Globalization and Business

13 - 21

Authors: VLADIMER PAPAVA

It is not so uncommon when the main deterring factor of economic growth is its politicization. As a matter of fact, economic policy is a part of governmental policy and this means that the “politicization of the economy” is practically unavoidable. The problem is when the conditioning of the “politicization of the economy” is the type of economic policy that is not based on the achievements of economic science. If economic policy is not only distant from economic science but, on some occasions even contradicts it with its elementary provisions, then this type of economic policy held by a government should be called “non-economic policy.” Among the causes of “non-economic policy,” special attention must be paid to problems in the existing mistakes in economics, in the non-professional economic team of a government and in the wrong recommendations given to a government by international financial institutions. Post-communist Georgia’s experience gives us noticeable examples when different governments held ‘non-economic policies’ which negatively impacted the country’s development. As a result of successful economic policies economic reforms were held which subsequently combatted hyperinflation in the 1990s,achieved macroeconomic stability and established the Georgian lari (GEL) as the national currency following currency reform. Relevant reforms were completely based on economics. The main problem is the rapprochement of economic policy to economic science. Achievement of this is only possible in the case when economic policy is elaborated by highly professional economists.

34 - 43

Authors: Igor Lyutyy, Yuliia Nakonechna, Liudmyla Demydenko

The article contains a theoretical generalization of the essence and necessity of state borrowing, monitoring of indi- cators of state and state-guaranteed debt in the conditions of government aspirations and actions in the field of ensuring the sustainability of public finances in Ukraine. The main task of the authors is to monitor the indicators of state and state-guaranteed debt in the context of the need to ensure the sustainability of pub- lic finances of Ukraine. State debt in Ukraine remains a significant factor of macro-financial risk. An important measure to prevent the threat of uncontrolled growth of public debt is to strengthen financial control and the implementation of continuous monitor- ing of its main indicators. The cost of public borrowing and the assessment of the effectiveness of their use as a factor in ensuring the sustainable development of the economy is a constant source of discussion between officials, public organizations, and repre- sentatives of scientific analysis centers. The article uses the generally accepted methodology for calculating the main indicators characterizing the state’s debt policy. The method of expert assessments analyzes the condition of the state debt and prospects of its servicing in Ukraine. Statis- tical and analytical methods have been used for the processing of statistical data on the study of the dynamics of indicators of state and state-guaranteed debt in Ukraine. The sources of infor- mation were the materials of the Ministry of Finance of Ukraine, the State Treasury Service of Ukraine, as well as the Budget Code of Ukraine, laws and regulations of Ukraine relating to the budget sphere, scientific works of domestic and foreign scientists. This study aims to address the issues of analyzing and evaluating pub- lic debt indicators in the context of improving debt management. The authors propose to use 10 indicators to monitor the state of public debt and make managerial decisions in public finance. The empirical experience of developed EU countries confirms the feasibility of using the key benchmark of state debt to GDP of 60% in government debt management. At the same time, the max- imum level of public debt for emerging markets is proposed in the range of 40-60%. These ideas were embodied in the position of the medium-term state debt management strategy for 2018–2020 years, where the planned gradual reduction of public debt to GDP is 60% as of 2018, up to 52.2% in 2019 and up to 49% in 2020 . Consequently, it is important to monitor compliance with the established expected values during the budget periods de- fined by the strategic plans for monitoring and justifying the ac- tually obtained indicators. In this context, the actual indicator of Ukraine’s debt in 2018 was 68%, which indicates a deviation from the planned indicator, which was due to the presence of internal and external factors which were not taken into account when this indicator was planning and which need to be further studied. So, the quality of debt planning needs further improvement. In addi- tion, the group of indicators of debt security should include the indicator of external government debt - short-term external debt as a percentage of reserves (threshold value - 100%), from 2014 this indicator is constantly exceeded. The dynamics of changes in the state debt and state-guar- anteed debt to the main macroeconomic indicators and budget parameters, weaknesses of the government debt strategy, the prospects of the debt policy in Ukraine are determined.

