Growing Apart? A Tale of Two Republics: Estonia and Georgia

IMF Working Papers, October 1, 2008

Source details

We compare and contrast the economic growth performance of Estonia and Georgia since the collapse of the Soviet Union in 1991 in an attempt to understand better the extent to which the growth differential between the two countries can be traced to increased efficiency in the use of capital and other resources (intensive growth) as opposed to brute accumulation of capital (extensive growth).
On the basis of a simple growth accounting exercise, we infer that advances in education at all levels, good governance, and institutional reforms have played a more significant role in raising economic output and efficiency in Estonia than in Georgia which remains marred by various problems related to weak governance in the public and private spheres.

Growth decomposition approach: simple growth accounting exercise used to separate intensive growth (efficiency gains) from extensive growth (capital accumulation).
Comparative outcome:
- Estonia: greater role of advances in education at all levels, good governance, and institutional reforms in raising economic output and efficiency.
- Georgia: growth performance hampered by various problems related to weak governance in the public and private spheres.
Subject areas emphasized: Banking, Education, Human capital, Labor, Public expenditure review.
Keywords highlighted: gross national income, output ratio, production function, WP.

Strengthen education at all levels to support intensive growth through higher efficiency in the use of capital and other resources.
Pursue good governance and institutional reforms to raise economic output and efficiency.
Address governance weaknesses in both the public and private spheres to improve growth outcomes in Georgia.