An Application of the Growth Diagnostics Framework: The Case of Georgia

This paper applies the Growth Diagnostics framework and attempts to identify the binding constraints to economic growth in Georgia. While many policies potentially promote economic growth in practice only policies that relax the binding constraint do so. In contrast, policies that relax non-binding constraints will by definition do little or nothing to promote economic growth. This study builds on an existing growth diagnostics exercise by the Government of Georgia and the Millennium Challenge Corporation, but comes to different conclusions. The existing study found that human capital and road infrastructure are binding constraints to economic growth in Georgia. In contrast, we find that lack of property rights, broadly interpreted, is the binding constraint to economic growth in Georgia. We argue that lack of property rights is unlikely to be the risk of expropriation. Instead, property rights have to be interpreted broadly, and encompass issues such as political and institutional stability, regional conflicts, the rule of law, and judicial independence.