Location: Georgia
Agricultural Subsidies: The Case of Georgia

This brief explores the role of government subsidy programs in Georgia’s agricultural sector, with a focus on grapes, apples, and hazelnuts. These subsidies play a significant role in providing social assistance to the sector and in supporting farmers; however, their long-term impact on industry growth remains a subject of discussion. Key challenges include ensuring product quality, enhancing productivity, and expanding market opportunities, particularly regarding export market concentration and infrastructure constraints.
Introduction
Governments have historically intervened in agricultural markets under the pretext of promoting food security. At first, interventions aimed to provide affordable food for rapidly growing urban populations, afterwards more emphasis was put on enhancing agricultural productivity. Nowadays, agriculture remains a priority for policymakers due to its role in promoting inclusive growth and reducing poverty. Additionally, renewed concerns about food security have further driven these policy efforts (Gautam, 2015).
One of the key instruments of these interventions are subsidies in different forms – such as various input subsidies, price supports, and trade interventions. While their use has been widespread, the economic effectiveness of subsidies continues to be heavily debated. Economic theory suggests that subsidies are useful in resolving market failures; however, even in this case, the actual effect of subsidies is highly dependent on the specific implementation. Further, in many other cases, subsidies have led to distortions and have been detrimental to countries’ own economic interests (Gautam, 2015).
Another important concern arises from the political economy of subsidies use. Widening rural-urban income disparities create political pressure to implement measures that support the livelihoods of the large agricultural population. Subsidies, due to their visibility, are a convenient instrument to increase political support from this population group. Further, subsidies offer immediate or near-immediate gains to recipients, whereas public capital investments take longer to deliver results, therefore subsidies are often used as a political instrument. Since political decision-making is typically driven by short-term considerations, often aligned with electoral cycles, long-term investments do not always align with political incentives (Gautam, 2015).
Box 1. Subsidies Subsidies are financial assistance provided by governments to support or promote specific sectors, industries, or activities within the economy. They can take various forms, including direct cash payments, tax relief, low-interest loans, and in-kind support, such as the provision of goods and services at below-market prices. Subsidies play a significant role as a tool in government expenditure policy. They influence resource allocation decisions, income distribution, and expenditure efficiency (Schwartz & Clements, 1999). |
In the case of Georgia, subsidies are the main instrument for support to the agricultural sector, with direct subsidies accounting on average 45 percent of total government expenditure in the sector (2014-2024). The government provides subsidies for most of the country’s main crops, including wheat, grapes, hazelnut, tangerines and apples.
Given the scope of this policy brief, only subsidies for major perennial crops – grapes, hazelnuts and apples – are discussed. This as as the wheat sector involves additional food security considerations and due to lack of data for tangerines. Among perennial crops grapes have the highest share of total production (46 percent, including both white and red grapes), followed by tangerines at 14 percent, apples at 10 percent, and hazelnuts at 8 percent (2023, Geostat).
This policy brief firstly explains the Georgian context in more detail, followed by sub-sections discussing each major perennial crop sector, ending with conclusions and policy recommendations.
The Georgian Context
Agriculture plays a crucial role in Georgia’s economy. As of 2024, 39 percent of the population resides in rural areas (Geostat, 2024), where agriculture serves as the primary source of income. The sector employs the largest share of the country’s workforce—17 percent (Geostat, 2023)—yet it contributes to only 7 percent of Georgia’s GDP (Geostat, 2023). At the same time, the disparity in income, and other major socio-economic indicators between the rural (agricultural) and urban population is large. For example, in Tbilisi, the capital of Georgia, the average monthly nominal earnings are 78 percent higher than the average for the rest of Georgia. Additionally, Tbilisi accounts for 70 percent of the total value added generated in the country (Geostat, 2023).
In recent year, the country has undertaken significant efforts to modernize and improve the agricultural sector, yet significant challenges remain. Georgian agriculture is largely characterized by small, fragmented family farms focused on subsistence farming with restricted market access. They are highly vulnerable to weather conditions, yet there is little awareness of or adoption of insurance and risk mitigation measures (State Audit Office of Georgia, 2023). Traditional farming methods remain dominant, with limited use of modern technology. Additionally, most farmers operate on a small scale and lack cooperation and coordination, further hindering efficiency and competitiveness. As a result, they often struggle with low productivity and have difficulty producing high-quality products in stable quantities. Lastly, a high dependency on the Russian market for most agricultural products poses significant risks, as Russia is not a stable trade partner.
Given this context, agricultural subsidies are a highly important topic in Georgia. The Georgian government implements various subsidy programs to support agricultural sectors such as fruit production, viticulture, hazelnut farming, and wheat production. These initiatives aim to promote the sales of grapes, non-standard apples, and tangerines, enhance hazelnut production, and ensure food security by subsidizing essential staples like wheat, particularly during the Covid-19 pandemic.
Starting from 2014 to 2024 (Figure 1), the share of subsidies in total agricultural expenditure has followed an increasing trend, ranging from 21.4 percent in 2014 to peaking at 67.5 percent in 2021. In 2024 the respective share is 54.1 percent. A decline occurred in 2022–2023, following the stabilization of the Covid-19 pandemic. Apart from this, the share of subsidies within agricultural expenditures has been increasing over the last ten years.
Figure 1. Total and subsidy expenditures on agriculture, million GEL (2014-2024)

Source: Geostat, 2025.
While these programs are designed to assist farmers and increase sales, how these subsidies support in addressing the mentioned structural challenges – therefore advancing the effectiveness of the sector – is under question.
The Grape Subsidy Programs
The grape subsidy programs in Georgia are primarily aimed at supporting viticulture in key wine-producing regions, such as Kakheti, Racha-Lechkhumi, and Kvemo Svaneti. These subsidies were designed to stabilize farmers’ incomes and ensure smooth harvests, to guarantee that even lower-quality grapes will be sold, particularly for grape varieties used in wine production. In general, the government uses two types of subsidies: direct and indirect. Direct subsidies involve paying farmers a certain amount of money per kilogram of grapes. Indirect subsidies are implemented through state-owned companies that are responsible for purchasing grapes from farmers.
Georgia’s grape subsidy program (direct subsidies) was introduced in 2008 and has been implemented every year except for in 2018 and 2019. Starting from 2014, the government provided substantial direct financial support to grape producers. However, starting in 2017, direct subsidies began to decline sharply, and by 2018–2019, the government announced that it would no longer directly subsidize the grape harvest. However, during this period, the state’s grape purchasing program remained in place, purchasing any surplus grapes left on the market after private acquisitions.
The Covid-19 pandemic in 2020 prompted a renewed surge in subsidies, with financial support reaching its highest levels in years. This elevated support continued until 2022 but was significantly reduced again in 2023 (by 63 percent), following a decline in production (Figure 2).
Figure 2. Grape production, subsidies and wine exports (2014-2023)

Source: Geostat, 2025.
Grape production has generally followed an upward trend, with record harvests in 2019 and 2020. Given the absence of direct subsidies in 2017 and 2018, the effect of subsidies on production levels is questionable. In more recent years, production has become more volatile, displaying a noticeable decline by 2023.
Wine exports, a crucial part of Georgia’s economy, have grown steadily, with volumes peaking in 2022, and persisting at high levels ever since. Export revenues have also increased consistently, reaching an all-time high in 2024, according to preliminary data.
The main destination for the Georgian wine sector is CIS countries. Russia accounts for the largest share among the CIS, with an average of 75.4 percent, between 2014-2024. Russia’s share has been increasing in recent years, reaching 85.8 percent in 2024 (among CIS countries). The average share of exports to the EU of total exports is 10 percent (Figure 3).
Figure 3. Wine exports by country groups (2014-2024)

Source: Geostat, 2025.
Although subsidies played a key role in revitalizing Georgia’s wine industry following the collapse of the Soviet Union, especially as grape production and processing have increased over the years, their long-term impact have been problematic (Ghvanidze, Bitsch, Hanf, & Svanidze, 2020). Since subsidies were introduced in 2008, Georgia’s grape market has become heavily distorted, with prices shaped by government support rather than supply and demand dynamics.
Even though a significant portion of government funding for the sector is allocated to subsidies, the way in which subsidies affect grape production levels is not obvious. Other sector insufficiencies, such as quality issues and exporting market diversification are inadequately addressed. Grape quality remains a key issue, as farmers lack incentives to improve production practices, knowing that the government will purchase their yield regardless. Additionally, Georgia’s heavy reliance on its main export partner, Russia, poses significant risks, and the share of exports to EU countries has not seen substantial growth. Overall, since the subsidies aim to stabilize producers’ income rather than to address structural issues in the sector, they may be considered social support.
The Apple Subsidy Program
The apple subsidy program in Georgia was introduced in 2014 to support the sale of non-standard apples after market prices dropped to a record low 0.02 GEL. Non-standard apples are damaged fruits that fall from trees due to wind, hail, or other natural factors. Typically unfit for direct consumption, these lower-quality apples are primarily used by factories to produce apple concentrate. The program aimed to stabilize prices and provide financial relief to farmers. Processing companies received financial support for each kilogram of non-standard apples purchased.
The program was discontinued between 2015 and 2019, before it resumed in 2020. The number of companies involved in purchasing non-standard apples for further processing ranges from 12 to15 over the years.
As for apple production levels, although there were significant production surges in 2016, 2018, and 2020, these increases have been volatile and unstable.
Figure 4. Apple production, subsidies and exports (2014-2023)

Source: Geostat, 2025.
In terms of exports, the volume increased sharply between 2018 and 2019, reaching its peak in 2021 before gradually declining. Most apple exports are directed to CIS countries, with Russia accounting for an average of 94 percent between 2018 and 2024. In contrast, the EU’s share remains minimal, averaging less than 1 percent, with no exports recorded to the EU in half of the considered years.
Figure 5. Apple exports by country group (2014-2024)

