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ISET Economist Blog

A blog about economics in the South Caucasus.
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At the Edges of Georgia
ISET continues a Lecture Series of TSU’s Distinguished Professors. Once a month notable TSU professors from various faculties deliver a one hour presentation for ISET-ers. On October 29, 2014, ISET Conference Hall hosted the Vice Rector of Tbilisi State University Levan Aleksidze, presenting the topic “People’s Right to Self-Determination; Separatism in a Contemporary International Context”. In this presentation, Aleksidze talked about the difference between two notions domestic law and international law. How these laws define and sometimes fail to define the political environment in the world. During the lecture he discussed cases both from Georgia – Abkhazia and South Ossetia, and the rest of the world - Kosovo, Crimea, etc.
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O Thou happy Georgia!
On October 30, 2014 ISET launched the Finance Course for Professionals. This one-year certificate course aims to endow people who have not received formal training in finance but have to deal with financial matters in their daily routine with fundamental concepts and methods of finance. It will enable the participants to understand and assess financial subjects independently and provide terminological and conceptual essentials for communicating with financial experts. Lecturers Paul-Henri Forestier, Jean-Frederic Paulsen and Florian Biermann welcomed the participants and provided them with a short overview of the subjects they will be taking throughout the year emphasizing not only the work-related but also the everyday use of the knowledge they will acquire.
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Jury Trials: A Step Forward
In August 2012, the Tbilisi price of khachapuri added 7.9% compared to the previous month, while prices in Kutaisi and Telavi increased by 6.6 and 10.1%, respectively. Batumi saw the largest increase (12.4%), as could be expected at this time of the year. Calculated as a simple average of individual city indices, the national Kh-Index added almost 10% compared to July 2012, reaching 3.03 GEL. The price of khachapuri is highly correlated with the official CPI (up 0.2% in August) given that the latter attaches a weight of more than 30% to food and non-alcoholic beverages, including many khachapuri ingredients. Still, one can observe (see the two circles in the chart) that Kh-Index tends to change direction about a month before the CPI. Thus, it reaches the bottom alrady in June and starts increasing from July on. CPI, which comprises many goods and services that are not subject to seasonal price fluctuations, starts rising, albeigt rather mildely, about a month later, only in August of each year. {tab Tab Title 1} Your text... {tab Tab Title 2} Your text... {/tabs}  
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Khevsureti Fact of the Day
In August 2012, the official monthly inflation rate in Georgia amounted to 0.1%. With the exception of clothing and footwear (down 2.1%) and transportation (up 1.2%), prices of goods and services in all other major categories comprising the CPI changed very little. In year-on-year terms, that is compared to August 2011, inflation was again negative (-0.4%), almost entirely driven by the slackening of prices in the food and non-alcoholic beverages category (-2.8%). While clothing and footwear prices were down by more than 7.2%, their (negative) contribution to the index was not as large due the smaller weight of this category in the CPI basket. Similarly, the rather sizeable increase in the prices of cafes, restaurants and hotels (4.9%), did not have much (positive) influence on annual inflation. Whether positive or negative, price changes in most other categories were very small, essentially cancelling out each other.{tab Tab Title 1} The fact that GeoStat provides detailed data on all CPI components allows comparing Kh-Index and official estimates of changes in the prices of key khachapuri ingredients. Despite some differences in survey methodology and geographic coverage (we survey only four Georgian cities), our results are quite consistent with the official GeoStat data. For instance, the seasonal ups and downs of the two cheese indices – see chart – are very well synched, even though, unlike GeoStat, we focus on a particular variety of Georgian cheese (Imeretian), as required by the standard Imeruli khachapuri recipe. There is a degree of consistency between Kh-Index and official CPI data concerning the prices of all other khachapuri ingredients.
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5 Million Tourists in Georgia by 2015 - a Myth or Nightmarish Reality?
The cost of cooking one standard Imeretian khachapuri in August 2012 averaged 3.03 GEL, which is about 4.4% lower compared to August 2011 (i.e. year-on-year). Given the National Bank of Georgia’s policy to keep the GEL/USD exchange rate fluctuations within a rather narrow band, the price of khachapuri expressed in USD decreased at about the same rate as the GEL-denominated Kh-Index. Yet, it gained a significant 10.6% when valued in euro: in August 2011, one euro could be exchanged for 2.36 GEL compared to 2.04 GEL in August 2012. Thus, if we take a simple average of the US dollar and euro exchange rates, the Kh-Index for foreign currency earners is up in year-on-year terms by about 4%. The reason the Georgian lari is appreciating in recent months and years (excluding the post-2008 war period) against most other currencies has to do with the fact that Georgia is receiving (much) more money and investment from abroad compared to what it is sending to other countries. This is happening through a combination of highly concessionary loans and grants received by the Georgian government, borrowing by the private sector (mostly banks), money sent home by Georgian workers and businessmen abroad (“remittances”), and foreign direct investment (FDI). On the one hand, the consistent surplus of foreign currency allows Georgia to maintain a large and growing trade deficit (excess of imports over exports). On the other hand, it applies a downward pressure on the price of foreign currency relative to the Georgian lari, hence the slow but steady process of GEL appreciation.
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Sorry, where is the contemporary art museum?
In September 2012, Tbilisi regained its status as the most expensive Georgian city with the local Khachapuri Index reaching 3.25 GEL (up 5%). Batumi slipped to the second position after only one month at the top of the rating: the local index increased by a rather modest 0.9%, reflecting weaker demand as a result of a decline in tourist arrivals. Kutaisi saw the largest hike in Kh-Index (9%), however, at 3.17 GEL per portion, it is still significantly cheaper than both Batumi and Tbilisi. Telavi, the cheapest city in our survey, is way behind, at 2.95 GEL. The price gap between the most expensive and the cheapest locations continued to expand from 0.21 GEL in July to 0.29 GEL in August to 0.30 GEL in September. To some extent, the geographic variation in the prices of khachapuri ingredients is a function of the regional gap in wealth, wages and income, which directly affects consumers’ demand for goods and services. Thus, it is only natural that prices for locally produced goods, such as cheese, are higher in Tbilisi than in other cities. However, a crucial point is that the wealthier Georgian regions are wealthier not only in nominal terms. In other words, despite facing higher prices, an average Tbilisi household is able to maintain a higher level of consumption compared to any other location in Georgia. The way to arrive at this conclusion is to calculate a measure of real income per capita for different Georgian cities, which is the average nominal income in a city (or region) divided by the corresponding index of prices. Alternatively, given the absence of regional price indices, we can divide the nominal per capita income for each location (the latest available GeoStat data are from 2011) by the corresponding Kh-Index. The resulting indicator of real income, reported in the chart, is rather straightforward: the number of (real) khachapuri portions a family can afford in each city of interest. The results of our calculations are quite striking because incomes levels vary much more across cities than prices. For instance, while Tbilisi is about 10% more expensive than Kakheti, the nominal income gap between the two is over 50%: 814 vs. 531 GEL. Thus, taking September 2012 prices into account, the real per capita (Khachapuri) income gap between Tbilisi and Kakheti was only 10 percentage points lower than its nominal equivalent: slightly below 40% (250 vs. 180 portions).
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