreign investments just as the source of capital
61
stock accumulation, endogenous theories focus on the effects FDI has on the human capital
and technology and how those affect growth (Lee 1990; Borensztein et al. 1998). This view is
consistent with some FDI theories such as (Vernon 1966; Hymer 1983). In case of Georgia
though, various empirical research projects have indicated the link between FDI and human
capital and technological development is quite limited if not non-existent whatsoever (World
Bank 2013; European Bank for Reconstruction and Development 2009).
Moving to the institutional economic growth theories, which rose in prominence after the
best-selling “Why Nations Fail?” by Acemoglu and Robinson was published in 2013, there is
one fundamental difference between those and neoclassical and endogenous growth theories
(Acemoglu et al. 2001, Acemoglu et al. 2005). The institutional theories assume that
economic growth is pre-conditionally dependent on the inclusiveness of national institutions,
while the neoclassical and exogenous theories either contradict this condition by stating that
economic growth is the factor that causes the democratic development in long-term or omit
this factor whatsoever (Barro 2000; North et al. 2009). Concerning the FDI theory,
improvement of institutions according to this theory should result in the increased numbers of
investments (Hosseini 2005; Sachs 2012). In case of Georgia, the institutional theories better
capture what has happened in the economy in this regard. Deep economic and institutional
reforms implemented in the 2004-2007 period were followed by massive improvement of the
economic growth and increased number of the FDI inflows, while before the institutional
reforms growth was slow and flow of inward investments almost non-existent (Bendukidze
2008; World Bank 2012; Gilauri 2016).
The Schumpeterian group of economic growth theories is based on the famous ‘creative
destruction’ principle and is quite popular, especially amongst entrepreneurs such as Elon
Musk or Mark Zuckerberg. The most prominent theory here is Aghion–Howitt model, which
assumes that economic growth if fully dependent on innovations (Aghion and Howitt, 1992).
In relation to the FDI factor, theory assumes that FDI is most typically carried out by
international companies and the key reason for them to invest is to improve their
technological capabilities through research and development and thus, create the comparative
advantage (Carlin and Soskice 2006) This means, that FDIs should be followed by
technology spillovers, which should benefit the host nations and result in improvement of the
economic growth. Many studies have, indeed, concluded that “technological diffusion” is one
of the results of the increase of FDI inflows (Smarzynska 2002; Campos and Kinoshita 2002;
62
Neuhaus 2006). But despite this, in case of Georgia there, is no significant evidence to
suggest the Schumpeterian growth has taken place, due to the nature of FDIs made into the
economy (World Bank, 2014).
Now, after discussing various economic theories and in particular, their FDI-related aspects,
it is time to move the empirical testing of the effects of foreign direct investment on
economies. Academic literature is again divided on this matter, as there are four common
outcomes of various academic studies completed up to date all over the globe:
• The first outcome states that there is a clear positive contribution from FDI in the
economic growth and this does not depend on any additional conditions, meaning that
in all cases FDI should benefit the growth (Campos and Kinoshita 2002; Janicki and
Wunnava 2004; Melnyk et al. 2014);
• The second outcome states that FDI, indeed, has the positive effect on the economic
growth in many countries, but only if conditions like the adequate levels of the human
and physical capital, appropriate trade policy, attractive investment climate and other
conditions are satisfied (Blomstrom et al. 1992; Hermes and Lensink 2003; Alfaro, et
