According to the Georgian socio-economic development strategy, “Georgia 2020”, the economic politics of the Georgian government is based on the following principles:

• Ensuring fast and efficient economic growth that is oriented towards the real (production) sector development;

• Implementing the economic policy that stimulates inclusive economic growth;

• Exploiting natural resources rationally in the economic development process;

• Ensuring environmental safety and sustainability and avoiding the risks of natural disasters.

Effectively elaborating and implementing a policy that is necessary for regional development plays one of the crucial roles in achieving inclusive economic development. It is important to reveal the comparative and competitive advantages of Georgian regions, to define their potential and exploit it to the maximum. As a result, this will contribute to developing those regions that are strong and competitive and ultimately, will increase the welfare of the population.

One of the main premises for reducing inequality among regions, stimulating local economic growth, attracting direct investments, and getting closer to the European Union is to further arrange and develop the local infrastructure. Moreover, according to the “Georgia 2020” strategy, it is important for the local self-governing bodies to be also involved in planning and carrying out activities corresponding to each region’s development plan priorities.

According to the ISET-PI, there are differences among the regions, however, the most systemic regional inequality can be explained by the urbanization indicator. In particular, usually, relatively more urbanized regions have a higher added value per capita, more diversified and developed economic structure and infrastructure. In this regard, there is an especially complicated situation in the mountainous regions of Georgia that can be considered as the most vulnerable regions of the country.

Population living in the mountains is facing problems like lack of infrastructure, complicated living conditions, limited economic resources for households, and lack of food security. Often, all this drives the population out of mountainous regions to the lowland.

Due to the relevance of the above-mentioned issues, the “Law on the Development of High Mountainous Regions” has been adopted in 2015. The aim of this law is to define socio-economic benefits for high mountainous regions in order to stimulate progress, the welfare of people living in high mountainous regions, improve their quality of life, stimulate employment and improve their social and economic conditions.2 Georgian Law on the Development of High Mountainous Regions is based on the article 31 of the Georgian constitution that states the following: “The state shall take care for the equal socio-economic development of the whole territory of the country. With the view of ensuring the socio-economic progress of the high mountain regions special privileges shall be determined by law”. While adoption of the law is a sign that developing mountainous regions is one of the policy priorities for the country, in order to overcome the challenges existing in terms of regional development, the involvement, and the joint efforts of the government, public and private sectors are needed. The role of research activities is also large in this. Nowadays, there are a few pieces of research that would allow us to base the sustainable regional strategy on factual evidence and arguments.

The goal of the research is to support elaborating informed regional policy that is based on evidence. In order to achieve this goal, the objective of this research is to:

• Identify gravity centers;

• Determine functional regions;

• Identify priority economic activities and sectors with the high potential for economic growth;

• Examination of competitive advantages of identified priority sectors;

• Develop specific recommendations for local and central governments to increase the competitiveness of functional regions.