Source: Geostat, 2025.
While apple production is highly vulnerable to weather conditions, the adoption of insurance remains low. The provided subsidy program supports farmers in producing lower-quality non-standard apples, thus limiting the incentives to enhance product quality, productivity, or production practices, as farmers rely on the government to purchase their produce regardless. Similar to the grape industry, government support in the apple market functions more as a social assistance rather than a tool for industry advancement.
The Hazelnut Subsidy Program
Georgia introduced the Hazelnut Production Support Program in 2022 to enhance competitiveness, assist farmers, and improve disease management. The program registered hazelnut orchards in a national cadaster, enabling better monitoring and targeted support, to subsidize the purchase of pesticides and agrochemicals essential for hazelnut care and cultivation. The program has continued in 2023 and 2024, with subsidies amounting 22 and 22.6 million GEL, respectively.
Hazelnut production in Georgia has been highly volatile in the past decade. The sector experienced its most severe crisis in 2017-2018 when fungal diseases and an Asian stink bug (Pharosana) invasion devastated yields. Consequently, both the quantity and quality of hazelnut production declined. In 2019, the production began to recover, peaking in 2021. However, unfavorable weather conditions resulted in a decline in 2022, with only a partial rebound in 2023.
Figure 6. Hazelnut production and exports (2014-2023)

Source: Geostat, 2025.
Hazelnut is mainly exported to EU countries, with an average share of 65.3 percent, between 2014 and 2024. The share of CIS countries in this period is 20.2 percent. However, the share exported to EU countries has been declining 2023 and 2024, to 52.4 and 56.7 percent, respectively.
Figure 7. Hazelnut exports by country group (2014-2024)

Source: Geostat, 2025.
The subsidy scheme in the hazelnut sector seems to be more targeted at the issues the sector is facing, compared to the other discussed programs. The effects are however yet to be explored as the program began in 2022. However, several challenges remain, such as insufficient technical facilities for drying and storing goods essential for ensuring the quality of products (Gelashvili, Deisadze & Seturidze, 2023).
Conclusion and Recommendations
Although the government of Georgia provides substantial support for the agricultural sector, it still suffers from various challenges. Product quality, high vulnerability to weather events and export dependency on unstable partners are major issues for the grape and apple sectors. Further, the effectiveness of the direct financial support and the corresponding incentives within these sectors can be questioned.
For these crops, the subsidy programs seem to function more as social assistance rather than tools for industry development. In the grape sector, guaranteed government purchases reduce incentives for farmers to improve grape quality. Similarly, the apple subsidy program encourages the cultivation of non-standard apples, as farmers rely on state-backed purchases rather than market-driven quality improvements. Apple production has also shown significant volatility over the years, further highlighting the sector’s instability.
Additionally, heavy dependence on Russia as a primary export market for these crops presents economic risks. Diversification, particularly to the EU, has remained limited.
As for the hazelnut sector, the subsidy program aims to address some of the structural challenges, while this sector also relies less on the Russian market. However, some issues with infrastructural equipment remain unresolved.
Overall, the share of subsidies in agriculture is very high; further, the design of the programs mainly prioritizes short-term income stability for farmers rather than long-term market competitiveness and sectoral development. To address the discussed systemic challenges, it is essential to develop targeted policies tailored to the specific needs of each sector. While the priorities may differ across each crop, several key areas require focused attention:
- Quality of Products – Enhancing product quality through ensuring food safety standards, improved farming and manufacturing practices, and better regulatory frameworks can help increase competitiveness in both domestic and international markets.
- Market Diversification – Strengthening ties with new international partners and improving branding strategies can help industries access new markets and reduce risks associated with economic or political fluctuations in dominant trade partners.
- Infrastructure Development – Poor infrastructure remains a challenge for the sector. Investments in post-harvest drying and storage facilities, as well as modern machinery and equipment, will enhance efficiency, reduce losses, and improve product quality.
- Adoption of innovative farming practices– Adopting innovative farming practices boosts productivity, lowers costs, and enhances sustainability. It helps farmers adapt to changing weather conditions, making agriculture more efficient, environmentally friendly, and resilient.
By addressing these fundamental issues, policies can play a role in contributing to the long-term stability and growth of the agricultural sector, ultimately strengthening the economy and increasing global competitiveness.
References
- Gautam, M. (2015). Agricultural Subsidies: Resurging Interest in a Perennial Debate. Indian Journal of Agricultural Economics.
- Gelashvili, S., Deisadze, S., & Seturidze, E. (2022). An Overview of the Georgian Wine Sector.
- Gelashvili, S., Deisadze, S., & Seturidze, E. (2023). Overview of the hazelnut sector in Georgia: past trends and the way forward. Tbilisi: ISET Policy Institute.
- Ghvanidze, S., Bitsch, L., Hanf, J. H., & Svanidze, M. (2020). “The Cradle of Wine Civilization” – Current Developments in the Wine Industry of the Caucasus. Caucasus Analytical Digest, 117, 9-15.
- Jayne, T., & Rashid, S. (2013). Input Subsidy Programs in Sub-Saharan Africa: A Synthesis of Recent Evidence. Agricultural Economics, 44, 547-562.
- Schwartz, G., & Clements, B. (1999). Government subsidies. Journal of Economic Surveys, 13(2), 119-148. doi:10.1111/1467-6419.00079
- State Audit Office of Georgia. (2023). Audit Report on the Development and Management of the State Agricultural Insurance Program.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
How Social Assistance Shapes Election Outcomes: The Case of Georgia