al. 2004);
• The third outcome states that there is no empirically significant influence of the
increased inflows of FDI on the economic growth, especially in the cases on
developed economies with sufficient amount of the international capital (Lyroudi et
al. 2004; Herzer and Klasen 2008);
• And the fourth outcome states that there is negative impact coming from the FDI on
the economic performance of countries due to the effects those investments have on
local producers. This kind of empirical results are quite rare and only found in very
few studies concerning developed and highly regulated economies (Mencinger 2003).
So it is hard to state with certainty if the positive causation between the increased FDI stock
and the real GDP growth exists, based on the studies above. But further manipulations can be
made. In this case, only the academic research concerning developing economies can be
analysed and the studies concentrated on developed economies omitted. Such manipulation
provides the significantly different picture. There are only two types of results observed: the
positive non-conditional effects of FDIs on economic growth and the positive effects of FDIs
63
on economic growth with certain conditions (De Mello 1997). For developing economies this
means that the FDI stock is probably the most important tool for development.
But what about Georgia? Based on the empirical research, which studied the effects of FDI
on the real GDP growth in Georgia in the 1997-2010 period, conducted by Guersot and
Kalyoncu (2012), the following conclusion can be made- there is a strong correlation
between the increased FDI stock and improved economic growth. Going further, only
unilateral causality exists between those two variables, meaning that FDI causes GDP growth
and the vice-versa does not happen. This type of results means that the FDI inflows
unconditionally positively affect Georgia economy (see Figures 20 and Figure 21).
Thus, to synthesize the materials discussed so far in the FDI theories context, the article of
Blomström and Kokko (1996) can be used, which summarizes the key theoretical benefits of
the increased inflows of FDI and effects it has on the host economies:
1) FDI increases the competition in the markets of host countries, which results in the
improvement of the competitive position of the domestic firms in the long-term
perspective (even though, some will suffer initially);
2) FDI increases the amount of capital stock in the host economies, which directly
positively affects the economic growth, as it has been seen from many empirical
examples such as Singapore and Ireland;
3) FDI can improve the quality of local workforce through the transfer of knowledge
process when local employees of foreign companies acquire new knowledge while
working for the multinational corporations, which have invested in their countries;
4) FDI result in the sharing of technology and experience with the domestic firms, but
this process is depending on the type of investments made and in many cases, the
technology spillovers do not occur or are very limited;
5) FDI further improves the economic and democratic institutions of the host economies
in many cases, as the governments start to actively pursue various reforms to attract
more foreign capital after experience the positive impact of initial investments.
From those five factors outlined above and based on the discussion of various economic
growth theories and their linkages with the FDI theories, empirically Georgia has experienced
significant benefits in the majority of the areas: the competition, the capital stock and
64
institutions. But in areas such as knowledge and technology sharing the effects so far are
minimal. This means that Georgian government should additionally start looking for the so-
called ‘high quality’ FDI in addition to the existing types if it wants its economy to
experience full benefits that FDI can offer.
65
Q3. CRITICALLY EVALUATE GEORGIA’S PERFORMANCE OF ATTRACTING FDI

