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OEO-ECONOMICS
Marina ACHELASHVILI
Ph.D. (Econ.), research associate, Paata Gugushvili Institute of Economics of Georgia
(Tbilisi, Georgia)
Klimenti ACHELASHVILI
D.Sc. (Econ.),
associate professor, Tbilisi State University
(Tbilisi, Georgia)
REGIONAL MANAGEMENT OF ECONOMIC GROWTH
Abstract
Macroeconomic management of economic growth is a complicated and not always effective process. Hence there is the need to look for new approaches, which provide for regional management of economic growth. In the final analysis, economic growth depends on the effective development of regions as subsystems of the national economy.
Regional management implies the need to measure the contribution of regions to economic growth. The authors propose a method for measuring their contribution to GDP growth based on the rate of GRDP growth and the share of regions in GDP. In order to improve the decision-making
process, they use special production functions describing the operation of the national economy from a regional perspective and adapted to the process of regional growth management. These functions can be used to solve applied problems: in macroeconomic situation analysis and regional development forecasting, formulation of regional economic policy options, and simulation of the consequences of such policy at the national and regional levels.
The proposed analysis scheme for regional growth management has been tested in Georgia. But it can also be used in other countries and in studying global economic processes.
I n t r o d u c t i o n
The problem of managing economic growth is the central problem of macroeconomic theory and practice. The purpose of such management is to achieve higher rates of economic growth, which make it possible to solve not only economic, but also political, social and environmental problems. In other words, management of economic growth is of great practical importance to any country in the world, especially to post-Communist countries in transition to a market economy trying to integrate into the world economic system.
Conceptual research on the problem of managing economic growth is traditionally conducted by the best-known Western schools of thought: classical (neoclassical) economics, which seeks to manage economic growth from the supply side, and Keynesian (neo-Keynesian) economics, which seeks to manage economic growth from the demand side. Each of these schools, based on its own set of assumptions, makes a detailed study of the growth management problem and constructs appropriate models, which are used to develop macroeconomic policies designed to promote growth. The best-known models of this kind are, respectively, the Solow model and the Harrod-Domar model. Modern growth models developed in recent decades are, in effect, their updated modifications. They are based on an empirical analysis of the impact of various factors on economic growth using econometric methods.
Macroeconomic management of economic growth is a fairly complicated and not always effective process. Hence it is essential to look for new approaches to this problem, such as regional management of economic growth. Clearly, economic growth ultimately depends on the effective development of regions as subsystems of the national economy. But regional growth management as a component of the overall growth management problem is virtually not considered in economic literature: existing publications on macroeconomics and regional economics are not directly associated with the problem of regional growth management. A study of this problem assumes, among other things, the need to measure the regional contributions to economic growth, to establish the content and mechanisms of development of a regional economic policy promoting economic growth, and to propose valid economic instruments for its implementation. Such are the issues considered in this article.
The Essence of Regional Growth Management
Regional economic theory distinguishes between economic regions established based on such criteria as administrative and economic management, territorial division of labor, operation of markets, nature of socioeconomic problems, etc. In other words, the division of territories into economic regions may be goal or problem-oriented.
The region’s economic operation pattern depends on the political and economic organization of the state. In unitary (centralized) states, the region is regarded as part of the country’s single economic space and to a much lesser extent as a subsystem, i.e., an agent of its own economic interests. In decentralized states, the region is a relatively independent multifunctional subsystem of the national economy. The region as a subsystem has qualitatively different economic relations with the center, with other regions and with world markets.
As for the regional growth management, it is necessary to take into account the specific features of regional development. When the national economy is doing well, regional problems are somewhat toned down and acquire a new quality, but do not disappear altogether. In time, the old problems are supplemented with fundamentally new regional problems associated with the transition of developed
countries to a postindustrial and information society, globalization of the world economy, market transformation in post-Communist countries, etc.