This policy brief investigates the relationship between social assistance programs and election outcomes in Georgia, focusing on the 2024 parliamentary elections. Our regression analysis establishes a statistically significant link between an increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party. The results raise critical questions about the potential use of social assistance programs as a strategic political tool. Specifically, a 1 percentage point increase in targeted social assistance beneficiaries as a share of the population lead to an, on average, 0.5 percentage point increase in the Georgian Dream’s vote share, even after controlling for poverty-related factors. The findings recognize the dual impact of social assistance programs – alleviating poverty while shaping political behavior. They also underscore the need for ensuring that social assistance remains focused on addressing the needs of vulnerable populations without exerting undue political influence.
Introduction
The relationship between social assistance programs and electoral outcomes has gathered significant attention in both academic and policy circles, especially in the last decade. Social assistance programs, designed to support vulnerable populations, often carry political implications, particularly in developing democracies where incumbent governments may leverage these programs to secure voter loyalty. In Georgia, one of the largest components of social assistance is the targeted living allowance program, which, unlike other types of social assistance – such as those for individuals with special needs, internally displaced people, or elderly population –relies on assessing the beneficiaries’ poverty levels through proxy means testing (PMT). This makes subsistence allowance benefits vulnerable to biased, favorable selection by those in power. Allegations exist that the government may have strategically used this program, including increasing the number of beneficiaries in the lead-up to elections to secure votes or threatening existing beneficiaries with the withdrawal of their assistance based on their disclosed political preferences (Shubladze (2024); Japaridze (2023); Social Justice Center (2024)).
This policy brief explores the impact of social assistance on electoral outcomes in Georgia, specifically assessing whether increases in the number of targeted subsistence allowance beneficiaries during the 2020-2024 period influenced the votes received by the incumbent party in the 2024 parliamentary elections.
This analysis is especially important given the recent developments in Georgia’s political landscape. The 2024 parliamentary elections marked a critical juncture, with the Georgian Dream claiming to have secured 53.93 percent of the votes. Concerns over the fairness and transparency of the elections have been widespread. The Organization for Security and Co-operation in Europe’s (OSCE) Office for Democratic Institutions and Human Rights (ODIHR) reported systematic election irregularities, including pressure on voters, media bias, unequal campaign conditions, and election-day practices that compromised the ability of some voters – including public sector employees and recipients of social assistance – to cast their ballots without fear of retribution.
Our regression analysis documents a positive relationship between the number of living allowance beneficiaries and the votes garnered by the incumbent party across Georgian municipalities, raising further concerns about the integrity of the electoral process, and the allocation of state funds.
Political Implications of Social Assistance Programs: A Global Perspective
The link between social assistance and electoral outcomes has been widely studied. Social assistance programs often serve a dual purpose: they alleviate poverty and provide tangible support to vulnerable citizens while also shaping political behavior, particularly voting patterns. These programs can enhance incumbents’ electoral support by fostering gratitude among recipients, signaling government competence in addressing social needs, or creating concerns among beneficiaries that their political preferences if exposed, may influence the government’s decisions when choosing the beneficiaries of social assistance.
Research by De La O (2013) provides a compelling case in the context of Mexico. Examining the Progresa/Oportunidades conditional cash transfer program, De La O find that the program led to an increase in both voter turnout and incumbent vote share.
Zucco (2013) contributes further evidence from Brazil, where the Bolsa Família conditional cash transfer program emerged as a cornerstone of electoral strategy. Zucco demonstrates that municipalities with higher proportions of cash transfer beneficiaries tended to favor incumbent candidates in three different presidential elections, establishing a clear link between social assistance and voting behavior.
Adding to this body of work, Layton & Smith (2015) provide further insight into the nuanced ways in which targeted social assistance programs influence voter behavior in Latin America. The authors theorize that such programs simultaneously mobilize non-voters and convert opposition supporters, with variations based on country-level political and programmatic differences.
In addition, recent research from Indonesia further illustrates the impact of social assistance budgets on electoral outcomes. A study by Dharma, Syakhroza, and Martani (2022) examines 212 regencies and cities in Indonesia where incumbents participated in local elections. The findings reveal a direct positive effect of social assistance spending on incumbent votes. The authors further claim that high political competition counteracts incumbents’ advantages and mitigates the effectiveness of such spending.
The international literature thus provides valuable motivation for exploring the Georgian case, where social assistance may play a similar role in shaping voting behavior.
The Georgian Context
The deeply controversial October 26, 2024, parliamentary elections in Georgia mark a pivotal moment in the country’s political history. According to the Central Election Committee of Georgia, the ruling party, the Georgian Dream, secured 53.93 percent of the votes, maintaining its dominant position in Georgian politics. However, the elections were accompanied by widespread allegations of electoral malpractice, casting a shadow over their legitimacy and raising concerns about the future of democratic governance in the country.
OSCE’s ODIHR provided a comprehensive observation of the electoral process, noting both positive aspects and critical shortcomings. While the elections were generally well-administered, ODIHR’s final report emphasized significant concerns related to the broader political environment. Key issues included the adoption of legislation that undermined fundamental freedoms, restrictions on civil society, and a pervasive atmosphere of voter intimidation. Specific election-day practices, such as pressuring voters and leveraging administrative resources, were highlighted as undermining the integrity of the process. The report also mentions instances in 16 municipalities where public sector employees and economically vulnerable groups, particularly those reliant on social assistance, faced pressure to support the ruling party. Such fear of losing social benefits or facing retribution at work creates an atmosphere where voters struggle to form independent opinions and vote independently.
Further scrutiny from independent analysts has shed light on systematic irregularities that suggest the elections may not have reflected the genuine will of the Georgian electorate. Gutbrod (2024) suggests that tactics such as vote buying, mass intimidation, and direct manipulation of electoral outcomes were employed, leading to statistical anomalies. Specifically, the Georgian Dream’s support increased disproportionately in precincts linked to reported violence and irregularities. Additionally, social assistance beneficiaries were identified as a target group for snowball mobilization, organized by individuals affiliated with the Georgian Dream – a method where participants are encouraged to mobilize or identify a certain number of additional people to expand voter outreach and engagement.
Social Assistance in Georgia
The Law of Georgia on Social Assistance outlines several types of social welfare programs aimed at addressing the needs of vulnerable populations. These include living allowance, reintegration assistance, foster care allowance, adult family member care allowance, non-monetary social assistance, and social package. Among these, the targeted social assistance program, commonly referred to as the “living allowance“, holds particular significance. This program is designed to provide financial support to families living in extreme poverty. Eligibility for the living allowance is determined through a proxy means test that evaluates the socioeconomic conditions of applicants, ensuring that the assistance reaches those most in need. For this policy brief, the focus will be on beneficiaries of the living allowance (hereafter social assistance beneficiaries), as their numbers and electoral behavior present a unique opportunity to analyze the intersection of social assistance and voting patterns in Georgia.
As of October 2020 (previous parliamentary elections’ date) 142,870 families in Georgia received social assistance, benefiting a total of 510,343 individuals. The total amount of social assistance transfers during this period amounted to 28,825,259 GEL. Over the next four years, leading up to the 2024 Parliamentary Elections, social assistance grew significantly. By October 2024, the number of families receiving assistance had increased by 25 percent to 178,107 families, while the number of individual beneficiaries rose by 34 percent, reaching 684,432. The most notable expansion occurred in the total amount of social assistance transfers, which surged by 143 percent to 69,936,512 GEL. This corresponds to a cumulative annual growth rate of 25 percent (Social Service Agency of Georgia, 2024).
In 2022, an important modification was introduced for social assistance beneficiaries aged 18 years to retirement age and without disabilities or serious health conditions, offering employment opportunities mainly, in the public sector with a salary of up to 300 GEL per month. These wages did not affect recipients’ existing social assistance benefits. Participants had the option to take suitable public sector jobs, formalize any informal employment, or, if formally employed in the private sector, provide necessary documentation. The modification covered also new beneficiaries who were not already formally employed. Notably, families or individuals enrolled in the program were guaranteed eligibility for a living allowance for four years, as their social assistance status would not be reassessed during this period.
As of October 2024, 50,962 families were enrolled in the program with guaranteed social assistance, accounting for 28.6 percent of all families receiving social assistance. The monthly spending of social assistance transferred to these families amounted to 22,766,706 GEL, representing 33 percent of the total social assistance transfers.
The significant increase in social assistance beneficiaries and the introduction of the 2022 program for employing social assistance recipients, guaranteeing them four years of social assistance transfers, highlight the growing scope and influence of targeted social welfare initiatives in Georgia. While these developments may have addressed pressing socioeconomic challenges, they also raise important questions about the potential political motivations. Specifically, the substantial increase in the number of beneficiaries and the guaranteed eligibility linked to employment programs could be interpreted as mechanisms to foster voter loyalty and mobilization in favor of the ruling party.
Methodology and Results
To examine the relationship between the increase in social assistance beneficiaries and electoral outcomes, particularly the votes garnered by the incumbent Georgian Dream party, we employ a regression analysis framework. This statistical method allows us to explore whether and to what extent the growth in social assistance recipients is associated with the changes in the vote share of the incumbent party. Since social assistance depends on the varying levels of poverty across municipalities, we incorporate control variables that isolate the effect of economic well-being, minimizing potential confounders.
The study utilizes data from two primary sources: information on social assistance recipients, including families, and individuals, and the total amount of transfers across municipalities, was retrieved from the Social Service Agency of Georgia. This dataset covers 64 municipalities (and self-governing cities) in Georgia. From 2022, data includes families and individuals guaranteed to retain their socially vulnerable status for four years under the State Program for Promoting Public Employment. Second, election data was sourced from the Central Election Commission of Georgia, covering both the 2024 and 2020 parliamentary elections. The 2024 data covers the results from both electronic and non-electronic voting. Key variables include the number of registered voters, total votes cast, and votes obtained by the Georgian Dream and opposition parties. This election data is also aggregated at the level of the 64 municipalities (and self-governing cities).
Information on poverty levels in Georgian municipalities is not publicly available; therefore, we utilize control variables for employment and economic activity with the latter proxied by either the municipalities’ tax revenues or the value added generated in the private sector. Information on employment and value added are gathered from the National Statistics Office of Georgia, while data on tax revenues is retrieved from the Ministry of Finance.
The following table describes the results of the regression analysis.
Table 1. Regression analysis results

Source: Author’s calculations.
Note: The values in parentheses indicate the p-value. *Significant at the 10 percent level; **Significant at the 5 percent level; ***Significant at the 1 percent level.
The first regression (column 1) investigates the relationship between the change in social assistance beneficiaries as a share of the population and the change in the Georgian Dream party’s vote shares, displaying a significant relationship between the two. Specifically, the coefficient (0.49) is significant at the 5 percent level, suggesting that a 1 percentage point increase in social assistance beneficiaries as a share of the population, increases the vote share for the Georgian Dream by approximately 0.49 percentage points.
To control for the effect of poverty, we first use employment rates in 2023 (the latest available data) as a proxy for poverty. Column 2 presents these results. In this specification, the coefficient for the change in social assistance beneficiaries remains significant at 5 percent level and its value (0.47) remains consistent with the previous specification. The model further suggests that poverty is also positively and significantly (at the 1 percent level) associated with incumbent votes – the higher the poverty (lower employment) in municipalities, the higher the Georgian Dream vote share.
In the next step (column 3), we model the relationship between the change in the Georgian Dream’s vote share, change in employment as a share of the population, mobilized local tax revenues per capita, and the change in number of social assistance beneficiaries as a share of the population. Change in employment, calculated as the difference between 2019 and 2023 employment levels (as a share of the population), is used as a proxy for change in poverty. Tax revenues per capita for 2023 reflect economic activity across municipalities and self-governing cities, serving as a proxy for well-being. As seen in the table, change in employment is not statistically significant, however, the amount of tax revenues mobilized across municipalities is modestly significant. The coefficient for change in social assistance beneficiaries is once again statistically significant and consistent with the other specifications in terms of magnitude (at 0.51).
As a robustness test (column 4) we replace the previously used proxy for economic well-being (tax revenues), with the private sector value added per capita for 2023, which significantly (at the 1 percent level) correlates with an increase in the vote share for the incumbent party. Changes in employment remain insignificant. Importantly, the coefficient for change in social assistance beneficiaries remains positive (0.53) and statistically significant at the 1 percent level.
The discussed regression models were tested for a different dependent variable as well. In addition to observing the impact of change in vote shares, we also analyzed the impact on the number of votes cast for the Georgian Dream party between the 2020 and 2024 Parliamentary Elections. Changes in social assistance beneficiaries remain a significant explanatory variable in this specification as well.
The estimated impact of social assistance is consistent across all models, both in magnitude and significance, reinforcing the finding that increases in living allowance beneficiaries are strongly associated with higher vote shares for the Georgian Dream party, underscoring the critical role of social assistance in shaping electoral outcomes.
Conclusion
The analysis demonstrates a strong and statistically significant relationship between the increase in social assistance beneficiaries and the vote share obtained by the incumbent Georgian Dream party in the 2024 parliamentary elections. Even after controlling for poverty and economic well-being, the results highlight the impact of social assistance in shaping electoral outcomes. The findings suggest that a 1 percentage point rise in social assistance beneficiaries as a share of the population translates into a 0.47–0.53 percentage point increase in the Georgian Dream’s vote share. When contextualized within the overall election results, these estimates suggest that the expansion of the targeted social assistance program may have garnered the Georgian Dream an additional 45 ,500 to 50,000 votes, representing 2.2–2.5 percent of the total votes.
The results raise critical questions about the potential use of social assistance programs as a strategic political tool. The robustness of the relationship across multiple models suggests that the observed trends are not merely byproducts of economic conditions but reflect a deliberate link between social assistance expansion and electoral outcomes. The implications are significant for democratic governance in Georgia. The strategic use of social welfare programs risks undermining public trust in the electoral process and highlights the need for greater transparency and accountability in the implementation of social assistance policies. Recognizing the dual impact of these programs – alleviating poverty while potentially shaping political behavior – will be critical in fostering fairer electoral conditions and ensuring that social assistance remains focused on addressing the needs of vulnerable populations without undue political influence.
References
- De La O, A. L. (2013). “Do conditional cash transfers affect electoral behavior? Evidence from a randomized experiment in Mexico”, American Journal of Political Science, 57(1), 1-14.
- Dharma, F., Syakhroza, A., & Martani, D. (2022). “Does the social assistance budget realization affect incumbents’ votes? (Study in Indonesia Local Election)”, International Journal of Professional Business Review, 7(6), e0636-e0636.
- Gutbrod, H. (2024). “A dozen daggers: How Georgia’s 2024 elections were rigged”.
- Japaridze, T. (2023). “Social Policy in contemporary Georgia: liberal narratives, intervention and welfare state”, King’s College London.
- Law of Georgia on Social Assistance (2024). Parliament of Georgia.
- Layton, M. L., & Smith, A. E. (2015). “Incorporating marginal citizens and voters: the conditional electoral effects of targeted social assistance in Latin America”, Comparative Political Studies, 48(7), 854-881
- OSCE Office for Democratic Institutions and Human Rights (ODIHR), (2024). “Georgia Parliamentary Elections: Final Report”, Organization for Security and Co-operation in Europe.
- Shubladze, R. (2024). “Targeted Social Assistance Program in Georgia and Its Link to Electoral Outcomes”, Social Justice Center.
- Social Justice Center (2024). “What are the challenges in the livelihood support system, and what changes are necessary for its improvement?”.
- Social Service Agency of Georgia. (2024). https://ssa.moh.gov.ge/index.php?lang=1&v=0
- Zucco Jr, C. (2013). “When payouts pay off: Conditional cash transfers and voting behavior in Brazil 2002–10”, American journal of political science, 57(4), 810-822.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Development Day 2024: Integrating Ukraine, Moldova, and Georgia into the European Union