54 - 59

Authors: Paata Koguashvili, Nikoloz Chikhladze

Georgia has long been considered one of the exempla- ry wheat producing and consuming countries. In the article, the authors claim that the production of cereals as a strategic food must be a priority, and that the structural transforma- tion of arable lands will allow for producing 1.0-1.1 million tons of cereals in the medium term, which is sufficient for the country’s food security. As to wheat, we can produce it within 60-65% of our demand, of which, price of one ton will be by$ 25-30 as compared who imported wheat. To that end, we have to change agricultural policy and bring it in line with the existing global challenges. In the last two decades, there has been a trend towards the decline in world cereal output and the continuing rise in their prices. The latter is also due to the fact that population growth has far outpaced the per capita growth of cereal pro- duction. In the last four decades, the global price of 1 ton of wheat has increased from $ 80.4 to $ 173.4. The era of cheap food in the world has come to an end. Economic calculations indicate that by 2025, the opti- mal area for wheat will be considered: 114.0 thousand ha, for crops - 421.8 thousand tons, for a grain-storing - 120.0 thousand ha, and for a fodder - 50.0 thousand ha, for maize - 170,0 thousand ha and 714,0 thousand tons, for barley - 50,0 thousand ha and 160,0 thousand tons, for oats - 20,0 thousand ha and 50,0 thousand tons. In case of land consolidation, the wheat cultivation area may be increased to 150.0 thousand hectares. In order to avoid the long-standing problem, it is necessary to apply all the reserves for increasing domestic cereal production, for which, first of all, Georgia should adopta financially, technically, technologically and institutionally strong State program supporting grain producers, which will also involve institutional measures to produce elite seeds.

68 - 73

Authors: Marine Natsvaladze

Traditional Economics looks at the persons as at some kind of rational machine which takes into consideration all available information and then makes optimal decision. Re- ality is rather different. The behavioral economics claims that there is no rational «economic human” and probably will nev- er exist. Person’s behavior is irrational and this irrationality is not random and clueless. Vice-versa - this irrationality is systemic and predictable. Behavioral economics explores what affects people›s economic decisions and the consequences of those decisions for market prices, returns, and resource allocation. Tradition- al economic research assumes that people›s economic deci- sions are based on the rule of maximizing utility. Behavioral economics uses experiments that observe human behavior in order to uncover how we think. Behavior- al economics has been called the science of decision-making. It is a growing academic discipline which uses experiments that observe human behavior in order to uncover how we think. Behavioral economics is about understanding com- mon decision mistakes that people make and why they make them. In particular, a large aspect of behavioral economics is concerned with the gap between intention and action. Classical economic theory assumes that individuals are rational. However, in the real world, we often see irrational behavior – decisions which don›t maximize utility but can cause a loss of economic welfare. It means economists need to take into account the potential for irrationality. Successful marketers must have a profound understand- ing of the consumer’s thought process in order to create a suc- cessful marketing campaign. By understanding the consumer’s decision-making process, marketers are able to develop value propositions that really fit the consumer’s needs. The impor- tance of understanding behavioral economics for marketers is immeasurable as it allows for a better understanding of the human mind. Behavioral economics allows marketing profes- sionals to optimize marketing strategies and get real results. In the article are reviewed applied aspects of behavioral economics, also theoretical and practical results of researches. These results will be useful in company management, for pol- iticians, in private decision making as they give different per- spective to rational-functional models. In case of ignoring the interdisciplinary approaches, integration of economics and psy- chology can result in waste of resources and wrong decisions.