Regional management of economic growth should play a major role in most countries of the world, especially at the stage of significant political, economic and social changes. In fact, there is a certain similarity between regional problems in countries differing from each other in terms of area, state-political structure, socioeconomic level, cultural traditions, nature of economic problems, etc. This makes it possible to use identical approaches to regional growth management.
Regional growth management amounts, on the one hand, to an analysis of the specific economic situation in the regions and an assessment of their contribution to economic growth, and on the other hand, to the creation of conditions in which the regional structure and regional development would serve national interests. In the general case, the process of regional growth management should include the following components: creation of a legal framework, application of administrative methods, use of analytical tools, an information component, and development of a regional economic policy coupled with appropriate economic instruments for its implementation.
Creating a Legal Framework
First of all, it is necessary to determine the principles of the state’s regional structure; formulate provisions governing the interaction between the center and the regions; and draw up a list of basic legislative and normative acts on regional management of economic development. In other words, the legal framework for regional development management should exist in the form of national laws, presidential decrees, government regulations and other normative acts.
Applying Administrative Methods
Administrative instruments of regional development management may take the form of bans or incentives. Protection of market competition in the regions is of special importance in this context. The state should ensure a rational degree of regional and interregional market competition and prevent monopolization. Administrative methods also include labor relations and environmental protection.
Using Analytical Tools
The process of regional growth management includes the formulation of a national economic development strategy and matching scenarios of regional economic development. This implies the use of various analytical tools, which are to constitute the institutional component of regional growth management. Analytical tools should cover various aspects of regional reproduction processes and should be market-oriented. They include regional analysis and forecasting, regional economic programming, and regional indicative planning.
The main purpose of regional analysis and forecasting is to assess regional economic processes and their development prospects from the perspective of economic growth. The results of targeted economic analysis and forecasting, for their part, can provide the basis for regional economic programming. The latter should be aimed at solving strategic (medium and long-term) problems of regional economic development that are of national importance. The basic principles of regional programming in the area of economic growth can be as follows: targeted and systemic nature of program measures; development of program options with due regard for the uncertainties of program imple-
mentation; resource support for the program; targeted nature of the program’s basic provisions; and its manageability (availability of the required legal, organizational and financial mechanisms for its implementation).
As it follows from the experience of industrial countries, the objects of specific regional economic programming are usually problem regions (the most backward, depressed, undeveloped, etc.). The main emphasis here is on “physical planning,” i.e., on the development of infrastructure, environmental protection, etc. But it would make sense to develop regional economic programs for all regions with due regard for their peculiarities. In post-Communist transition countries, for example, this could be a program to restructure the economy in border regions, to overcome chronic regional backwardness in another set of regions, to develop natural resources in a third set of regions, to initiate regional privatization in a fourth set of regions, etc.1
Regional economic programming provides the basis for regional indicative planning, under which decision making is decentralized. The main purpose of such planning is to improve interregional information flows within the national economy and to reduce risk and uncertainty in basic decision making at the regional level. There can be two approaches to regional indicative planning. Under the first approach, the regions submit their economic development and investment plans for the coming period, and these plans are then examined and assessed by the central authorities from the perspective of economic growth. Under the second approach, growth rates projected on a national scale are taken as the starting point to formulate the specific tasks for regional economic development.
Information Component
Regional growth management implies the need for appropriate information support. Since the region in market conditions becomes an economic subsystem of the national economy, this should be reflected in the content and structure of regional statistics. The latter’s purpose should be a systemic description of the regional economy and representation of the national economy as a system of interacting regional economic subsystems.
International standards of national accounts accepted in world practice enable countries to have at their disposal statistical information required to manage economic growth on a national scale. But the process of extending these standards to the regional level is still in its initial stages. Today even the key indicators of regional economic development are not calculated officially for the regional level. That is why one of the main lines of upgrading regional development management is to standardize regional statistics: to create a system of regional accounts and harmonize its structure with the system of national accounts.
