This weekend we visited one of the more remote parts of Georgia, the Shiraki plains at the border to Azerbaijan. After passing through Dedoplis Tskaro, the district capital and largest town in this part of Georgia, we found ourselves on a bad road going all the way to the small town of Kasritstkali. In Soviet times the road was surfaced, but these days one has to navigate mud and large potholes. By all accounts, the small town of Kasritstkali is thoroughly isolated from the rest of Georgia. And for what it matters, from Azerbaijan as well. Although the border is only a few kilometres away there is no road, let alone an official border crossing.

This is exactly what economic theory would suggest. New roads and other transportation infrastructure create benefits. If the road is built in the middle of the country all benefits will accrue to the country. If a new road is connecting to a neighboring country, some of the benefits of the road will accrue to the neighboring country. Unless transportation planners care about the welfare of the neighboring country, a less than an optimal number of roads will be built in border regions.

In fact, there is a little twist to the story of this small town in the middle of nowhere. Although I cannot 100% confirm it, it appears that the area around Kasritstkali is administered by the Dedoplis Tskaro district, but Kasritstkali itself is administered by the Akhmeta district. But the Akhmeta district is far away and is not even bordering the Dedoplis Tskaro district. Essentially Kasritstkali is a small enclave. It’s unclear why, but I have the following theory: Most people living in Kasritstkali are from the Akhmeta district. In the summer they travel with their flock of sheep to the mountains, and in the winter they live on the Shiraki plains around Kasritstkali. Whether or not this is the reason for this strange arrangement, being part of a district far away certainly does not help Kasritstkali get a better road to Dedoplis Tskaro and the outside world.

The bigger question of course is what Armenia, Azerbaijan and Georgia, and other regional players can do to improve cross-border infrastructure in the South Caucasus. Interestingly we can observe two different approaches. On one side Georgia is cooperating with Armenia and Azerbaijan in the construction of new cross-border infrastructures such as the Baku-Tbilisi-Kars railway line or the proposed road connecting Armenia with Adjara. On the other side, Georgia unilaterally reduced import tariffs and simplified its customs procedures, benefiting not only Georgia but also neighboring countries. In light of the positive externalities it created for its neighbors the latter seems to be a rather remarkable reform.