83 - 89

Authors: Natela Tsiklashvili, Ketevan Chanidze, Zeinab Surmanidze

Internal migration is an important demographic process that negatively affects a country›s demographic balance. It can be both voluntary and forced. In the first case, the migration of people from the village to the city is due to socio- economic reasons. In the second case, people are forced to leave their homes and move during natural disasters and conflicts (eco-migrants and displaced persons). The problem can be considered in a regional context and highlight a number of trends that are relevant for the Autonomous Republic of Adjara. The reduction of the population of regions is importance for ensuring demographic security, both for using the potential of economic development and for the population in the regions adjacent to the state border. Since the internal migration flows are large, this can lead to an increase in labor flows from the regions. In addition, in the case of vulnerable groups, such as displaced persons and eco-migrants who live in different municipalities, additional problems arise in terms of integration resettlement. According to experts, the control of internal migration processes was practically destroyed in the post-Soviet period. The movement of the population within the country is no longer controlled; accordingly, the issue is less studied in the scientific direction. Management of internal population flows caused by armed conflict, socio-economic and environmental problems requires more attention from the state. It is especially important to develop and implement policies that encourage the use of accumulated human and financial resources for sustainable development, which will allow local residents to stay in their places of residence. This will affect not only urbanization/emigration trends, but also general macroeconomic indicators, income levels and living standards.

96 - 104

Authors: Avtandil Sulaberidze

An important role of migration in the world as well as in local predictable changes, with regard to certain countries’ population, indicates to the challenge of migratory processes. In order to explain the causes of migration, with the aim of its optimization and regulation, there were formulated various theories and concepts regarding the migration. From among these concepts, we have employed the neoclassical theory of migration and the theory of migratory transition, as well as the concept of the third demographic transition. In the process of the formation of Georgian population, migration played, and still does, a significant part in influencing the growth rate of the Georgian population’s size. If natural increase was the main component in terms of the size formation of the Georgian population during 1960-1991, from 1992 up until today, external migration assumed the same role. Since 1992, the low natural increase can no longer compensate for the negative net migration as a consequence of which the Georgian population has decreased by 3723.5 thousand persons by 2019. On the one hand, since 1992, Georgia has belonged to the list of the countries that are demographically developed and on the verge of depopulation. On the other hand, because of the high intensity of emigration, it is among the donor countries which supply the developed countries with emigrants. Socio-economic analysis of the migratory processes that are associated with Georgian population has showed us that Georgia’s economy is characterized by a high share of labor in comparison to capital and by low market income, whereas the highly-developed countries of Europe are distinguished by the opposite tendency – the low share of labor compared to the capital and higher market income. This is directly linked to the neoclassical theory of migration, and the mentioned distinction forces Georgian population to emigrate toward the highly-developed foreign countries. Furthermore, decrease of work-force together with its human capital did not cause a significant growth of their income. In spite of the fact that the salary of the Georgian emigrants (especially illegal ones) is small in the highly- developed countries, in comparison to Georgia, European countries offer substantially higher salaries even on the low-qualification jobs than the actual salaries of a worker employed on the high-qualification jobs in Georgia will ever be. This difference is the main reason as to why the emigrants refrain from returning to their homeland. A sociological survey has confirmed that emigration from Georgia, besides economic factors, is associated with such social-demographic factors of migration as are: receiving education, exile, and the desire to live in better conditions, etc. These factors substantially determine the positive of migration in the receiving highly-developed countries and negative – in Georgia. Therefore, the more distinction there is between the positive and negative factors of migration, the higher the expected emigration to the other countries and the possibility of staying there. According to the current statistical information with regard to the materials of the 2014 population census, the article demonstrates the dynamics and tendency of the migration of the Georgian population since the country gained its independence up until today. It analyzes migrants’ sex-age structure. It has been revealed that the emigration is especially intensive amid the population that is in their reproductive age and is able- bodied. Moreover, it is related to social-economic factors. The sociological research conducted on students showed us that 42% of them intend to emigrate abroad after they graduate during 2018-2020. Additionally, working is the primary motive for boys as studying is for girls. After receiving education abroad, the half of them intend to return to homeland provided they can find a job with a decent salary in Georgia. Net migration has decreased at the expense of the immigration of foreign citizens and not at the cost of illegal Georgian citizens. In the aftermath of a short-term visa- liberalization within the territory of the EU, emigration from Georgia has increased, which is confirmed by the growth of the negative net migration from 2212 to 10763 inhabitants in 2017-2018. This, in turn, will reduce the population reproduction potential in Georgia and through “brain drain” the country will lose its human capital that possesses higher education. Therefore, it is still early to draw conclusions with regard to improving the perspectives of emigration and immigration of Georgian population.