AND SUGGEST HOW IT CAN BE IMPROVED BASED ON THE SUCCESS STORIES
FROM OTHER SMALL OPEN ECONOMIES.
To answer this question, the performance of Georgia in terms of attracting FDI inflows
should be discussed first. Then Georgia’s performance should be assessed by comparing it
with other related countries. Based on this relative assessment, potential policies from other
small open economies such as Singapore and Ireland can be identified as the solutions to
improving Georgia’s performance.
First, let’s evaluate Georgia’s performance of attracting FDI (see Table 2). As it was
mentioned in the case study and supported by the data presented (see Table 7), until the Rose
Revolution (2003), there were almost no FDIs flowing into the Georgian economy due to the
absence of the functioning state institutions and the unbearable levels of corruption. The only
significant investment, which was made in Georgian economy during the 1991-2003 period
was the Baku-Tbilisi-Ceyhan oil pipeline. The FDI stock accumulated from this investment
averaged $166 million annually. That FDI stock accounted for around 5% of the GDP of
Georgia during every year of the pipeline construction.
According to the theory, this investment (the strategic-asset-type investment) should not have
been made, as the major decision factors should have been the political stability and state
institutions that were functioning based on the rule of law and the property rights (Blomström
and Kokko 1996). Both factors were completely missing in Georgia when the investment was
made (European Bank for Reconstruction and Development 2018).
But the investment was made, mostly because President Shevardnadze realized the crucial
importance of the project and used his authority accumulated in the world during his tenure
as the foreign affairs minister of the USSR to convince other parties to invest in the project.
That was probably his most significant economic achievement in the position of the President
of Georgia (World Bank 2018b).
After the Rose Revolution, the broad structural economic and institutional reforms were
implemented by the new government. Based on the FDI theory, higher numbers should have
66
followed such reforms (Bendukidze 2008; European Stability Initiative 2018; Acemoglu, et
al. 2005). There was another positive factor. The global economy was booming during that
time and this also contributed to the increased FDI stock of Georgia (see Figure 16).
Empirical observations prove the theory in this instance, as the FDI stock grew very fast and
the rate of its growth was compatible with the growth rates of the FDI stocks in Singapore
and Ireland in 1964-1969 and 1987-1992 respectively- the first stages of FDI-related
economic development in those countries. In 2007 the investments made in Georgian
economy equalled unprecedented 18% of the GDP (see Figure 19 and Tables 7 and 8).
Unfortunately, this period of growth compatible with the early growth in Singapore and
Ireland did not last very long. It ended in 2008 after the Russian invasion followed by the
global financial crisis. The net FDI inflows during the 2003-2008 period averaged $1 billion
annually, but this number has dropped significantly over the next 5 years (see Figure 19).
During the post-war and crisis period, obviously, there was the sharp decline in the levels of
FDI inflows. The share of FDI contributing to the economic growth fell significantly, as it
should have (Dunning 2001; United Nations Conference on Trade and Development 2009).
But the strong fiscal and monetary health of the economy, newly established effectively
operating state institutions and the new large infrastructure project launched by BP to expand
the Baku-Tbilisi-Ceyhan pipeline reversed the trend and the FDI inflows quickly recovered
by the second half of 2010 (Gilauri 2016; World Bank, 2014).
After the change of government in 2012, the FDI inflows decreased as it usually happens
during the transition of power, because potential investors are waiting for the economic
policies of the new governments to be outlined (OECD 2003). But the decline did not last
long. The new government maintained stable economic and political environment and even
improved Georgia’s standing in the key economic rankings (World Bank 2018a).
Additionally, the Corporate Income Tax reform was implemented and the investments began
to flow again into the economy. This trend was also supported by the newly signed free trade
agreements, first with the EU and later with China. Those agreements meant that
international investors could now use Georgia as the base for exports to huge markets of
international importance (World Bank 2018a; World Bank 2018b).
67
In 2014 Georgia received the highest FDI inflows in its history- more than $1.8 billion, the
record that was beaten in 2017 with the accumulated FDI stock reaching $1.86 billion (in
2015- $1.65 billion and $1.6 billion in 2016). But these numbers do not look that impressive
if we look at FDI in terms of percentage of GDP, which was within 10-12% range in the
2014-2017 period, below the 2006-2007 numbers (see Figure 19). FDI in terms of GDI is the
theoretically more consistent and objective way to assess the performance of the country than
the FDI stock (World Bank 2018e).
Thus, the FDI-related performance of Georgian economy can be assessed as satisfying if we

