On January 29, ISET was pleased to host Prof. Michael Beenstock for a seminar workshop. Prof. Beenstock is the author of ten books on topics including time series and spatial econometrics, macroeconomics, the global economy, and economic development, as well as writing more than 100 refereed journal articles. He presented the preliminary findings of a research project entitled “The Puzzle of Economic Development without Rural-Urban Transition in Georgia.” The project was undertaken by the Shota Rustaveli National Science Foundation and an ISET research team.

“Manchester is known for two things: 1) Manchester United and Manchester City, 2) I was born in Manchester,” said Prof. Beenstock at the very beginning of a presentation. The third point of fame for the city, which is more important for Economic Science, is Victoria University of Manchester. Here, Arthur Lewis wrote his seminal work in Development and Growth Economics for which he was awarded the Nobel Memorial Prize in Economics in 1979. Lewis provided a structural theory of economic development that explained the correlation between urbanization and development in the past, and which would also predict it in the future. The Lewis and Harris-Todaro (Harris and Todaro 1970) models have become canons of textbooks on development economics, and the rural-urban transition is now regarded as an inevitable and ubiquitous consequence of economic development.

Prof. Beenstock argued that the in case of Georgia, the country’s recent economic development has taken place without a rural-urban transition. This observation is even more puzzling because the population of the working-age in Georgia has been static, which should have enhanced the rural sector’s role as a reservoir of labor. However, the rural population share has remained stubbornly close to 50 percent. The fact that the Lewis model does not fit events in Georgia does not constitute a rejection of it. Nevertheless, as an exception to a seemingly ubiquitous phenomenon, the Georgian experience demands investigation.

The main conclusion of the research was that rural-urban income differentials in Georgia have not been conducive to rural-urban migration. Rural incomes have managed to keep up with urban incomes especially when rural-urban cost-of-living differentials are taken into consideration. Urban living is more expensive, especially because of housing. The opportunity cost of rural housing is almost zero because, for cultural and a number of other reasons, there is (almost) no market in rural housing.