Journal number 3 ∘ Gigi Elizbarashvili ∘ “The Lader” of Economic Prosperity of Post-Communist Georgiadoi.org/10.52340/eab.2024.16.03.03
After the disintegration of the communist system, post-communist countries have been undergoing development for more than 30 years. The communist regime imposed dictatorial objectives on these countries, impeding natural progress and leaving a significant legacy of economic hardships and disrupting economies. The extent of this impact varied for each country, depending on its socio-economic circumstances at the time of the Soviet Union's collapse or earlier, resulting in differing strategies for overcoming these difficulties. Notably, the Federal Republic of Germany is excluded from the discussion of post-communist countries in this article due to its rapid development after merging with West Germany, making meaningful comparisons with other post-communist countries unfeasible.
The principal strategy employed by post-communist countries to address the substantial impact of the command economy was the transformation of state institutions from the communist era into market-oriented institutions. These efforts were particularly challenging for states that gained independence after the collapse of the communist regime, as they had to establish the socio-economic foundations of their statehood while transitioning to a market economy. While some Eastern European economies had already begun the transition from a closed economy to a market economy before the collapse of the Soviet Union, the fall of the Berlin Wall near the end of the 20th century and the subsequent collapse of the Soviet Union significantly accelerated this process. This transition is described as one of the most significant events of the last decade of the 20th century, signifying a global shift toward a market economy.
Following the collapse of the Soviet Union, the countries were divided into two categories. The first category consisted of countries with established institutions such as borders, central banks, and currencies, while the second category, including Georgia, relied on the institutions of the Russian Federation and was left without them after the Soviet Union's collapse. Consequently, like most post-communist countries, Georgia prioritized overcoming the challenges brought about by the transition period and establishing the necessary economic institutions. However, Georgia encountered various difficulties on the path to developing an institutional system compatible with a market economy. For example, Georgia attempted to implement the "shock therapy" that had been successful in Poland under the Balcerowicz plan but was unsuccessful due to the lack of a national currency.
In an effort to comprehensively understand the changes in the economic well-being of the population of post-communist countries after the collapse of the Soviet Union and to compare these indicators with those of Georgia based on IMF data, this article utilizes graphs to illustrate the GDP dynamics of post-communist countries in nominal and purchasing power parity prices per capita. The analysis of these graphs reveals that the countries that are currently EU member states experienced significant economic growth over the years, while Georgia and other countries underwent much slower growth.
To comprehensively understand the dynamics of economic well-being in each post-communist country, the article defines 5 time intervals and conducts calculations for each period and country. The intervals range from the collapse of the communist system to future IMF forecasts (1992-2029):
• From the collapse of the communist system to the end of the twentieth century (1992-2000);
• The first decade of the current century (2001-2010);
• The second decade of the current century (before the spread of COVID-19 in these countries in 2011-2019);
• COVID-19 and post-COVID period (2020-2023);
• IMF forecast (2024-2029).
The calculated average GDP per capita indicators for each period and country, expressed in nominal value and purchasing power parity, exemplify Georgia's gradual economic improvement relative to other post-communist countries.
Moreover, to facilitate a clear comparison of Georgia's GDP per capita, calculated according to purchasing power parity, with similar indicators of other post-communist countries, the article presents a well-being ladder-shaped table listing the countries whose data lags behind Georgia's corresponding indicators. Comparisons are made for the first available official data after the collapse of the Soviet Union (1994), the end of the 20th century, and the end of each subsequent decade. The analysis illustrates that Georgia's gross domestic product per capita, as calculated according to purchasing power parity, surpassed only Tajikistan, Kyrgyzstan, and Armenia among post-communist countries in 1994. However, by the end of the 20th century, it also exceeded the indicators of Uzbekistan and Moldova. According to 2020 data, Georgia's gross domestic product per capita surpassed several countries and continues to exhibit positive trends.
Finally, the research shows that in a few years, Georgia's GDP per capita, calculated according to purchasing power parity, will exceed the corresponding indicators of ten post-communist countries (Belarus, Turkmenistan, Ukraine, Albania, Azerbaijan, Moldova, Uzbekistan, Kyrgyzstan, Tajikistan, Armenia). However, it will still lag behind Kazakhstan, the Russian Federation, and EU member states. Although the "ladder of economic well-being of post-communist Georgia" mentioned in the article creates an optimistic mood, specific criteria must be met to end the transitional period in the country. The simple answer to whether the transition period will end in a given country is this: if the EU recognizes that a country with a transition economy is ready to join the EU, then most likely the transition period in that country is over, and its current economic system is ready to join the European market.
References:
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• Berend, I. T., 1994. “End of Century Global Transition to a Market Economy“. Eleventh International Economic History Congress, Session A-3, September 12-17, München, Südosteuropa Gesellschaft, pp. 9-54.
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Keywords: "Ladder" of economic well-being, Gross Domestic Product (GDP), Purchasing Power Parity (PPP), institutions.
JEL Codes: D02, O10, O11, O12, O47