take into consideration many important factors. The initial performance during the “nearly a
failed-state” phase was catastrophic. After the Rose Revolution, the performance of Georgian
economy, including the FDI component, improved and 2004-2008 period can be branded as
“excellent.” But that period was short-lived. Performance after the invasion by Russian
military and during the global financial crisis was poor as in almost everywhere in the rest of
the world. But the downturn did not last long and the next years are characterised by the
upward trends, even though in terms of FDI annual inflow in terms of GDP percentage, the
pre-crisis levels have not been achieved yet.
It is now interesting to compare Georgia’s performance with other countries. Table 7, Table
8, Table 9 and Figure 22 can be used as the data sources for comparative analysis. More data
can be searched in various report databases, for example in the database of the World
Investment Report 2017. Table 9 and Figure 22 will be used to analyse Georgia’s
performance in this question.
Table 9 presents the net FDI inflows of the selected economies and country groups in 2016.
Georgia is amongst a few countries with the double-digit numbers (11%) in terms of the net
FDI inflows as a percentage of GDP. Georgia beats all post-Soviet countries except
Azerbaijan (11.9%), is 5 times ahead of the average of its income group: upper middle
income (2.2%) and 3.8 times ahead of the world average (2.9%). But in comparison with the
performances of Hungary (54.6%), Ireland (26%) and Singapore (20.7%), Georgia’s number
looks mediocre, leave the huge room for improvement.
68
Figure 22 presents the net FDI inflows into the selected economies and country groups from
1997 to 2016. Obviously, this data source presents the better overall performance picture,
because it includes data from the 20 years long period, not just one year data as Table 9.
Georgia performs quite well in comparison with other post-Soviet countries and only two
countries: Azerbaijan and Estonia are respectively significantly (because of many oil and gas
related investments) and slightly ahead. The average performance of Georgia is slightly
above 8%, which is almost 3 times better than its upper middle income category’s average
performance. This performance can be named as the “generally promising start”, but again
there is huge room for improvement.
Moving forward to the last section of this question, which should provide the answer to what
Georgia can learn from such success stories in terms of absorbing huge stocks of FDI as
Singapore and Ireland.
Firstly, it is important to set the context on why those countries are comparable. This is
because of various historical similarities all three countries share. Singapore, Ireland and
Georgia can be branded as the post-colonial countries that were occupied by the powerful
British and Russian Empires for many years (United States Central Intelligence Agency
2017). In addition to that, all three countries are relatively small in terms of territory and with
insignificant population sizes based on the world standards. More than that, there are no
sufficient amounts of the natural resources in any of the three countries, which can be used
for economic development. And finally, the economic growth theory, which can be applied to
all three the most is the institutions theory, because the new nations have to go through the
process of creating their democratic and economic institutions from scratch as it was in the
case of Singapore, Ireland and Georgia (Acemoglu, et al., 2001).
The most important factors behind Singapore’s economic success in terms of attracting FDI
inflows were: a well-educated workforce, political and economic stability, simple tax and
labour codes and the transparent judiciary, which was initially outsourced to the British
(Eudelle and Shrestha 2017, Siddiqui, 2010). Based on those factors, it can be stated that
Georgia is doing quite well in terms of economic stability and simple tax and labour codes
(World Bank 2018a). Regarding the political stability, country’s international political system
is quite stable and the most democratic and inclusive in the region, but at the same time
69
threats coming from Russia exist. Unfortunately, there is not much Georgia can do to offset
this negative factor (European Bank for Reconstruction and Development 2009). But in the
areas, such as the workforce education and the judiciary there is definitely some potential for
Georgia to learn from Singapore. Surprisingly, the rule of law and the inadequately-educated
workforce are the major negative factors of Georgian investment climate (World Economic
Forum 2017). For example, to improve the status quo, Georgia’s government can shift the
focus of the education system on the STEM disciplines as it was done in Singapore in the
‘70s and ‘80s. Additionally, outsourcing part of the judiciary system (maybe specifically
foreign direct investment-related part) could be done in Georgia by establishing independent
arbitrage. Those two spheres are indeed issues, where Georgia can learn from Singapore
(United Nations Conference on Trade and Development 2011b).
Concerning Ireland, the key factors of the Irish success to attract large numbers of
investments can be summarized as the long-term consistency of country’s policy towards
FDI, the extremely proactive approach by the Irish Development Agency in terms of seeking
potential FDIs, the access to the EU market and the mostly completely enterprise-centered
approach (Buckley and Ruane 2006; Alfaro et al. 2005). Based on those factors, Georgia is,
indeed, doing well in terms of its consistency of country’s policy towards FDI (as of today at
least) and this should be continued. Additionally, the enterprise-centred approach is for sure
taken by the Georgian government, who recently even went as far as abolishing the corporate
income tax (which was not that high- 15%) in case the profits are reinvested back into
Georgia’s economy (World Bank 2018b). But in the areas such as being proactive in terms of
seeking potential investments and further integrating Georgia into the EU market, many areas
can be improved. Integration into the EU is an extremely political topic and not much is
dependent on Georgia in this case. But the Irish experience of proactively seeking
investments, which was evaluated by the UNCTAD as “the best in the world” is something
Georgia for sure can try to learn from or replicate in its national investment agency (United
Nations Conference on Trade and Development 2008).
70
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Georgia’s Journey from Independence to Freedom: The Role of Foreign Direct Investment

