FINANCIAL LIBERALIZATION AND ECONOMIC GROWTH (GEORGIAN CASE)

Recent trends of financial globalization raise a question about an economic impact of regional integration and free capital mobility. Georgia is a small developing open economy and is significantly depended on the economic conditions in the region. This paper aims to identify influence of foreign demand and foreign direct investment flows to Georgian economy and tries to classify contagion effects of regional and global financial crisis on Georgia’s economy. For checking above-mentioned hypothesis, Restricted Error Correction Model will be constructed. Results show that foreign demand and foreign direct investment inflows have a significant positive effect on the economic growth of Georgia. However, spillover effects of regional and international economic slowdown are a considerable source of external vulnerability of the country