For Ukraine, Moldova, and Georgia, integration into the European Union (EU) is a pathway to modernization, economic development, and increased resilience against authoritarianism. At this year’s Development Day Conference, hosted by the Stockholm Institute of Transition Economics (SITE), policymakers, researchers, and experts convened to discuss the shared challenges, opportunities, and reforms required for these countries’ successful EU accession.
This policy brief draws on the insights from the conference, briefly outlining the discussions across panels and presentations on governance reforms, hybrid threats, economic transformation, and security challenges.
The Geopolitical Context for Enlargement
The Russian invasion of Ukraine has intensified the European Union’s strategic focus on enlargement. Ukraine, Moldova, and Georgia find themselves at a crossroads, where integration into the EU is not merely aspirational but essential for safeguarding sovereignty and ensuring economic and political stability. The urgency of this enlargement stems from the need to counteract Russian aggression and bolster the EU’s geopolitical standing.
At the opening sessions of the Development Day Conference, three special guests offered their respective countries’ perspectives. Yevhen Perebyinis, Ukraine’s Deputy Minister of Foreign Affairs, underscored how Ukraine’s integration process aligns with its defense of European values against Russia’s aggression. Cristina Gherasimov, Moldova’s Deputy Prime Minister for European Integration, highlighted Moldova’s efforts to advance reforms while countering persistent Russian hybrid threats, including systematic election interference. Christian Danielsson, Sweden’s State Secretary to the Minister for EU Affairs, accentuated the necessity of ensuring that the EU is ready for enlargement, something political leaders now see as an imperative in the shadow of Russia’s war on Ukraine. Similarly, discussions emphasized Georgia’s historical and policy-oriented commitment to Europe, despite recent democratic backsliding and a recent pivot toward Russia.
Challenges on the Pathway to EU Accession
The integration paths of Ukraine, Moldova, and Georgia face numerous challenges. Critical areas for alignment with EU standards include governance reforms, anti-corruption efforts, and institutional capacity building. Moldova has made strides in public administration reform and jumped significantly on the Corruption Perceptions Index from 120th place in 2019 to 76th in 2023. However, persistent gaps in judicial independence and public procurement transparency remain hurdles. Similarly, Ukraine has enacted sweeping reforms under extraordinary wartime circumstances, reflecting a persistent and widespread commitment to European values. Yet, continued progress in judicial and financial oversight is essential, with the administrative framework in these areas needing improvement in both countries.
Russia’s hybrid warfare poses a persistent and evolving threat to democratic resilience across the region. Moldova’s elections in 2024 showcased large-scale, sophisticated interference by Russian actors. This interference began well before election day and continues in the form of disinformation campaigns and energy blackmailing in the Transnistria region. In Georgia, Russian influence compounds the challenges of domestic political unrest, particularly as the ruling party engaged in substantial electoral fraud and manipulation to secure its position in the 2024 October elections. These challenges highlight the need for robust countermeasures, including enhanced cybersecurity and strengthened democratic institutions across the candidate countries. It also points to the need for support from the international community, especially in the case of Georgia, where protesters are currently taking to the streets to challenge the widely recognized electoral fraud.
Economic transformation and alignment also remain a critical challenge. Ukraine’s economy, suffering wartime devastation, requires extensive reconstruction, with the cost of infrastructural damage alone nearing its annual GDP. Ukraine’s vast agricultural sector, a major player in global markets, will require careful integration into the EU to address compliance costs and alignment with the Common Agricultural Policy while maintaining its competitive edge. Moldova faces significant challenges in effectively communicating the benefits of EU integration to its population, a critical issue in countering Russian influence and maintaining public support for reforms. Despite clear economic progress, such as the increase in Moldovan exports to the EU, many Moldovans remain skeptical about the long-term benefits of EU alignment. This skepticism is particularly pronounced in regions like Gagauzia, where pro-Russian sentiment is strong and local populations are vulnerable to disinformation and propaganda.
As emphasized by multiple panelists, targeted communication strategies are vital to ensuring that the benefits of EU integration are understood across populations. Concrete examples—such as enhanced economic opportunities, improved infrastructure, and access to EU funding—must be clearly communicated to counteract Russian narratives and build broad-based support for EU accession.
In this regard, pre-accession funding offers a potentially transformative tool. The successful use of pre-accession funding in Poland in the 1990s and early 2000s demonstrates the potential for such resources to modernize infrastructure, connect markets, and build institutional capacity, a capacity that has later proved pivotal to overcoming democratic backsliding. Poland serves as a reminder that alignment and integration may take time, but also clearly showcases the economic and social benefits it can yield.
During the conference, security concerns were at the core of the enlargement discussion, with several panelists emphasizing NATO’s historical role as a critical security complement for EU member states. However, Ukraine’s potential EU accession may advance without parallel NATO membership. This raises significant challenges, as the absence of NATO guarantees leaves Ukraine vulnerable to further Russian aggression. Panelists highlighted the urgent need for the EU to adopt concrete security measures, such as strengthened hybrid defense capabilities, cybersecurity frameworks, and coordinated responses to disinformation—threats already witnessed in Moldova and Georgia. Additionally, ensuring Ukraine’s security would require increased military and financial support from EU member states to safeguard territorial integrity and maintain resilience against Russia, argued a necessity by several panelists.
The Opportunities of Enlargement
The integration of Ukraine, Moldova, and Georgia into the European Union offers profound opportunities for these states. It represents access to the single market, pre- and post-accession funding, and vital structural support that can accelerate modernization efforts. Overall, this can reduce the countries’ infrastructure gaps and cause an increase in foreign direct investment. Beyond economic gains, EU support drives crucial institutional reforms, enhances public administration capacity, and provides a framework for addressing corruption and strengthening the rule of law—key challenges across all three countries.
For the EU, enlargement would entail strategic benefits aligned with its new geopolitical focus and long-term economic goals. Ukraine’s reserves of critical raw materials, including lithium and titanium, are essential for Europe’s green transition. Furthermore, Ukraine and its defense industry offers strategic benefits to Europe by bolstering collective security. Its agricultural capacity remains pivotal not only for the EU but for global food security, and its IT sector provides additional growth potential. Moldova and Georgia, on the other hand, offer untapped market potential and workforce integration opportunities, which could strengthen the EU’s competitive edge. Enlargement also represents a critical opportunity to counter the threat from Russia, manifesting the Union as a geopolitical leader committed to stability, democracy, and shared values.
However, as voiced throughout the conference, the EU must prioritize clear communication of these benefits. Concerns about increased competition in existing member states need to be met with transparency while communicating the long-term economic and security advantages of enlargement. Involving the business perspective in the enlargement process and ensuring that both candidate countries and current EU citizens and businesses see tangible benefits early in the process will be key to sustaining both momentum and public support. Such messaging could include the fact that the EU is originally a peace project and that the counterfactual scenario to the current enlargement ambitions is Russia and its wars creeping even closer to the Union’s border. In regard to the business sector, it could be emphasized that enlargement associated risks can be met with risk sharing instruments and credit guarantees.
As emphasized by several speakers, the EU also needs to ensure that it is ready for enlargement in terms of capacity. As the EU was not initially built to be this large, a further expansion requires the Union to critically reflect on how to ensure it will stand up for the rule of law and all member states’ adhesion to EU principles in the years to come.
Concluding Remarks
How to facilitate the accession of Ukraine, Moldova, and Georgia into the European Union was the topic for discussion at the 2024 Development Day. The discussions highlighted the substantial early progress and rapid reforms undertaken by Ukraine while being a country at war. Moldova’s steady progress toward its ambitious 2030 accession target underscores its commitment to reform, though challenges remain in securing public trust and countering Russian interference. Georgia, meanwhile, serves as a warning of how quickly democratic gains can erode, with political turmoil and Russian influence threatening its European path. These examples underscore the need for sustained support and clear communication of the benefits of EU integration. Panelists and participants also underscored that integrating these nations is not merely about expanding the EU—it is a vital response to ongoing geopolitical threats, in particular from Russia, and an affirmation of the EU’s foundational values.
Ultimately, the enlargement of the EU to include Georgia, Moldova and Ukraine holds significant potential, both for the aspiring members and the EU itself. However, as the discussions at Development Day 2024 showcased, such enlargement requires robust partnerships, unwavering and early support, and a recognition that integration strengthens the EU as a whole, ultimately positioning the EU as a much-needed major democratic geopolitical actor.
List of Participants
- Tinatin Akhvlediani, Research Fellow in the EU Foreign Policy Unit at CEPS
- Katarina Areskoug, The High-Level Advisory Group of the Nordic-Baltic Eight (NB8) on Ukraine’s accession to the EU
- Torbjörn Becker, Director of SITE
- Christian Danielsson, State Secretary to the Minister for EU Affairs
- Cristina Gherasimov, Deputy Prime Minister for European Integration of Moldova
- Liliana Gutan, Moldova’s Ambassador to the Nordic Countries
- Fredrik Löjdquist, Director of the Stockholm Centre for Eastern European Studies
- Stas Madan, Program Director Expert Group Moldova
- Michal Myck, Director CenEA Poland
- Tymofiy Mylovanov, President of Kyiv School of Economics
- Oleg Nivievskyi, Professor Kyiv School of Economics and Freie Universität Berlin
- Anders Olofsgård, Deputy Director Stockholm Institute of Transition Economics (SITE)
- Yevhen Perebyinis, Deputy Minister of Foreign Affairs of Ukraine
- Fredrik Sjögren, Director EU Affairs The Confederation of Swedish Enterprise
- Tamar Sulukhia, Director ISET and ISET Policy Institute Georgia
- Dumitru Țîra, CEO and Founder of Realitatea Media Group
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Gender Gap in Life Expectancy and Its Socio-Economic Implications