GEORGIA’S JOURNEY FROM INDEPENDENCE TO FREEDOM:

INTERNATIONAL BUSINESS CONFIRMATION PAPER OF

PAPER SUPERVISOR: DR CONOR CARROLL

WORD COUNT: 12,099

DATE OF SUBMISSION: APRIL 6th, 2018

iGeneration: Irakli Gilauri and Kety Kinkladze for their generosity;

“Choose, what type of economic growth do you want?

2 United States International Trade Administration (2018)

HISTORICAL OVERVIEW OF THE GEORGIAN ECONOMY

The Short-Lived First Georgian Republic

10 President of Georgia (2017)

The Soviet Occupation and the Command Economy Experiment

The Restoration of Independence and “Dark ‘90s”

13 See Map 1: Georgia

The Rose Revolution: Economic Transformation and Reforms

The Russian Invasion and the Global Financial Crisis

31 United States Department of State (2017)

“Georgian Dream”: Since the First Electoral Transition of Power

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH

44 Lucas, R. (1988) On the Mechanics of Economic Development.

Reviewing the Empirics: FDI and Growth

53 See Figure 15: Financial Inflows in Developing Countries ($ billions)

Growth: Case of Post Communism Transition Economies.

So What Attracts FDI?

The World’s Number One Economic Reformer

61 See Table 7: FDI Net Inflows in Selected Economies (1997-2006)

Occupation and Crisis

More Free Trade and Europe- More Inward Investment

66 See Table 8: FDI Net Inflows in Selected Economies (2007-2016)

FOREIGN DIRECT INVESTMENT SUCCESS STORIES

The Case of Ireland

As in case of Singapore, the investment promotion agency- Ireland Development Authority

THE FUTURE OF THE GEORGIAN ECONOMY

EXHIBITS: TABLES, FIGURES AND MAPS

Table 2: FDI Factsheet of Georgia

Source: UNCTAD Country Fact Sheets 2017

Table 4: Georgia's FDI Stock Shares by Countries

Table 5: Top Countries by FDI Net Inflows in Georgia

Table 6: Georgia's Net FDI Inflows by Quarters (2005-2017)

Table 7: FDI Net Inflows in Selected Economies (1997-2006)

Table 8: FDI Net Inflows in Selected Economies (2007-2016)

Table 9: FDI Net Inflows in Selected Economies (2016)

Table 10: Selected Economic Indicators of Georgia (2013-*2020)

Source: World Bank World Development Indicators available at https://data.worldbank.org/

Table 11: Selected Fiscal Account of Georgia (2013-*2020)

Source: World Bank World Development Indicators available at https://data.worldbank.org/

Table 12: Georgia in Selected International Rankings

Source: Created by author using data collected from various reports.

Figure 1: GDP of Georgia (nominal)

Figure 2: GDP of Georgia (PPP)

Figure 3: GDP per capita (PPP) of Georgia

Figure 4: Real GDP Growth of Georgia

Figure 5: GDP per capita (PPP) of Selected Economies

Figure 7: GDP Structure of Georgia by Sectors (2017)

Source: World Bank World Development Indicators available at https://data.worldbank.org/

Figure 9: General Government Gross Debt of Georgia (% of GDP)

Figure 10: General Government Gross Debt of Georgia ($ billions)

Source: World Bank World Development Indicators available at https://data.worldbank.org/

Figure 11: General Government Net Lending/Borrowing of Georgia (% of GDP)

Figure 12: Gross Tax Revenues of Georgia ($ billions)

Source: World Bank World Development Indicators available at https://data.worldbank.org/

Figure 13: Government Expenses of Georgia (% of GDP)

Source: World Bank World Development Indicators available at https://data.worldbank.org/