110 - 115

Authors: Maia Grigolia

The article discusses how fiscal stability affects macroeconomic sustainability and whether stability means strong economic growth in Georgia.The results of the analysis conducted in the article is supported by those numerous studies which indicate that fiscal stabilization reduces output volatility. Based on the existing analysis, we can say that fiscal policy can make a significant contribution to stabilizing output. Fiscal Stability Indicator (FISCO) for Georgia has been calculated and cross-country analysis has been performed. It has been found that fiscal policy contributes more to stabilization of output in developed economies than in transitional markets and developing countries. The fiscal stabilization indicator for Georgia is 0.42 and is statistically significant, which indicates that one percentage point change in output causes 0.42 percentage point change in the total budget balance (as a share of GDP). The FISCO indicator is 0.41 for developed countries and 0.24 for transitional markets and emerging economies. Based on the correlation analysis, it has been revealed that higher fiscal stability is associated with lower output volatility. However, here also, the difference between the groups of developed and transition and developing countries is significant: in developed countries- the relationship between fiscal stabilization and output fluctuation is stronger and sharply negative than in transition and developing economies. More often, fiscal policy is used as a stabilization mechanism when the economy lags behind the desired pace of growth; And are less likely to resort to policy mechanisms when booming. Due to the proven importance of the fiscal stabilization in economic sustainability it can be concluded that the use of fiscal stabilization as a mechanism only in the «black days» can greatly worsen the sustainability of government debt, as governments appear to lack the advantage that they can reduce deficits and create fiscal buffers to better address future negative shocks in times of growth.

121 - 125

Authors: Nino Parsadanishvili

Present paper focuses on current crises in international trade in services negotiations from the perspective of consideration of trading interests of developing and least developed countries in line with the operational agenda of the World Trade Organization (WTO). Through the analysis of the existing international legal texts and scholarly works particular attention is paid to the different rounds of trade in services negotiations in parallel to the consideration of the results of relevant ministerial conferences of the World Trade Organization, drawing attention to the situation with regards of consideration of the interests of developing and least developed country members of the WTO. Special focus is paid to the complexity of the decision making process and it’s complication over time due to increased participation of parties concerned in the process of trade in services negotiations resulting in no progress in the overall process. Next to analyzing the challenges faced by the WTO in trade in services negotiations, especially in terms of considering the interests of developing and least developed countries, paper shows the ways that could be used during 2020 Kazakhstan Ministerial Conference of the World Trade Organization for finding solutions to simplify the decision making process and establish freer international trade in services by the way of either implying new approaches in interpreting the existing multilateral treaties that deal with trade in services between all member states of the WTO or deepening the discussions on a new plurilateral agreement helping the organization to overcome the stagnated process of trade in services negotiations and therefore ensuring the compliance with it’s own operational goals.

130 - 135

Authors: Lela Scholer-Iordanashvili

Globalization offers new challenges to the world economy, which becomes more depended on unprecedented in- crease of financial activity worldwide. Availability of information and development of technologies significantly increased capital flow in the world and role of capital and monetary markets in economy. Second half of 2007 and first half of 2008 faced important events in the world economy. Among them especially no- table are US real estate crisis and global limitation of credits, devaluation of USD and strengthening of inflation processes. These global events have significant influence over financial stability. In the recent decade variability of stocks and interest rates, together with globalization of capital markets, in- creased demand on financial instruments with the purpose of distribution of risks. From this perspective, interest rate derivatives are most frequently marketed among OCT derivatives. Therefore, estimation of the role of financial derivatives instruments is very important in stability of international financial system. Purpose of research is to analyze influence of derivatives over financial crisis. Within frameworks of re- search 5 countries are studied for 1997-2010 quarterly. OLS regressive equation is used in research for empirical tests. Model includes following variables: crisis index (dependent variable), independent variables are: correlation rate of cur- rent account and GDP, correlation rate of domestic credit on private sector with GDP, correlation rate between for- eign currency reserves and conditional amounts of market derivatives on the stock exchange. Empirical analysis shows us that influence of derivatives over financial stability is not unilateral and depends on characteristics of financial system of the country. Particularly, in Singapore and USA, where financial system is strong, influence of derivatives is positively reflected on financial stability, and empirical study conduct- ed on example of emerging markets, particularly, Argentina, Russia and Brazil revealed negative influence of derivatives on financial system.