Today women live longer than men virtually in every country of the world. Although scientists still struggle to fully explain this disparity, the most prominent sources of this gender inequality are biological and behavioral. From an evolutionary point of view, female longevity was more advantageous for offspring survival. This resulted in a higher frequency of non-fatal diseases among women and in a later onset of fatal conditions. The observed high variation in the longevity gap across countries, however, points towards an important role of social and behavioral arguments. These include higher consumption of alcohol, tobacco, and fats among men as well as a generally riskier behavior. The gender gap in life expectancy often reaches 6-12 percent of the average human lifespan and has remained stubbornly stable in many countries. Lower life expectancy among men is an important social concern on its own and has significant consequences for the well-being of their surviving partners and the economy as a whole. It is an important, yet under-discussed type of gender inequality.
Country Reports
Belarus Country Report | FROGEE POLICY BRIEF |
Georgia Country Report | FROGEE POLICY BRIEF |
Latvia Country Report | FROGEE POLICY BRIEF |
Poland Country Report | FROGEE POLICY BRIEF |
Gender Gap in Life Expectancy and Its Socio-Economic Implications
Today, women on average live longer than men across the globe. Despite the universality of this basic qualitative fact, the gender gap in life expectancy (GGLE) varies a lot across countries (as well as over time) and scientists have only a limited understanding of the causes of this variation (Rochelle et al., 2015). Regardless of the reasons for this discrepancy, it has sizable economic and financial implications. Abnormal male mortality makes a dent in the labour force in nations where GGLE happens to be the highest, while at the same time, large GGLE might contribute to a divergence in male and female discount factors with implications for employment and pension savings. Large discrepancies in life expectancy translate into a higher incidence of widowhood and a longer time in which women live as widows. The gender gap in life expectancy is one of the less frequently discussed dimensions of gender inequality, and while it clearly has negative implications for men, lower male longevity has also substantial negative consequences for women and society as a whole.
Figure A. Gender gap in life expectancy across selected countries

Source: World Bank.
The earliest available reliable data on the relative longevity of men and women shows that the gender gap in life expectancy is not a new phenomenon. In the middle of the 19th century, women in Scandinavian countries outlived men by 3-5 years (Rochelle et al., 2015), and Bavarian nuns enjoyed an additional 1.1 years of life, relative to the monks (Luy, 2003). At the beginning of the 20th century, relative higher female longevity became universal as women started to live longer than men in almost every country (Barford et al., 2006). GGLE appears to be a complex phenomenon with no single factor able to fully explain it. Scientists from various fields such as anthropology, evolutionary biology, genetics, medical science, and economics have made numerous attempts to study the mechanisms behind this gender disparity. Their discoveries typically fall into one of two groups: biological and behavioural. Noteworthy, GGLE seems to be fairly unrelated to the basic economic fundamentals such as GDP per capita which in turn has a strong association with the level of healthcare, overall life expectancy, and human development index (Rochelle et al., 2015). Figure B presents the (lack of) association between GDP per capita and GGLE in a cross-section of countries. The data shows large heterogeneity, especially at low-income levels, and virtually no association from middle-level GDP per capita onwards.
Figure B. Association between gender gap in life expectancy and GDP per capita

Source: World Bank.
Biological Factors
The main intuition behind female superior longevity provided by evolutionary biologists is based on the idea that the offspring’s survival rates disproportionally benefited from the presence of their mothers and grandmothers. The female hormone estrogen is known to lower the risks of cardiovascular disease. Women also have a better immune system which helps them avoid a number of life-threatening diseases, while also making them more likely to suffer from (non-fatal) autoimmune diseases (Schünemann et al., 2017). The basic genetic advantage of females comes from the mere fact of them having two X chromosomes and thus avoiding a number of diseases stemming from Y chromosome defects (Holden, 1987; Austad, 2006; Oksuzyan et al., 2008).
Despite a number of biological factors contributing to female longevity, it is well known that, on average, women have poorer health than men at the same age. This counterintuitive phenomenon is called the morbidity-mortality paradox (Kulminski et al., 2008). Figure C shows the estimated cumulative health deficits for both genders and their average life expectancies in the Canadian population, based on a study by Schünemann et al. (2017). It shows that at any age, women tend to have poorer health yet lower mortality rates than men. This paradox can be explained by two factors: women tend to suffer more from non-fatal diseases, and the onset of fatal diseases occurs later in life for women compared to men.
Figure C. Health deficits and life expectancy for Canadian men and women

