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Economic History of Georgia

by Bernise Lucero, March 2001

Transcaucasia is one of eighteen major economic regions established in the USSR in 1963.1 This economic region includes Azerbaijan, Armenia and Georgia.
The Georgian economy includes diversified and mechanized agriculture alongside a well-developed industrial base. 2 It produces about 95 percent of the Soviet output of tea and almost 100 percent of citrus fruits. It also produces tobacco, wines, mineral waters, and aromatic oils. Among industrial products are steel, motor cars, computers, and machine tools.

The Armenian economy, under Soviet rule was transformed from agricultural to primarily industrial. However, agriculture remains important, accounting for about two-fifths of the gross domestic product and employing one-fifth of the labor force. 2 Table 1 shows the urban-rural population ratios for both Georgia and Armenia. Both Georgia and Armenia's urban population increased a great deal between 1913 and 1978, but we can see that by 1978 Armenia's urban population is higher in comparison to Georgia's.

TABLE 1 Urban-Rural Population Ratios: 
Georgian SSR, Armenian SSR, 1913-1978

Year

Georgian SSR

Armenian SSR

1913

       26:74

       10:90

1940

       31:69

       28:72

1960

       42:58

       50:50

1970

       48:52

       59:41

1978

       51:49

       65:35

 For example, beginning in 1913, Georgia's urban-rural population was 26:74 and Armenia's was 10:90. By 1978, the ratio of urban-rural population for Georgia and Armenia was 51:49 and 65:35, respectively. Armenia produces .8 percent of the Soviet Union's total industrial output. Having a subtropical climate and an extensive irrigation system, Armenia produces harvests of wheat, barley, corn, tobacco, and several fruits. Its industrial production extends into electrometallurgy, building materials, the production of machines and food. 1

Georgia and Armenia lack many of the natural resources required for the development of modern industry. Yet despite this relatively poor resource endowment, Georgia and Armenia have shown rapid industrial development under Soviet rule. This outcome was partially due to the policies of the Soviet government, which stressed high rates of capital formation and placed a big importance on industrialization. 

TABLE 2: Growth Rates of Total Industrial Output:
Georgian SSR, Armenian SSR, 1913-1977

  Year

Georgian SSR

Armenian SSR

 1913

          1

         1

 1940

         10

        8.7

 1965

         56

       107

 1970

         85

       184

 1975

       118

       266

 1977

       134

       312

A summary of growth rates of total industrial output in selected years between 1913 and 1977 is shown in Table 2. As we can see from table 2, between 1913 and 1940, Georgian growth rates of total industrial output was slightly higher than that of Armenia. But between 1940 and 1977, the Armenian growth rates of total industrial output grew at a much faster rate than that of Georgia's.

Agricultural production in Georgia and Armenia had grown rapidly under the Soviet rule. As we can see from Table 3, during the period 1913-1977 total agricultural production in Georgia and Armenia grew at a tremendous rate, but Georgia's agricultural production grew at a higher rate.

TABLE 3   Indexes of Agricultural Production:
Georgian SSR, Armenian SSR, 1913-1977

 Year

Georgian SSR

Armenian SSR

1913

        100

        100

1940

        252

        156

1965

        551

        428

1970

        709

        541

1975

        829

        636

1977

        951

        713

 

In terms of investment, Table 4 shows the trend in total per capita investment in the USSR, Georgia and Armenia between 1940 and 1977. The bottom part of the table shows per capita investment as a percentage of the USSR. This table compares the percentage of Georgian and Armenian per capita investment with the USSR between 1940 and 1977. By using USSR as a base we can compare the percentage of Georgian and Armenian per capita investment in different years. In 1940, with USSR as a base, Georgia and Armenia scored 112.1 and 115.2 percent. By 1977 these indexes had declined to 65.4 and 73.2 percent in terms of the USSR.

TABLE 4 Per Capita Investment: 
USSR, Georgian SSR, Armenian SSR, 1940-1977

Year

        USSR

  Georgian SSR

Armenian SSR

1940

33

37

38

1965

244

171

239

1970

334

235

327

1975

445

264

344

1977

474

310

347

 

   As Percentage

of the USSR

 

1940

100

112.1

115.2

1965

100

70.1

98.0

1970

100

70.4

97.9

1975

100

59.3

77.3

1977

100

65.4

73.2

As mentioned earlier, under Soviet rule, Georgia played an important role in supplying food products and minerals for the centralized state economy. However, the republic was also heavily dependent on imports to provide products vital to industrial support. In the post-Soviet years, the Georgian economy suffered a major decline because sources of those products were no longer reliable and because political instability limited the economic reorganization and foreign investment that might support an internationalized, free-market economy. The net material product (NMP) already had declined by 5 percent in 1989 and by 12 percent in 1990, after growing at an annual rate of 6 percent between 1971 and 1985. 3 

Table 5 shows more recent information on the net material product for Georgia and Armenia for the years 1985 to 1992. 4 Georgia was not the only country with a decline in the net material product, Armenia's NMP also declined a considerable amount. Looking at Table 5, we see that by 1992 Georgia's NMP was -39.7 percent and Armenia's was slightly worse at -46 percent. In late 1993, industrial production had declined by 60.5 percent and the annual inflation rate had reached 2,000 percent, largely as a result of the economic disruption caused by military conflict within Georgia's borders.

TABLE 5 The post-Soviet republics: 
average annual growth of NMP, 1985-1992 (per cent)

Year

      Georgia

      Armenia

1985-90

        -3.2

         0.1

1991

        -20.6

       -11.6

1992

        -39.7

       -46.0

 

Similarly, Armenia has also suffered economic decline with the disintegration of the Soviet Union, but with some signs of improvements in 1994 and 1995. 5

The economic data presented in this paper suggests that Georgia and Armenia have experienced rapid economic development within the framework of the Soviet economy. Although there was rapid economic development under the Soviet rule, it is important to remember that sometimes Soviet statistics are a bit exaggerated and show higher results than western statistics due to different methods of measuring economic activity. But clearly both agricultural and industrial production in Georgia and Armenia increased, especially between 1960 and 1978. A decade and a half later however, the economic outlook was not one of development and progress for these newly independent countries but one of recession and decline.

References

  • 1. economics of Soviet Regions. Edited by Koropeckyj, Schroeder. Published in 1981 by Praeger Publishers.

  • 2. Encyclopedia Britannica. http://www.eb.com

  • 3. Armenia, Azerbaijan, and Georgia : Country studies. Federal Research Division, Library of Congress; edited by Glenn E. Curtis. Washington, D.C. : Federal Research Division, Library of Congress

  • 4. Statistical Handbook, 1993: States of the former USSR (Studies of economies in transition, Paper No. 8) 1993 IBRD, World Bank, Washington DC

  • 5. The website of the Embassy of the Republic of Armenia. http://www.armeniaemb.org/geninfo/economy.htm

 

 

 

 

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