143 - 146

Authors: Gocha Ugulava

Modern economic science is unthinkable without predict- ing and planning the prospects for economic life development. There are many different mathematical and statistical tools in the arsenal of scientists as well as practitioners and econo- mists today in purpose of forecasting. To date, one of the most prominent effective tools for data analytics is artificial neural networks. Artificial Neural Network - is a mathematical mod- el created in the likeness of a human neural network, and its software and hardware implementation. We carried out mod- eling and forecasting of regional economic indicators using the artificial neural network of the three-layer perceptron archi- tecture. The network architecture and neuron settings were automatically formatted through the programming language R and its package - Neuralnet. During the forecasting phase, the data vectors were presented as data frame in five input param- eters (DFI, FAI, EMP, BT, CPI), according to the neural network forecast of the regional gross domestic product (RGDP_NN) was calculated. All data are from the Imereti region and are taken from official GeoStat sources. Forecasting was done at the same time scale (2006-2017) to enable us to compare the predicted values with the actual ones to verify the level of fore- cast accuracy. We also tested the results of the neural network in another way - compared to the predicted values using mul- tiple linear regression on the same data. The accuracy of the predicted values calculated by the neural network was quite high, which was not declining but slightly ahead of the accura- cy coefficients of the predicted values obtained through linear regression. Also, the predictive values calculated by the neu- ral network with high adequacy and accuracy were compared with actual, existing ones. Presented material shows that the use of artificial neural networks for the prediction of territorial economic indicators is reasonable and justified. Their role in analyzing and predict- ing indicators that are characterized by non-stationarity, dy- namism, lack of a definite trend, periodicity, nonlinear struc- ture is especially increased. It is therefore advisable to apply this method in regional economic studies, in predicting terri- torial development plans, strategies, targets and indicators.

161 - 169

Authors: Quji Bichia

This paper aims to compare spread of an opinion, norm, innovation or a belief in different types of networks. For this purpose, different network metrics are discussed and results of network model are summarized based on simulations. Norms may spread from a single source or multiple sources and these issues require separate analysis. Networks play an important role in decisions that peo- ple make. They determine what information someone will re- ceive and how will he act within this limited information. As it turns out, small number of people can influence decisions of majority. These can be consumption decision, decisions about adopting new technologies, innovations, medical prac- tice, social norms and so on. Mathematical models of net- works help us understand how these processes propagate. There are different types of networks that can emerge within a society or some group and there are characteristics that can describe roles of group members in spreading some idea or innovation. Networks can be of many kinds but human networks tend to have common characteristics. Therefore, current work focuses on 4 types of networks - small world, single-hub (one central figure), multi-hub (many central figures) and two-component. Small world random networks are observed in different situations and they can be used to describe some human interaction networks. Many networks are described by power law distributions, where new members of a net- work have a preferential attachment and link to other high- ly connected members. Single-hub and multi-hub networks describe such situations. Two-component network is used to describe polarized groups that have opposing views and are competing with each other. This could be political parties or competing firms. The present paper analyzes patterns of information flow across different types of networks and compares the condi- tions for the emergence of group behavior. Contribution of this work is the simulation results that show how different networks exhibit varying outcomes and propagate opinions differently. Simulations on small world, single-hub, multi-hub and two-component networks with 150 members show that network types matter in terms of how fast can group behavior spread within a network. The process of spreading group behavior is as follows: Every individual receives some signal is about a binary decision. Individuals make the first decision based on their signals because they have no other information. In the next step, every individual looks at the decisions of those in his or her neighborhood and updates his or her belief by the Bayes rule. On the next step, they observe others’ actions again and decide whether to change own action or not, and so on. After some stages, a stable point is reached where no one is willing to change his decision anymore. The study compares the times needed to reach stability in different types of networks. Simulations have shown that the speed of propagation of a belief varies according to who is the source of this process. However, the difference is not big within a small world network. As it turns out, full distribution occurs in at least 4 and a maximum of 20 periods, and the average time of full distribution varies from 6.5 to 8.6, depending on whether the most connected member is the source or the least connected one. The result is quite different if there is one central figure. The presence of one central figure prevents information from spreading across the network, as there is preferential attachment- ment and some members can only acquire one connection. If there are several central figures, the full spread occurs relatively faster. In a two-component network, full adoption occurs quite rapidly. Although the connection between components is almost non-existent, a small number of existing links play a critical role in rapidly disseminating a behavior. Group behavior spreads more rapidly in a random network than in a network characteristic of a special society on average. But multihub network has the potential for the fastest spread (although information disseminates faster in a random network on average). Group behavior is slow to spread in a single-hub network, as some individuals are very weakly connected to other areas of the network. An opinion spread in the neighbourhood of the central figure will soon reach all members of around him or her but it will take a long time to reach far ends of the network. The two-component network in this regard maintains a balance between the speed of dis- tribution and the area of distribution. There is least variation between adoption times in a two-component network (not considering the small-world random network). The high variation in single-hub and multi-hub networks indicates that it is advisable to consider more specific situations for accurate results. Comparison of adoption times within multi-hub networks of different size shows that adoption happens at the same speed most of the time regardless of the network size. When two opposing opinions are being spread and one of the opinions is dominated by the other, it takes similar time periods for all sizes of multi-hub networks.