Source: Schünemann et al. (2017). Note: Men: solid line; Women: dashed line; Circles: life expectancy at age 20.
Behavioural Factors
Given the large variation in GGLE, biological factors clearly cannot be the only driving force. Worldwide, men are three times more likely to die from road traffic injuries and two times more likely to drown than women (WHO, 2002). According to the World Health Organization (WHO), the average ratio of male-to-female completed suicides among the 183 surveyed countries is 3.78 (WHO, 2024). Schünemann et al. (2017) find that differences in behaviour can explain 3.2 out of 4.6 years of GGLE observed on average in developed countries. Statistics clearly show that men engage in unhealthy behaviours such as smoking and alcohol consumption much more often than women (Rochelle et al., 2015). Men are also more likely to be obese. Alcohol consumption plays a special role among behavioural contributors to the GGLE. A study based on data from 30 European countries found that alcohol consumption accounted for 10 to 20 percent of GGLE in Western Europe and for 20 to 30 percent in Eastern Europe (McCartney et al., 2011). Another group of authors has focused their research on Central and Eastern European countries between 1965 and 2012. They have estimated that throughout that time period between 15 and 19 percent of the GGLE can be attributed to alcohol (Trias-Llimós & Janssen, 2018). On the other hand, tobacco is estimated to be responsible for up to 30 percent and 20 percent of the gender gap in mortality in Eastern Europe and the rest of Europe, respectively (McCartney et al., 2011).
Another factor potentially decreasing male longevity is participation in risk-taking activities stemming from extreme events such as wars and military activities, high-risk jobs, and seemingly unnecessary health-hazardous actions. However, to the best of our knowledge, there is no rigorous research quantifying the contribution of these factors to the reduced male longevity. It is also plausible that the relative importance of these factors varies substantially by country and historical period.
Gender inequality and social gender norms also negatively affect men. Although women suffer from depression more frequently than men (Albert, 2015; Kuehner, 2017), it is men who commit most suicides. One study finds that men with lower masculinity (measured with a range of questions on social norms and gender role orientation) are less likely to suffer from coronary heart disease (Hunt et al., 2007). Finally, evidence shows that men are less likely to utilize medical care when facing the same health conditions as women and that they are also less likely to conduct regular medical check-ups (Trias-Llimós & Janssen, 2018).
It is possible to hypothesize that behavioural factors of premature male deaths may also be seen as biological ones with, for example, risky behaviour being somehow coded in male DNA. But this hypothesis may have only very limited truth to it as we observe how male longevity and GGLE vary between countries and even within countries over relatively short periods of time.
Economic Implications
Premature male mortality decreases the total labour force of one of the world leaders in GGLE, Belarus, by at least 4 percent (author’s own calculation, based on WHO data). Similar numbers for other developed nations range from 1 to 3 percent. Premature mortality, on average, costs European countries 1.2 percent of GDP, with 70 percent of these losses attributable to male excess mortality. If male premature mortality could be avoided, Sweden would gain 0.3 percent of GDP, Poland would gain 1.7 percent of GDP, while Latvia and Lithuania – countries with the highest GGLE in the EU – would each gain around 2.3 percent of GDP (Łyszczarz, 2019). Large disparities in the expected longevity also mean that women should anticipate longer post-retirement lives. Combined with the gender employment and pay gap, this implies that either women need to devote a larger percentage of their earnings to retirement savings or retirement systems need to include provisions to secure material support for surviving spouses. Since in most of the retirement systems the value of pensions is calculated using average, not gender-specific, life expectancy, the ensuing differences may result in a perception that men are not getting their fair share from accumulated contributions.
Policy Recommendations
To successfully limit the extent of the GGLE and to effectively address its consequences, more research is needed in the area of differential gender mortality. In the medical research dimension, it is noteworthy that, historically, women have been under-represented in recruitment into clinical trials, reporting of gender-disaggregated data in research has been low, and a larger amount of research funding has been allocated to “male diseases” (Holdcroft, 2007; Mirin, 2021). At the same time, the missing link research-wise is the peculiar discrepancy between a likely better understanding of male body and health and the poorer utilization of this knowledge.
The existing literature suggests several possible interventions that may substantially reduce premature male mortality. Among the top preventable behavioural factors are smoking and excessive alcohol consumption. Many studies point out substantial country differences in the contribution of these two factors to GGLE (McCartney, 2011), which might indicate that gender differences in alcohol and nicotine abuse may be amplified by the prevailing gender roles in a given society (Wilsnack et al., 2000). Since the other key factors impairing male longevity are stress and risky behaviour, it seems that a broader societal change away from the traditional gender norms is needed. As country differences in GGLE suggest, higher male mortality is mainly driven by behaviours often influenced by societies and policies. This gives hope that higher male mortality could be reduced as we move towards greater gender equality, and give more support to risk-reducing policies.
While the fundamental biological differences contributing to the GGLE cannot be changed, special attention should be devoted to improving healthcare utilization among men and to increasingly including the effects of sex and gender in medical research on health and disease (Holdcoft, 2007; Mirin, 2021; McGregor et al., 2016, Regitz-Zagrosek & Seeland, 2012).
References
- Albert, P. R. (2015). “Why is depression more prevalent in women?“. Journal of Psychiatry & Neuroscience, 40(4), 219.
- Austad, S. N. (2006). “Why women live longer than men: sex differences in longevity“. Gender Medicine, 3(2), 79-92.
- Barford, A., Dorling, D., Smith, G. D., & Shaw, M. (2006). “Life expectancy: women now on top everywhere“. BMJ, 332, 808. doi:10.1136/bmj.332.7545.808
- Holden, C. (1987). “Why do women live longer than men?“. Science, 238(4824), 158-160.
- Hunt, K., Lewars, H., Emslie, C., & Batty, G. D. (2007). “Decreased risk of death from coronary heart disease amongst men with higher ‘femininity’ scores: A general population cohort study“. International Journal of Epidemiology, 36, 612-620.
- Kulminski, A. M., Culminskaya, I. V., Ukraintseva, S. V., Arbeev, K. G., Land, K. C., & Yashin, A. I. (2008). “Sex-specific health deterioration and mortality: The morbidity-mortality paradox over age and time“. Experimental Gerontology, 43(12), 1052-1057.
- Luy, M. (2003). “Causes of Male Excess Mortality: Insights from Cloistered Populations“. Population and Development Review, 29(4), 647-676.
- McCartney, G., Mahmood, L., Leyland, A. H., Batty, G. D., & Hunt, K. (2011). “Contribution of smoking-related and alcohol-related deaths to the gender gap in mortality: Evidence from 30 European countries“. Tobacco Control, 20, 166-168.
- McGregor, A. J., Hasnain, M., Sandberg, K., Morrison, M. F., Berlin, M., & Trott, J. (2016). “How to study the impact of sex and gender in medical research: A review of resources“. Biology of Sex Differences, 7, 61-72.
- Mirin, A. A. (2021). “Gender disparity in the funding of diseases by the US National Institutes of Health“. Journal of Women’s Health, 30(7), 956-963.
- Oksuzyan, A., Juel, K., Vaupel, J. W., & Christensen, K. (2008). “Men: good health and high mortality. Sex differences in health and aging“. Aging Clinical and Experimental Research, 20(2), 91-102.
- Regitz-Zagrosek, V., & Seeland, U. (2012). “Sex and gender differences in clinical medicine“. Sex and Gender Differences in Pharmacology, 3-22.
- Rochelle, T. R., Yeung, D. K. Y., Harris Bond, M., & Li, L. M. W. (2015). “Predictors of the gender gap in life expectancy across 54 nations“. Psychology, Health & Medicine, 20(2), 129-138. doi:10.1080/13548506.2014.936884
- Schünemann, J., Strulik, H., & Trimborn, T. (2017). “The gender gap in mortality: How much is explained by behavior?“. Journal of Health Economics, 54, 79-90.
- Trias-Llimós, S., & Janssen, F. (2018). “Alcohol and gender gaps in life expectancy in eight Central and Eastern European countries“. European Journal of Public Health, 28(4), 687-692.
- WHO. (2002). “Gender and road traffic injuries“. World Health Organization.
- WHO. (2024). “Global health estimates: Leading causes of death“. World Health Organization.
- Łyszczarz, B. (2019). “Production losses associated with premature mortality in 28 European Union countries“. Journal of Global Health.
About FROGEE Policy Briefs
FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.
The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Unlocking Export Potential of Georgia: Strategic Insights for High-Growth Sectors and European Market Expansion

A new report by the ISET Policy Institute provides a comprehensive analysis of Georgia’s fastest-growing export sectors, revealing significant opportunities for small and medium-sized enterprises (SMEs) to increase their export potential to European markets. Supported by the European Union and the United Nations Development Programme (UNDP), the study identifies six key sectors in Georgia that demonstrate strong potential for export diversification and market expansion across Europe.
High-Growth Sectors in Georgia: Key Findings and Export Opportunities
This detailed ISET report blends both quantitative data and qualitative insights from industry stakeholders, highlighting the top six sectors:
- manufacture of beverages,
- transport,
- telecommunications,
- computer and information services, and
- manufacture of wearing apparel.
Each of these sectors is shown to have substantial export competitiveness, growing demand in European markets, and opportunities for sustainable growth despite existing challenges.
Beverage Manufacturing in Georgia: High Export Potential for Wine and Spirits
One of the highest-ranking sectors in Georgia is beverage manufacturing, particularly in the production and export of wine, mineral water, and spirits. Although Georgia’s beverage exports are growing rapidly, the report reveals untapped potential in the European Union market. By enhancing certification processes and building export capacity, Georgia’s beverage industry could significantly increase its presence in Europe, particularly in high-demand niche markets like organic wines and premium spirits.
Digital Economy Growth: Telecommunications, Computer, and Information Services
Georgia’s telecommunications, computer, and information services sector is another high-potential industry. With SMEs contributing 84% of turnover in computer services, the sector plays a vital role in Georgia’s digital economy. Demand for these services is growing across Europe, making this sector a key driver for future export growth. The report suggests targeting European digital markets and strengthening public-private partnerships to further enhance the sector’s international competitiveness.
Strategic Recommendations to Boost Georgia’s Export Competitiveness
The report provides actionable recommendations to further boost Georgia’s export performance. These include improving infrastructure quality, expanding access to financing for SMEs, and encouraging public-private collaboration. To stay competitive in European markets, Georgian SMEs are advised to focus on green technology adoption, niche market targeting, and meeting international quality standards through certification improvements.
Preparing Georgia for Sustainable Export Growth and European Market Integration
With significant export potential across multiple sectors, Georgia is poised to expand its presence in European markets. By investing in strategic policy frameworks and fostering SME growth, the country can accelerate its economic integration with Europe. Georgia’s small and medium-sized enterprises (SMEs) have a crucial role to play in driving sustainable economic growth and export diversification in the coming years.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development.
For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Media (de)Polarization Index | July 2024

In July 2024, the Georgia Media Polarization Index saw a notable rise due to several key political events. For instance, the United States indefinitely postponed the “Worthy Partner 2024” military exercise. Additionally, President Salome Zurabishvili returned proposed Pension Law amendments to Parliament for further review. Moreover, she appointed a non-judge member to the Supreme Council of Justice, though the court later suspended this member. However, during periods of opposition party unification and Georgian athletes’ successes at the Olympics, the index experienced a decline.
Interactive Chart: Polarity Index Only – July
Media (de)Polarization Index – 2020-2024 (as of July 2024)
What is the Georgia Media Polarization Index?
The Georgia Media Polarization Index, created by the ISET Policy Institute, serves as a powerful tool for measuring the level of political bias and polarization across Georgia’s leading media outlets. This index examines the political dissimilarities in news coverage, offering a clear, data-driven analysis of media bias in Georgia.
How the Media Polarization Index Works
The Media Polarization Index utilizes a weighted average to assess political dissimilarities between various Georgian media outlets. Media sources with higher ratings exert greater influence on the overall results, providing a more comprehensive understanding of political content distribution. This method helps in identifying where each media outlet stands on the political spectrum, allowing users to visualize the extent of media bias.
Importance and Application of the Media Polarization Index
The Georgia Media Polarization Index is crucial for researchers, policymakers, and media watchdogs focused on monitoring media bias and polarization trends. It provides valuable insights into how Georgian media outlets shape political discourse and evolve over time. The findings from the index support efforts to promote balanced media coverage, inform policy decisions, and encourage dialogue on the media’s influence in Georgia’s political landscape.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development. For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Why the National Bank of Georgia Is Ditching Dollars for Gold

The National Bank of Georgia (NBG) recently acquired 7 tons of high-quality monetary gold valued at 500 million dollars, constituting approximately 11 percent of the banks’ total reserves. This marked the first occasion that Georgia acquired gold for its reserves since regaining its independence. The acquisition is a significant event, prompted by the NBG’s stated aim to enhance diversification amidst increased global geopolitical risks. However, diversification is just one of the reasons many countries are extensively purchasing gold. Another reason for increasing gold reserves is to lessen one’s reliance on the US dollar and to protect against sanctions, as seen with Russia and Belarus following the annexation of Crimea. While the NBG’s gold acquisition aligns with economic rationale, recent domestic developments suggest other motives. Actions like sanctions on political figures, anti-Western rhetoric, and recent legislation (the Law of Transparency of Foreign Influence), diverging Georgia from an EU pathway call for speculation that the gold purchase is driven by fear a of potential sanctions and as a preparedness strategy.
Introduction
The National Bank of Georgia (NBG) has broken new ground by adding gold to the country’s international reserves for the first time ever. Georgia has thus become the first country in the South Caucasus to purchase gold for its reserves. In line with its Board’s decision on March 1, 2024, the NBG procured 7 tons of the highest quality (999.9) monetary gold. The acquisition, valued at 500 million US dollars, took the form of internationally standardized gold bars, purchased from the London gold bar market and currently stored in London. Presently, the acquired gold represents approximately 11 percent of the NBG’s international reserves (see Figure 1).
Figure 1. NBG’s Official Reserve Assets and Other Foreign Currency Assets, 2023-2024.

