Structural change and economic growth in South Caucasia

Ahmadov, Vusal (2023) Structural change and economic growth in South Caucasia. HUNGARIAN STATISTICAL REVIEW, 6 (1). pp. 55-75. ISSN 2630-9130

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Abstract

This paper analyzes the role of structural change on economic growth in post-socialist South Caucasia. I employ the Shift Share Analysis (SSA) to evaluate the direct effect and the Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) to measure the overall effect of structural change on economic growth. The result of the SSA shows that within sector is the dominant source of productivity growth, and the reallocation effect is remarkable in Georgia. The manufacturing sector did not experience an expansion; therefore, its reallocation effect is negligible. On the other hand, the expansion of the business services sector and contraction of low-value agricultural employment produced a positive reallocation effect. The results of the FMOLS and DOLS demonstrate that advanced sectors – manufacturing and business services – have a positive effect on economic growth. Expanding high-value-added activities is necessary for further growth in these countries and requires investment in human capital and the development of domestic capacities.

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