A recent paper by Dani Rodrik has an interesting observation about Georgia. The paper itself estimates the productivity growth rates of manufacturing firms, based on a UNIDO dataset covering 72 countries. What would we expect? We could believe that it is hard to innovate, but easy to copy and emulate the productivity leaders in the industry. In this case, the most unproductive firms are the ones with the highest productivity growth, and the most productive firms are the ones with the lowest productivity growth. Or we believe that productivity growth is driven by other, firm-specific factors. In this case, we would expect that there is no or positive relationship between productivity levels and growth rates.

It turns out that the former is what is happening. Low productivity firms feature high productivity growth rates, and high productivity firms feature low productivity growth rates. This is an important finding as it implies that low productivity firms catch up with high productivity firms. There is a catch though: This finding only holds for manufacturing industries. Not for agriculture and not for non-tradable services. Given this, what should you do as a poor country? You should move into those industries that offer you high productivity growth rates – manufacturing essentially. Rodrik calls these industries escalator activities – you step on the escalator and start at a low productivity level, but then you quickly and almost automatically move up.

Where does Georgia stand? The figure above from Dani Rodrik’s paper has Georgia in an interesting position. The productivity of Georgian manufacturing firms is the lowest or one of the lowest among the 72 countries. At the same time, productivity growth rates in Georgian manufacturing are among the highest if not the highest compared to all other 72 countries.

This is of course fully in line with the first theory, that it is easier to copy and emulate than to innovate. Even better, Georgia is far above the regression line, indicating that more is going on than just what this simple theory can explain. A potential explanation is the significant reforms after the Rose Revolution. With less corruption and bureaucracy, a simplified tax regime, and more reliable electricity it is no wonder that firms experience a productivity boost. A boost is so large that at least according to this figure Georgia appears to be not only the World’s number one reformer but also the World’s number one manufacturing firm productivity growth performer.