Source: The National Bank of Georgia.
The NBG emphasizes in its official statement that the acquisition of gold is not merely symbolic but rather reflects a deliberate strategy of diversifying NBG’s portfolio and enhancing its resilience to external shocks. The NBG’s decision was made during a period marked by significant economic and political events both within and outside Georgia. Key among these were global and regional geopolitical tensions that amplified concerns about economic downturns and rising inflation. The Covid-19 pandemic in 2020 led to stagflation across many countries, including Georgia. Despite some recovery in GDP, high inflation continued into 2021. Furthermore, the Russian war on Ukraine disrupted supply chains, and pushed global inflation to a 24-year high 8.7 percent in 2022. In response, stringent monetary policies aimed at controlling inflation were implemented across both developing and advanced economies. Looking ahead, there is an expectation of a shift toward more expansionary monetary policies that should help lower interest rates (and lower yields on assets held by central banks). These global conditions provide context for the NBG’s strategic focus on diversification.
However, alongside these economic events, Georgia also faces significant political challenges. Since the beginning of Russia’s war in Ukraine in 2022, political tensions in Georgia have escalated. Notable actions such as the U.S. imposing sanctions on influential Georgian figures, including judges and the former chief prosecutor, have, among other things, intensified scrutiny into the Russian influence in Georgia. Concerns about the independence of the Central Bank, which changed the rule of handling sanctions applications for Georgia’s citizens, and legislative initiatives like the Law of Transparency of Foreign Influence, which undermines Georgia’s EU accession ambitions, have triggered reactions from the country’s partners and massive public protests. Moreover, anti-Western rhetoric from the ruling party has raised concerns. In addition, the parliament of Georgia recently approved an amendment to the Tax Cide, a so-called ‘law on offshores’. The opaque nature of the law, as well as the context and speed at which it was advanced, sparked outcry and conjecture about its true purpose. These elements lead to speculation that the decision to purchase gold may be motivated by a desire for greater autonomy or a fear of potential sanctions, rather than purely economic reasons.
In the context of the above, this policy brief seeks to explore the motivations behind gold acquisitions by Central Banks, drawing on the experiences of both developed and developing countries. It aims to review existing literature that explores various reasons for gold acquisitions, providing a comprehensive analysis of economic and potentially non-economic factors influencing such decisions.
The Return of Gold in Global Finance
Over the past decade, central bank gold reserves have significantly increased, reversing a 40-year trend of decline. The shift that began around the time of the 2008-09 Global Financial Crisis is depicted in Figures 2 and 3, highlighting the transition from a pre-crisis period of more countries selling gold, to a post-crisis period where more countries have been purchasing gold.
Figure 2. Gold Holdings in Official Reserve Assets, 1999-2022 (million fine Troy ounces).

Source: IMF, International Financial Statistics.
Figure 3. Number of Countries Purchasing/Selling Monetary Gold, 2000-2021 (at least 1 metric ton of gold in a given year).

Source: IMF, International Financial Statistics.
In 2023, central banks added a considerable amount of gold to their reserves. The largest purchases have been reported for China, Poland, and Singapore, with these nations collectively dominating the gold buying landscape during the year.
China is one of the top buyers of gold worldwide. In 2023, the People’s Bank of China emerged as the top gold purchaser globally, adding a record 225 tonnes to its reserves, the highest yearly increase since at least 1977, bringing its total gold reserves to 2,235 tonnes. Despite this significant addition, gold still represents only 4 percent of China’s extensive international reserves.
The National Bank of Poland was another significant buyer in 2023, acquiring 130 tonnes of gold, which boosted its reserves by 57 percent to 359 tonnes, surpassing its initial target and reaching the bank’s highest recorded annual level.
Other central banks, including the Monetary Authority of Singapore, the Central Bank of Libya, and the Czech National Bank, also increased their gold holdings, albeit on a smaller scale. These purchases reflect a broader trend of central banks diversifying their reserves and enhancing financial security amidst global economic uncertainties.
Conversely, the National Bank of Kazakhstan and the Central Bank of Uzbekistan were notable sellers, actively managing their substantial gold reserves in response to domestic production and market conditions. The Central Bank of Bolivia and the Central Bank of Turkey also reduced their gold holdings, primarily to address domestic financial needs.
The U.S. continues to hold the world’s largest gold reserve (25.4 percent of total gold reserves), which underscores the metal’s enduring appeal as a store of value among the world’s leading economies. The U.S. is followed by Germany at 10.5 percent, and Italy and France at 7.6 percent respectively. At present, around one-eighth of the world’s currency reserves comprise of gold, with central banks collectively holding 20 percent of the global gold supply (NBG, 2024).
Why Central Banks are Buying Gold Again
A 2023 World Gold Council survey (on central banks revealed five key motivations for holding gold reserves: (1) historical precedent (77 percent of respondents), (2) crisis resilience (74 percent), (3) long-term value preservation (74 percent), (4) portfolio diversification (70 percent), and (5) sovereign risk mitigation (68 percent). Notably, emerging markets placed a higher emphasis (61 percent) on gold as a “geopolitical diversifier“ compared to developed economies (45 percent).
However, the increasing use of the SWIFT system for sanctions enforcement (e.g., Iran in 2015 and Russia in 2022) has introduced a new factor influencing gold purchases of some governments: safeguarding against sanctions (Arslanalp, Eichengreen and Simpson-Bell, 2023).
In addition, Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that central banks’ decisions to acquire gold are primarily driven by the following factors; inflation, the use of floating exchange rates, a nation’s fiscal stability, the threat of sanctions, and the degree of trade openness (see Figure 4).
Figure 4. Determinants of Gold Shares in Emerging Market and Developing Economies.

Source: Arslanalp, Eichengreen, and Simpson-Bell (2023).
Gold as a Hedging Instrument
Gold is considered a safe haven and an attractive asset in periods of significant economic, financial, and geopolitical uncertainty (Beckman, Berger, & Czudaj, 2019). This is particularly relevant when returns on reserve currencies are low, a scenario prevalent in recent years.
A hedge against inflation: Inflation presents a significant challenge for central banks, as it erodes the purchasing power of a nation’s currency. Gold has been a long-standing consideration for central banks as a potential inflation hedge. Its price often exhibits an inverse relationship with the value of the US dollar, meaning it tends to appreciate as the dollar depreciates. This phenomenon can be attributed to two primary factors: (1) increased demand during inflationary periods; and (2) gold tends to have intrinsic value unlike currencies (Stonex Bullion, 2024).
Diversification of portfolio: Diversification is a cornerstone principle of portfolio management. It involves allocating investments across various asset classes to mitigate risk. Gold, with its negative correlation to traditional assets like stocks and bonds, can be a valuable tool for portfolio diversification. In simpler terms, when stock prices decline, gold prices often move in the opposite direction, offering a potential hedge against market downturns (see Figure 5).
Figure 5. How Gold Performs During Recession, 1970-2022.

Source: Bhutada (2022).
Hedge against geopolitical risks: de Besten, Di Casola and Habib (2023) suggest that geopolitical factors may have influenced gold acquisitions for some central banks in 2022. A positive correlation appears to exist between changes in a country’s gold reserves and its geopolitical proximity to China and Russia (compared to the U.S.) for countries actively acquiring gold reserves. This pattern is particularly evident in Belarus and some Central Asian economies, suggesting they may have increased their gold holdings based on geopolitical considerations.
Low or Negative Interest Rates: When interest rates on major reserve currencies like the US dollar are low or negative, it reduces the opportunity cost of holding gold (gold is a passive asset that does not generate periodic income, dividends, and interest benefits). In other words, gold becomes a more attractive option compared to traditional investments that offer minimal or no returns. The prevailing low-interest rate environment, particularly for major reserve currencies like the US dollar, has diminished the opportunity cost of holding gold.
This phenomenon applies to both advanced economies and emerging market economies (EMDEs). Notably, EMDEs with significant dollar-denominated debt are particularly sensitive to fluctuations in US interest rates. Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that reserve managers are increasingly incorporating gold into their portfolios when returns on reserve currencies are low. Figure 6 illustrates the inverse relationship between the price of gold and the inflation-adjusted 10-year yield.
Figure 6. Gold Price and Inflation-Adjusted 10-Year Yield.

Source: Bloomberg, U.S. Global Investors.
In addition to its aforementioned advantages, gold offers central banks a long-term investment opportunity despite its lack of interest payments, unlike traditional securities. While gold exhibits short-term price volatility, its historical price trend suggests a long-term upward trajectory (see Figure 7).
Figure 7. Gold Price per Troy Ounce (approximately 31.1 grams), in USD.

Source: World Gold Council.
Gold as a Safeguard Against Sanctions
Gold is perceived as a secure and desirable reserve asset in situations where countries face financial sanctions or the risk of asset freezes and seizures (see Table 1). The decision by G7 countries to freeze the foreign exchange reserves of the Bank of Russia in 2022 highlighted the importance of holding reserves in a form less vulnerable to sanctions. Following Russia’s annexation of Crimea in 2014, the Bank of Russia intensified its gold purchases. By 2021, it had confirmed that its gold reserves were fully vaulted domestically. The imposition of sanctions on Russia, which restrict banks from engaging in most transactions with Russian counterparts and limit the Bank of Russia’s access to international financial markets, further underscores the appeal of gold as a safeguard.
While the recent sanctions imposed by G7 countries, which limit Russian banks from conducting most business with their counterparts and restrict the Bank of Russia from accessing its reserves in foreign banks, are an extreme example, similar sanctions have previously impacted or threatened financial operations of other nations’ central banks and governments. This situation raises the question of whether the risk of sanctions has influenced the observed trend of countries’ increasing their gold reserves (IMF, International Financial Statistics, 2022).
Table 1. Top 10 Annual Increases in the Share of Gold in Reserves, 2000-2021.