Developing a Regional Economic Policy and Economic Instruments for its Implementation
The development of a pro-growth regional economic policy is the main component of regional growth management. Regional policy in general is an area of government activity in regulating the country’s political, economic, social and environmental development in regional terms. Regional policy is present in virtually every country, but in different forms. It may be active, institutionally distinct and equipped with special instruments or barely noticeable and almost indistinguishable from
1 See: A.G. Granberg, Osnovy regional’noi ekonomiki, Tacis, Moscow, 2001.
other kinds of government activity. The debate on the existence or nonexistence of regional policy is explained by the fact that a conscious and effective regional policy is often hard to identify among the multifaceted and poorly coordinated activities of various governmental regulatory agencies that influence regional development in general.2
The term “regional economic policy” applies to the solution only of the economic problems of regional development. It should be based, on the one hand, on government economic policy in general, and on the other hand, on the regional peculiarities of national economic development. In the general case, its purpose is to create economic conditions in which regional economic development would serve national interests. Regional economic policy enables regulatory agencies to influence regional economic processes.
Generally speaking, the development of a regional economic policy promoting economic growth implies the need to:
—devise a national strategy of regional development and formulate the goal of a matching regional economic policy;
—formulate the specific tasks of regional economic policy consistent with the set goal and with the current stage of development;
—establish the alternative options of regional economic policy and select the most effective one;
—predict the consequences of regional economic policy;
—propose valid economic instruments for implementing regional economic policy.
The formulation of a national strategy involves an analysis of all aspects of regional development: political, economic, social and environmental. The goals of regional economic policy are formulated accordingly, being either “eternal” (traditional) or new. The latter are determined by the geopolitical, economic, institutional and other changes occurring in individual countries at different stages of their development.
The specific tasks of regional economic policy promoting economic growth should be formulated with due regard for the whole range of factors behind national and regional development. It is necessary to establish a system of priorities in accordance with the current situation and the current level of regional economic development. One should also bear in mind that accelerating economic processes under the impact of globalization call for timely identification of the ongoing changes and their appropriate reflection in regional economic policy.
Regional economic policy should be a system of consistent and coordinated measures focused on achieving a certain rate of regional growth in order to boost economic growth at the national level. In the process of regional growth management, it is advisable to formulate various options of regional economic policy and evaluate their effectiveness. Such an approach to formulating regional economic policy will help to make it more objective and well-founded.
The practical implementation of the selected regional economic policy option implies the use of appropriate economic instruments. These instruments may be very diverse but should, where possible, be market-oriented. They may include: tax and financial systems, government procurement, regional price controls, bonuses for job creation in the regions, economic support for problem regions, etc.
Economic instruments should be used with due regard for regional peculiarities and in various combinations, with changes in the forms and intensity of their use as the need arises. It may sometimes be necessary to use a particular instrument on its own so as to take into account the development problems of concrete regions. In the final analysis, the effectiveness of regional economic policy will depend in large part on how well various economic instruments are combined with each other. Their
2 See: A.G. Granberg, op. cit.
differentiation should not have a negative impact on the national market, increase interregional inequality or create unfair advantages for some regions to the detriment of others. Economic privileges and subsidies should be granted to certain regions for objective reasons and should not depend on the lobbying skills of regional leaders.
Measuring Regional Contributions to Economic Growth
In studying the problem of regional growth management, we should take into account the impact of regional factors on the effectiveness of national economic development. Regional factors are taken to mean the regional structure of the national economy, the distribution of productive resources across the regions, and the efficiency of their use. Without objective quantitative information on the impact of these factors, regional growth management in practice may prove to be ineffective or even impossible.
Regional growth management presupposes, in the first place, an assessment of regional contributions to economic growth, which can be formalized as follows. Similarly to the gross domestic product (GDP) used to measure economic growth at the national level, an indicator known as the gross regional domestic product (GRDP) is used at the regional level. The generalized formula for measuring the contribution of regions to GDP growth based on the GRDP growth rate and the share of regions in GDP in the base period may be written as follows:
n
n = at,
i=1
where i—region index (i = 1, ..., n; n—number of regions), n —GDP growth, n ——GRDP growth in ith region, a. —share of ith region in GDP, and n ■ a.—GDP growth due to ith region.
