Russia blocking economic development of Georgia

Seminar Paper, 2015

13 Pages, Grade: 1,3

Nino Khachiashvili (Author)


Table of Contents

1. Introduction

2. Russo-Georgian War 7th August 2008

3. A trade war against Georgia?!
3.1. Imports and exports between Russia and Georgia and the big economic dependency of Georgia on Russia

4. International Rankings of Georgia

5. The State The Market

6. Eurasian Union

7. Conclusion

8. Bibliography

1. Introduction

Over centuries, Georgia, as a geopolitical interest1 for Russia, has been going through the conflicts, wars, and embargos, which have had a huge effect and impact on economic developments of the country. The purpose of this seminar paper is to present and analyse reliable sources and data, which clearly support and as well challenge the argument stated and think about solutions for the international economic relations between two countries.

I consider as well very crucial, to see it from different perspectives, to critically identify and measure the facts and the rules which were disobeyed, free trade which has been “governed” by state governments and violated - forgetting the wills and about the well-being of the inhabitants, therefore acting against the initial role of state government2, forgetting the responsibilities towards the people living there.

Main purpose of this topic is to deeply understand economic difficulties Georgia has been coming across for a long period of time, and what a big role Russia has played in it. I will be discussing and showing the arguments how much the “21st century’s economic relations rules” are disobeyed and disrespected.

I will be talking about International Rankings of Georgia, how much the country has advanced since years, showing it in comparison with Russia and other European countries.

Wine plays one of the most important roles in the economy of Georgia in case of exports and trading, by banning Georgian wine in Russia, Georgian economy faced a lot of difficulties. Even though, Russia was the number one in exporting Georgian Wine, and Georgia was importing a lot of products from Russia, businesses resumed several times, completely against the free trade and purely for political reasons. Why does it happen so? What is the idea behind it? The most important issues will be briefly but thoroughly discussed in my seminar paper, assuming the reasons and solutions.

The topic of corruption in Georgia and Russia, comparing the two and how much Georgia achieved even considering the obstacles it has been facing.

Russia forcing Georgia to join Eurasian Union - possible threats, how much illogical it is for Georgia to join, and what kind of development it can have in case of becoming a member of European Union in comparison with Eurasian Union.

One of the most obvious facts will be discussed how much Russia has changed Georgian economic development and possible future threats Georgia is already facing.

The theory of “Lassez-faire”3 principle for governments violated by Russian government and the results after it will be shown. Stating once again, the aim of the state should be making decisions so that the people living there are satisfied and happy, but the question is

- what does Russia do? Both countries have comparative cost advantages (the ability to produce some products more efficiently or better than other products), therefore it is logical free trade to exist and not to encounter disadvantages because of the political misunderstandings.

2. Russo-Georgian War 7th August 2008

As stated in the introduction, because of the geopolitical interests Russia has been trying over centuries to degrade and weaken Georgian economy, to reach their interests and achieve goals aimed - to own more territories of Georgia and bring it to the situation when the country cannot be economically strong enough and attack again, until it loses its strength and allows Russian government act the way they want to.

It was regarded as the first European war of the 21st century destroying mostly Georgian part and completely weakening economy of Georgia, even though, exactly in 2008 Georgia was achieving its peak of development.4

illustration not visible in this excerpt

Graph 1. GDP Real Growth and Unemployment Rate in Georgia5

As it can be clearly seen from the above printed graph, the GDP Real Growth (Recurring periods of negative growth are one of the most commonly used measures to determine whether an economy is experiencing a recession or depression.6 ) of Georgia decreased dramatically right after the beginning of the war, and after the war it even went to negative percentage. At the same time, the unemployment rate increased more than ever before, since the governance of the ex-president of Georgia Mr. Mikhail Saakashvili (after 2003 Rose Revolution in Georgia)7. During the governance of Mr. Mikhail Saakashvili, the GDP real growth increased incredibly and the country started to flourish, right till the point when Russians started war against Georgia.

illustration not visible in this excerpt

Graph 2. GDP of Georgia (quarterly 2008-2010)9

As you can clearly see, real GDP growth percentage has a -5% declination right in the 3rd quarter (when Russo-Georgian war started in August 2008). After August 2008, since a lot of factories were bombed and companies were destroyed, people killed, the Unemployment rate increased as well (see graph 1.).

“Russian sources said that Georgia had launched an invasion of South Ossetia, aiming to pacify the breakaway region. Georgia, meanwhile, said that its troops entered the South Ossetian "capital" in response to escalating South Ossetian attacks, which have been going on for a week—years, really—as well as the Russian aerial bombardment of Georgian territory.” For Russians, it meant, that they had to bomb and start a war, for the pacification of the breakaway region, whereas they conquered even more territories which were previously belonging to Georgia.10

3. A trade war against Georgia?!

Georgian and Russian experts discussed the issue of a trade war in Geneva. Since

Georgia started having good trading relations with EU, Russia decided to start a trade war against the free trade, exclaiming “cheap products from EU” would infiltrate the Russian market (since Georgia has signed the ratification agreement with European Union) and that therefore they would need to “take defensive steps”.


1 (Thomann, 2008)

2 (Thoma, 2010)

3 (Oncken, 1886)

4 (Emerson, 2008)

5 (Grass Fact Check , 2013)

6 (Investopedia)

7 (BBC News, 2005)

8 (Cohen, 2008)

9 (Euromoneyrisk, 2010)

10 (Applebaum, 2008)

Excerpt out of 13 pages


Russia blocking economic development of Georgia
Karlshochschule International University
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Russia, Georgia, Economic, Situation, Developement, Russian Georgian Relations
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Nino Khachiashvili (Author), 2015, Russia blocking economic development of Georgia, Munich, GRIN Verlag,


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