Convergence and growth – conflicting goals of economics policy – A case study of Georgia

Abstract Over the years, it has been the subject of discussions whether efficiency-oriented interventions contribute to an equity distribution of wealth across regions and whether equity orientation is a source of inefficiency. While efficiency refers to the maximization of growth in the national economy, convergence-oriented policy is focused on equalizing the level of development at interregional level. The case of Georgia was studied as a developing country facing various challenges in terms of economic growth and regional divergence. This article provides an overview of the economic development trends taking place in the regions of Georgia and reveals the high level of divergence within the country. A logarithmic model was created and used to run simulations to predict the possible results of convergence-oriented policy in Georgia. In order to make the forecast we estimated GDP per capita and average growth rates in all the Georgian regions. Use of the model allowed us to answer two main questions: (1) If the last 5 and 10 year average growth rates are maintained, how long will it take for the poorest region to converge to the wealthiest one? (2) What should be the minimum growth rate in the poorest region for the upcoming 5, 10 and 20 years in order to converge to the wealthiest capital? Results of the calculations showed that convergence between regions can only be achieved by slowing down economic growth in relatively wealthier regions and by focusing on the development of the poorest ones. The results of the study revealed that the convergence process will be faster for the regions with medium or big cities and growth centres. Therefore, creating competitive growth centres would be a reasonable regional policy objective to promote fast economic growth and future convergence without redirecting the growth process from more developed areas to lagging ones.