This formula takes into account both the regional structure of the national economy and regional growth rates, so providing an opportunity to reflect the impact of regional factors on economic growth.
To illustrate the practical implementation of the proposed method for measuring regional contributions to economic growth, let us consider the case of Georgia, a post-Communist transition country. In the 1990s, Georgia began its difficult transition to a market economy which was accompanied by a severe economic crisis: a catastrophic drop in production, high inflation, a sharp reduction in capital formation as a share of national income, a decline in investment, etc. In that period, unemployment reached an average of 30% (in some regions it was close to 50%), while GDP fell by 72%, industrial production by 85%, and fixed capital investment by 95%.3
The economic crisis hit virtually all regions of the country. But crisis phenomena had significant regional peculiarities. The steepest decline in output and the highest unemployment were recorded in regions with the heaviest concentration of light industry, which could not sustain external competition or the decline in consumer demand. Another badly hit industry was engineering, which was deprived of government contracts. Investment in the regions was inadequate not only for creating an advanced technological base for accelerated economic growth, but even for the simple reproduction of fixed assets.
3 See: V.G. Papava, T.A. Beridze, Ocherki politicheskoi ekonomii postkommunisticheskogo kapitalizma, Delo i Servis, Moscow, 2005, p. 162.
In 1996, with the first signs of macroeconomic stabilization in the country, the government launched a comprehensive market reform designed to provide an appropriate legal framework, create a tax, financial and credit systems, reorganize the banking sector, privatize state property, and liberalize prices and foreign trade. The construction of the Baku-Tbilisi-Ceyhan oil pipeline began in the same period. In 2000, Georgia joined the WTO. All of this led to relatively stable economic growth: GDP growth (in comparable prices, previous year = 100%) was 101.4% in 2000, 104.3% in 2001,
Table 1
Growth of GRDP,
Capital Inputs and Labor Inputs by Region
Regions of Georgia GRDP million lari Capital Inputs (fixed assets) million lari Labor Inputs (number of employees) million lari
2000 2003 Growth, % 2000 2003 Growth, % 2000 2003 Growth, %
Tbilisi 2,344.9 3,069.9 130.9 2,012.3 2,479.4 123.2 349.2 468.1 134.0
Ajaria 400.6 377.7 94.3 199.6 231.5 116.0 131.9 166.3 126.1
Guria 33.7 31.5 93.5 24.6 33.3 135.4 69.3 76.8 110.8
Racha- Lechkhumi, Kvemo Svaneti 23.9 19.0 79.5 12.9 9.6 74.4 23.1 21.0 90.9
Samegrelo, Zemo Svaneti 258.3 258.7 100.1 182.4 189.1 103.7 225.4 199.2 88.4
Imereti 365.0 411.8 112.8 342.1 335.9 98.2 378.3 267.2 70.6
Kakheti 66.5 116.7 175.5 121.6 68.5 56.3 188.2 146.6 77.9
Mtskheta- Mtianeti 80.5 98.7 122.6 48.7 60.6 124.4 46.5 52.9 113.8
Samtskhe- Javakheti 31.6 117.2 370.9 29.1 33.2 114.1 80.7 103.9 128.7
Kvemo Kartli 557.4 583.1 104.7 483.6 441.1 91.2 223.5 209.7 93.8
Shida Kartli 183.0 298.1 162.9 127.5 126.8 99.4 192.8 175.8 91.2
National economy as a whole 4,345.4 5,382.4 123.8 3,584.4 4,009.0 111.8 1,908.9 1,887.5 98.9
N o t e: The table was calculated from the primary data of the State Statistics Department of Georgia.
105.4% in 2002, 111.7% in 2003, 105.6% in 2004, 110.4% in 2005, and 109.5% in 2006. The country’s regions began to develop accordingly.