178 - 184

Authors: Panteleimon (Paata) Kldiashvili

Accounting and auditing are essential elements of contemporary economic relations. Their importance and the need for their development are constantly growing. Such relevance of the issue has paved the way for our interest in this subject, and accordingly, the purpose, objectives, subject, methods and the informational basis of research have been determined. The purpose of research is to identify the areas where improvements could be made in accounting and auditing regulation for private sector enterprises in Georgia, based on international experience, the country’s international commitments and the characteristic features of economic development. The analysis of the legislative frameworks in force, established practice and international experience allows us for defining the major aspects of the regulatory improvement of accounting and auditing activities, as well as for developing measures that must be undertaken in the separate important areas. In particular: To determine an optimal model of accounting; To identify of levels of accounting records maintenance; More effective use of resources of the International Federation of Accountants (IFA) and other international organizations at the national level; Accelerating research on developing the accounting and auditing field; Setting up effective regulatory and/or self-regulatory body of the field of accounting and auditing; Establishing the auditing quality control system; Ensuring compliance with international standard requirements for financial accounting. Introduction of the continuous education system; Improvement of the regulatory legal framework. Conclusion. Studies conducted allow us for compiling the regulating algorithm consisting of three main components: training and certification; methodical and methodological support; and supervision. Training and certification. Training (including continuous training), in compliance with programms accredited by the Servce, should be provided by professional organizations; certification should be independently provided by the National Assessment and Examination Center on the basis of passing the professional examination, in compliance with the examination program accredited by the Service. Methodical and methodological support. Studies conducted clearly demonstrate a low level of compliance with professional standard requirements and practice in Georgia that is mostly due to the lack of appropriate methodologies, methodical guidelines, supporting manuals and legal acts. A high level of this correlation has also been confirmed using the examples of many other countries. In the component, we should highlight the preparation of these materials on the one hand, and on the other hand, transferring them directly to the consumer. We believe that the preparation of materials should be provided by the Service for Accounting, Reporting and Auditing Supervision in close cooperation with international and local professional organizations and academic staff; these materials should be transferred to representatives of the profession/practitioners by professional organizations. Supervision. This is a key component of the algorithm, which should ensure the effective functioning of the remaining components. It should become a guarantor of compliance with the requirements of national legislation, international standards, and other regulating documents and the minimum requirements of the quality of services provided. Based on the conducted studies, it may be stated unequivocally that the only optimal option in modern conditions for our country is the existence of a state supervisory body in the field of accounting and auditing. Furthermore, for this stage, the functioning of the Service for Accounting, Reporting, and Auditing Supervision within the Ministry of Finance is not a bad decision, although in order to increase the effectiveness of activities, it is necessary to implement a gradual transformation of the Service in accordance with the model we have propose.