The Economic Dependency Index (EDI) shows Georgia’s economic “dependency” on various country groups according to their democracy scale. Economic dependency can be understood as the degree of integration with these country groups through economic and trade channels.
EDI will help the society to better understand Georgia’s economic security issues, comprehend and analyze the country’s economic path. A user will be able to check the country’s economic dependency on various country groups according to their level of democracy, observe the tendency since 2007, in regards to the overall index, as well as specific indicators.
Moreover, the index is a useful analytical tool for policy-makers and economic security experts for engaging wider stakeholders in the discussion and analysis. EDI is an aggregated indicator, based on five components (inward foreign direct investment (FDI), exports of goods, imports of goods, external debt, inward money transfers) demonstrating the degree of economic integration with the four groups of countries, differentiated based on their quality of Democracy. Quality of democracy is measured by using The Economist’s Intelligence Unit’s (EIU) Democracy Index (DI) which categorizes countries as “authoritarian,” “hybrid regime,” “flawed democracy,” and “full democracy” by ascribing a “Democracy Index” to them.
EIU – Democracy Report 2022: Frontline democracy and the battle for Ukraine
Economic integration is based on five key economic indicators which represent the Georgia’s economic dependency with the selected groups of countries. The choice of components for the economic integration was dictated by the following considerations:
• simplicity
• availability of reliable data and statistics
• simplicity to modify in the future, if needed
• minimization of modeling and arbitrariness
• comparability with other countries with similar geographic conditions
Based on the above the following components were used to derive to the average index:
- Inward FDI
- Exports of goods
- Imports of goods
- External government debt
- Inward net money transfers (remittances)
For the final index, only the monetary components were taken. The five components of the Economic Index are assigned equal shares, 20% each. Ultimately, the shares of full, and flawed democracies and hybrid, and authoritarian regimes are summed up in each of the
components of the Economic Dependency Index as a % of the total for the component. Each of the five components gets one fifth of the total (20%). Then the final Index is the sum of the shares of each of the components for each country groups. The index is based on open statistical information provided by the National Statistics Office of Georgia, the National Bank of Georgia and the Ministry of Finance of Georgia. The index provides information for the period of 2007-2021 and will be updated with the newest available data. The year of 2007 was taken because in November 2006 the Action Plan for European Neighborhood Policy with the European Union was formally signed. This event marked an important point in Georgia’s economic integration to democratic world. Also, the needed statistics are more reliable from that period.
Definition of Key Terms
Democracy Index
Quality of democracy is measured by using The Economist’s Intelligence Unit’s (EIU) Democracy Index (DI) which categorizes countries as “authoritarian,” “hybrid regime,” “flawed democracy,” and “full democracy” by ascribing a “Democracy Index” to them. Democracy Index is a simple average of the following components: “Electoral pluralism index,” “Government index,” “Political participation index,” “Political culture index,” and “Civil liberties index”.
Small island nations with special status under the jurisdictions of democratic countries were counted as democratic countries (these countries or territories are important sources for Foreign Direct Investments (FDI)). Furthermore, International Organizations are not accounted for democracy index by EIU, consequently we have linked their democracy status with the voting power of the member
states. In cases of those countries that are not covered by EIU, alternative sources of information were used (V-dem Institute, CIA Workbook). Democracy Index varies according to years, this factor is considered when calculating the economic democracy index on annual basis.
Export of Goods
The indicator unites Georgia’s export statistics from 2007 on annual basis according to country groups (full democracy, flawed democracy, hybrid and authoritarian regimes, as per the annual data of the democracy index). Export of goods means crossing the country’s economic territory. Export unites products produces nationally, as well re-export of imported goods. Local exports united products produced national, as well as imported from abroad, that were substantially processed internally through creating a greater value added. Export in goods indicator does not include transited goods and simplified customs declaration data, as well as unorganized trade. Partner country for the export is the country of final destination.
Import of Goods
The indicator unites Georgia’s import statistics from 2007 on annual basis according to country groups (full democracy, flawed democracy, hybrid and authoritarian regimes, as per the annual data of the democracy index). Crossing of the country’s economic territory is the prerequisite for considering a good as imported. Import unites goods brought in the country, as well as reimport of exported goods. The main sources of information for external trade operations is the customs declarations’ database of the revenue service and import data of natural gas and electricity. Import partner country is the country of origin of imported goods.
Foreign Direct Investments (FDI)
The indicator unites foreign direct investments (FDI) inflow to Georgia starting from 2007 onwards. FDI is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. Direct investment covers not only initial transaction of capital investment, but also all further transactions between direct investor and direct investment enterprise. Investor, who owns no less than 10% of the shares of an enterprise or equivalent of such participation, is regarded as a direct investor. Direct investors may be individuals, incorporated or unincorporated private or state-owned entities.
FDI statistics unites all sectors of economy – financial as well as non-financial. The data covers all controlled territories of Georgia, on international scale – all countries. Government External debt – the indicator unites all data of Georgia’s government external debt starting from 2007. The indicator unites external debt taken by the government and/or with the government guarantee. In particular, government received foreign debt, debt issued by the international monetary funds to the national bank; state bonds denominated in foreign convertible currency; state guaranteed debt denominated in foreign currency.
Money transfers
Money transfers indicator unites international transfers via electronic money transfer systems (Western Union, Money Gram, Anelik, Unistream and others). Source: commercial banks operating on the territory of Georgia (including branches of non-resident banks), statistical reports of the micro-finance organizations.