The growth of GRDP, capital inputs and labor inputs in Georgian regions and in the national economy as a whole is shown in Table 1. To measure capital inputs by region, we used the value of fixed production assets (million lari), and to measure labor inputs, the number of employees (thousand people). All value indicators are given in comparable prices.
As we find from Table 1, the most dynamically developing regions of Georgia in that period were as follows: Tbilisi Region (130.9%), Kakheti (175.5%), Mtskheta-Mtianeti (122.6%), Sam-tskhe-Javakheti (370.9%), Shida Kartli (162.9%) and Imereti (112.8%). In the Samegrelo and Zemo Svaneti Region, GRDP remained on the same level, and in the Ajaria, Guria, Racha-Lechkhumi and Kvemo Svaneti regions it even decreased. As a result of existing trends in regional economic development, overall economic growth in the country in these four years was 123.8%.
In the regional dynamics of capital inputs there were no stable trends: these inputs in Georgian regions varied significantly in both space and time. In the period under review, the value of fixed assets in the country as a whole increased by 11.8%. An analysis of the population structure shows an overall reduction in the employment structure by 1.1%. Similar trends were recorded in most regions of Georgia, although in some of them the movement of these indicators was somewhat different from the national average.
The information presented in Table 1 was used in experimental calculations of regional contributions to national economic growth based on the method proposed above. The results of these calculations are given in Table 2.
Table 2
Calculation of Regional Contributions to Economic Growth
Regions of Georgia Growth, % GRDP n Region's Share in GDP in Base Year, % Distribution of GDP Growth by Region, percentage points Region's Contribution to GDP Growth, %
Tbilisi +30.9 54.0 +16.68 +70.1
Ajaria -5.7 9.2 -0.52 -2.2
Guria -6.5 0.8 -0.05 -0.2
Racha-Lechkhumi, Kvemo Svaneti -20.5 0.6 -0.12 -0.5
Samegrelo, Zemo Svaneti +0.1 5.9 +0.01 +0.0
Imereti +12.8 8.4 +1.08 +4.6
Kakheti +75.5 1.5 +1.13 +4.8
Mtskheta-Mtianeti +22.6 1.9 +0.43 +1.8
Samtskhe-Javakheti +270.9 0.7 +1.90 +8.0
Kvemo Kartli +4.7 12.8 +0.60 +2.5
Shida Kartli +62.9 4.2 +2.64 + 11.1
100.0
National economy
as a whole +23.8 100.0 +23.8
Table 2 shows that out of a total GDP increase of 23.8%, the Tbilisi Region accounts for 16.68 percentage points, and the other regions for 7.12 percentage points. One region made virtually no contribution to GDP growth, while three other regions reduced GDP growth by 0.69 percentage points. Accordingly, the regional contributions to GDP growth in Georgia were as follows: Tbilisi Region 70.1%, Shida Kartli 11.1%, Samtskhe-Javakheti 8.0%, Imereti 4.6%, Kakheti 4.8%, Kvemo Kartli 2.5%, and Mtskheta-Mtianeti 1.8%. The contribution of the Samegrelo and Zemo Svaneti Region to GDP growth was close to zero, while that of the Ajaria, Guria, and Racha-Lechkhumi and Kvemo Svaneti regions was negative.
The significant contribution of the Tbilisi Region to economic growth is due, on the one hand, to its large share in Georgia’s GDP. On the other hand, the bulk of investment goes into the economy of the Tbilisi Region, and only a small part flows to other regions. Such a distribution of foreign investment is irrational from the standpoint of interregional economic development. It also points to low activity on the part of foreign investors, which is explained by the weakness of regional economic policy, primarily in matters of insurance, mortgage, investment guarantees, and provision of appropriate information on investment projects to potential investors.4 Let us also note the high degree of regional investment risk due to political instability, widespread corruption and a significant shadow economy in the country. The identified peculiarities of the regional structure of the Georgian economy and regional economic development trends should be taken into account in regional growth management, particularly in formulating regional economic policy.
Based on the above, the rate of economic growth can be regarded as a function of the regional economic structure and regional growth rates:
n = f (n).
Regional growth, for its part, is determined by regional production factors, whose impact can be modeled using production functions constructed for the set of regions. In other words, an improvement of the decision-making process in the area of regional growth management requires the use of production functions.
Use of Production Functions
Production functions that are most frequently used in practice include such factors as capital, labor and technological progress. Natural resources, as a rule, are not included in production functions, because they remain virtually unchanged within a given period of time. As regards technological progress, in this article we examine, in accordance with the purpose of our study, only static production functions. For this reason, there is no need for a variable characterizing technological progress to be entered into the production function.
The national economy is represented as a set of regions: A1, A2, ... , A,, each of which is characterized by GRDP and corresponding factors of production: regional capital inputs and regional labor inputs. Based on the above information about Georgian regions, we used linear regression analysis methods to construct two kinds of statistical production functions: multiplicative Y = aKa ■ Lp and linear Y = a + bK + cL. These functions with basic statistical estimates are given below.
Production Functions for the Set of Georgian Regions
Multiplicative production function:
Y = 1.43K0’777 L0-245, R = 0.974; R2 = 0.949; F = 75.066;
4 See: V.G. Papava, Ya.Ye. Meskhia, Problemy innovatsionno-investitsionnoi politiki v Gruzii, Tbilisi, 2003.
Linear production function:
Y = 22.599 + 1.193K + 0.187L, R = 0.998; R2 = 0.997; F = 1,599.644,
where Y— GRDP (million lari),
K—regional capital inputs (million lari), and L—regional labor inputs (thousand people).
These production functions can be used to solve different kinds of applied problems in regional growth management: macroeconomic situation analysis, prediction of the impact of regional (production and structural) factors on economic growth, justification of regional economic policy, simulation of its consequences at the national and regional levels, and formulation of regional economic policy options. In particular, the multiplicative production function may be useful in macroeconomic analysis and in predicting the consequences of regional economic development from the perspective of economic growth. This function helps to assess the impact of changes in production factors on GRDP: with an increase in capital inputs by 1%, GRDP will grow by an average of 0.78%, while an increase in labor inputs by 1% will lead to GRDP growth of only 0.25%. According to the linear production function, an increase in capital inputs by 1 million lari will mean GRDP growth of 1.193 million lari, while an increase in the number of employees by 1,000 people will result in GRDP growth of 0.187 million lari. The above is due to low labor efficiency in Georgia. That is why an increase in labor inputs yields such insignificant results from the standpoint of economic growth.
For comparison, let us consider the multiplicative production functions of the Russian Federation and the United States for the period from 1960 to 1995: for the Russian Federation Y = 0.931K0539 L0594 and for the United States Y = 2.248K0404 L0803.5 These production functions are based on time series and describe the dependence of GDP on the value of fixed assets and the number of employees. All value indicators are presented in comparable prices and in the currencies of the said countries.
As is evident from the above functions, the relationship between capital and labor inputs in these countries varies. In Russia, this proportion is roughly equal, whereas in the U.S. the figures are 0.4 for capital and 0.8 for labor. In Georgia, the proportion between these factors in the multiplicative production function for the set of regions is 0.78 for capital and 0.25 for labor, i.e., the reverse of what we find in the U.S. From this it follows that the more progressive an economy (U.S.), the higher is the role of labor in the creation of GDP and vice versa (Georgia). This is evidently due to the fact that Georgia has accumulated a huge potential of obsolete and physically worn out equipment, which is included in the value of fixed assets in the regions and in the national economy as a whole, affecting the relationship between capital and labor inputs. The current proportions mean that labor in Georgia is unproductive, so that an increase in labor inputs has little effect on economic growth. That is why in order to promote such growth it is necessary, in the first place, to enhance labor efficiency through a flow of investment (both public and private) into the regions, especially for regional innovation projects.
In the short term, the linear production function is most acceptable for describing production processes. In addition, it has a convenient mathematical form for practical use: it can provide a basis for the development of regional economic policy options. In our opinion, it is advisable to formulate such options using the following procedure. Each option is represented as a set of concrete measures designed to increase the volume and enhance the efficiency of capital and labor inputs at facilities in the regions, which will in turn have an effect on the GRDP level. That is why it is necessary to make a forecast of regional development from the standpoint of production factors, substitute the predicted regional values of capital and labor inputs into the production function, and calculate GRDP. By add-
5 See: V.A. Kolemaev, Matematicheskaia ekonomika, UNITI, Moscow, 2005, pp. 16-22.
ing up these GRDPs, we obtain the country’s GDP, which can be used to project economic growth in accordance with the given regional economic policy option. GRDP and GDP growth rates characterize the final result of the implementation of this option.
Once the calculations for all regional economic policy options are performed and the projected GDPs are compared, it will be possible to determine the preliminary option that ensures the highest rate of economic growth. But each regional economic policy option has its “price,” because it is associated with certain direct and indirect costs. For example, subsidies provided for regional development are direct costs. A preferential tax treatment applied to facilities in the region means direct losses for the regional and national economies. At the same time, a refusal to provide the regions with the required financial assistance which could yield a certain economic result amounts to indirect costs or so-called opportunity costs. They should also be taken into account in an integrated assessment of the effectiveness of regional economic policy options.
By comparing the projected GDP growth for all options with the costs of their implementation, we obtain integrated assessments of their effectiveness. The final version of regional economic policy should be formulated with due regard for these assessments. This will make it possible to select for practical implementation not only an acceptable, but also the most effective line of development of the national economy with due regard for its regional components.
In formulating regional economic policy options, one should focus on two main vectors: influence on capital and influence on labor. Policy toward capital includes differentiated taxes and subsidies, economic support for particular regions, steps to ensure more efficient use of fixed assets, creation of conditions for their accelerated depreciation, etc. Policy in the field of labor includes job retraining, measures to enhance labor efficiency, organization of labor migration processes, bonuses for job creation in the regions, etc. Top priority in promoting regional economic development should be given to innovative activities: deployment of new technologies, formation of small and medium-sized high technology private companies, establishment of special innovation funds, increase in the production of export goods, etc.
By way of experiment, the linear production function was used to formulate three conditional options of regional economic policy for Georgia. Economic growth was projected at 102.8% under the first option, 103.8% under the second option, and 104.4% under the third option, i.e., the third option provided for the highest rate of economic growth. GDP growth in absolute terms was compared with the estimated costs of implementing each of these regional economic policy options. These comparisons were used to obtain integrated assessments of the effectiveness of the three options. Based on these assessments, the second regional economic policy option was found to be the most effective one for Georgia. From the perspective of economic growth, it provides for the best results at the lowest cost (1 lari spent on the implementation of regional economic policy generates 4.1 lari of GDP growth).
C o n c l u s i o n
Regional management is a major determinant of economic growth. The proposed analysis scheme for regional growth management provides objective empirical information on the impact of regional factors (regional structure of the national economy and regional growth) on overall economic growth. With the aid of this information, it is possible to formulate regional economic policy options and select the most effective line of regional economic development from the standpoint of economic growth.
The analysis scheme for regional growth management tested in Georgia can also be used in other countries and in studying global economic processes on a world scale. In particular, it may help to measure the contribution of different countries (or regions of the world economic system) to
global economic growth. This is particularly important for assessing the consequences of globalization, which leads to changes in the sectoral and regional structure of the world economy, and this should ultimately promote global economic growth. The results obtained using the proposed analysis scheme could be a source of reliable information for international organizations (International Monetary Fund, World Bank, World Trade Organization, etc.) that influence the course of global economic development and set the framework for international economic policy in a globalizing world.