Source: IMF, International Financial Statistics; Global Sanctions Database (GSDB). Note: Excludes countries with central bank gold purchases from domestic producers.
As outlined in Arslanalp, Eichengreen and Simpson-Bell (2023), there were eight active diversifiers into gold in 2021, each purchasing at least 1 million troy ounces (Kazakhstan, Belarus, Turkey, Uzbekistan, Hungary, Iraq, Argentina, Qatar), exhibiting distinct international economic or political concerns. Kazakhstan, Belarus, and Uzbekistan maintain ties with Russia through the Eurasian Economic Union. Turkey has faced sanctions from both the European Union and the U.S. Iraq has experienced disputes with the U.S., while Hungary has faced similar issues with the European Union. In 2017-21, Qatar was subjected to a travel and economic embargo by Saudi Arabia and neighboring countries. Argentina may have had concerns about asset seizures by foreign courts due to sovereign debt disputes.
Furthermore, according to the Economist (2022), gold is costly to transport, store, and protect. It is expensive to use in transactions and doesn’t earn interest. However, it can be lent out like currencies in a central bank’s reserves. When lent out or used in swaps (where gold is exchanged for currency at agreed dates), it can generate returns. But banks prefer gold to be stored in specific places like the Bank of England or the Federal Reserve Bank of New York, which brings back the risk of sanctions. For instance, During the Iranian Revolution in 1979 and the subsequent hostage crisis, the United States froze Iranian assets, including the gold reserves held in U.S. banks (Arslanalp, Eichengreen and Simpson-Bell, 2023). The National Bank of Georgia intends to transport its acquired gold from England to Georgia for storage, which could potentially reduce storage costs, but further decrease liquidity.
Arslanalp, Eichengreen, and Simpson-Bell (2023) conclude that since the early 2000s, half of the significant year-over-year increases in central bank gold reserves can be attributed to the threat of sanctions. By examining an indicator that tracks financial sanctions by major economies like the United States, United Kingdom, European Union, and Japan, all key issuers of reserve currencies, the authors have confirmed a positive correlation between such sanctions and the proportion of reserves held in gold. Furthermore, their findings suggest that multilateral sanctions imposed by these countries collectively have a more pronounced effect on increasing gold reserves than unilateral sanctions. This is likely because unilateral sanctions allow room for shifting reserves into the currencies of other non-sanctioning nations, whereas multilateral sanctions increase the risks associated with holding foreign exchange reserves, thus making gold a more attractive option.
The NBG’s Historic Decision
The National Bank of Georgia’s (NBG) recent acquisition of gold for its reserves is likely motivated by a desire to diversify its portfolio and hedge against inflation and geopolitical risks. However, recent developments in Georgia raise questions about the timing of this policy decision, bringing political considerations into the picture.
Among these developments is the 2023 suspension of the IMF program for Georgia, due to concerns about the NBG’s governance (Intellinews, 2023). The amendments to the NBG law in June 2023, which created a new First Deputy and Acting Governor position – superseding the existing succession framework – contradicted IMF Safeguards recommendations and raised concerns about increased political influence (International Monetary Fund, 2024). How the recent gold purchase reflect on the future of IMF cooperation is thus a relevant question to ask.
Another ground for concern is the recent approval by the Georgian Parliament of the anti-democratic “Foreign Influence Transparency” law and the anti-Western rhetoric of the ruling party, which have sparked intensive public protests. European partners warn that the law will not align with Georgia’s European Union aspirations and that it could potentially hinder the country’s advancement on the EU pathway. Rather, the law might distance Georgia from the EU. This law has also increased the concerns for further sanctions on members of the ruling party, government officials, and individuals engaging in anti-West and anti-EU propaganda.
Furthermore, the recent amendment of the Tax Code, the so-called “offshores law” allows for tax-free funds transfers from offshore zones to Georgia. This, combined with other developments, raises questions about whether the government is preparing for potential sanctions, should its relationship with Russia continue to strengthen.
Conclusion
In conclusion, this policy brief highlights that central banks’ acquisition of gold reserves, especially in emerging economies, is motivated by a combination of economic and political factors. The economic incentives include the need for portfolio diversification and protection against inflation and geopolitical instabilities, a trend that became more pronounced following the 2008 global financial crisis. Politically, the accumulation of gold serves as a strategic move to lessen dependency on the U.S. dollar and as a defensive measure against potential international sanctions, as highlighted by the post-2014 geopolitical shifts following Russia’s annexation of Crimea.
In 2024, Georgia purchased gold for the first time since regaining its independence. While its gold purchasing strategy seems to align with these economic motives, the recent domestic political dynamics suggest a deeper, possibly strategic political rationale by the National Bank of Georgia. The imposition of U.S. sanctions on key figures, and recent legislative actions deviating from European Union standards, all amidst increasing anti-Western sentiment, indicate that the NBG’s gold acquisitions might also be driven by a quest for greater safeguard against potential future sanctions. Thus, while economic reasons for the purchase are significant, the political underpinnings in the NBG’s recent actions raise numerous unanswered questions.
References
- Arslanalp, S., Eichengreen, B., & Simpson-Bell, C. (2023). Gold as International Reserves: A Barbarous Relic No More? IMF Working Papers.
- Beckman, J., Berger, T., & Czudaj, R. (2019). Gold Price Dynamics and the Role of Uncertainty. Quantitative Finance , 663-681.
- Bhutada G. (2022). Does Gold’s Value Increase During Recessions? Elements Visualcapitalist.
- de Besten, T., Di Casola, P., & Habib M. M. (2023). Geopolitical fragmentation risks and international currencies. The international role of the euro.
- The Economist. (2022). Why gold has lost some of its investment allure. https://www.economist.com/finance-and-economics/2022/01/08/why-gold-has-lost-some-of-its-investment-allure
- International Monetary Fund (2024). Georgia: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Georgia. IMF Country Reports 24/135
- Intellinews. (2023). https://www.intellinews.com/georgia-s-national-bank-president-confirms-suspension-of-imf-programme-294545/
- StoneX Bullion (2024). Why Central Banks Buy Gold.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Georgia (de)Media Polarization Index: Measuring Political Bias Across Media Outlets

The Georgia Media Polarization Index, developed by the ISET Policy Institute, is a key tool for measuring political dissimilarity across the country’s leading media outlets. This Index captures the level of polarization in Georgian media by examining the political differences in news coverage. It offers a clear, data-driven approach to understanding media bias.
What the Media Polarization Index Measures
The Media Polarization Index uses a weighted average to measure political dissimilarities between various Georgian media outlets. Ratings determine the weight assigned to each outlet, so higher-rated sources have a greater influence on the results. The Index evaluates how different the political content is across these media platforms. This creates a clear picture of where each media outlet stands in terms of political bias.
The Role of Natural Language Processing (NLP) Models
To build the Index, the ISET Policy Institute uses advanced Natural Language Processing (NLP) techniques. The analysis relies heavily on two models: Word2Vec and Doc2Vec. These models analyze the language in political news articles and extract deeper meanings from the content.
The Doc2Vec model, specifically trained for the Georgian language, plays a central role in this process. It was developed using a large collection of over 250,000 political news articles from diverse media outlets in Georgia. This training allows the model to interpret nuanced meanings in political news. As a result, it provides a highly detailed analysis of media content.
How the Index Measures Dissimilarity
The Doc2Vec model is applied to political news articles from several prominent Georgian media outlets, including Imedi, Mtavari, TV Pirveli, 1TV (Public Broadcaster), Formula, PosTV, and Rustavi2. Using cosine similarity metrics, the model maps the articles into a high-dimensional space. The cosine similarity metric then measures how closely the political content of one outlet aligns with others. A wider angle between vectors, or a smaller cosine similarity, indicates greater political dissimilarity between media outlets.
Clustering Media Outlets Based on Bias
One of the most important insights from the Index is the identification of media clusters. The Index not only measures political dissimilarity across all outlets but also identifies clusters of outlets with similar political biases. The politically biased dissimilarity is calculated by comparing the total dissimilarity with the average dissimilarity within these clusters. This helps the Index identify both the overall level of polarization and the specific biases between different media groups.
Application of the Media Polarization Index
The Georgia Media Polarization Index is an essential tool for analyzing political bias and dissimilarity across Georgian media outlets. It provides critical insights for researchers, policymakers, and media watchdogs who monitor how media bias and polarization evolve over time. The findings from the Index can guide policy decisions, support the push for more balanced media coverage, and encourage constructive dialogue on the media’s role in shaping political discourse in Georgia.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development. For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Russian Wheat Policies and Georgia’s Strategic Trade Policies

Russia is known for periodically halting its grain exports to impact global wheat prices. This has become a significant policy concern in recent years, most notably during the Covid-19 pandemic and in the wake of Russia’s war in Ukraine. Georgia heavily depends on wheat imports, and over 95 percent of its wheat has historically been sourced from Russia. Despite Russia’s periodic bans and restrictions on wheat exports occurring every 2-3 years, Georgia is yet to effectively diversify its sources of wheat imports. This policy brief analyses the impact of Russia’s most recent wheat policies on Georgia’s wheat market, examines Georgia’s response, and provides policy recommendations in this regard.
In June 2023, the Georgian government introduced a temporary import duty on wheat flour imported from Russia in response to requests from the Georgian Flour Producers Association. The association began advocating for an import duty after Russia, in 2021, imposed a so-called “floating tariff” on wheat which made it relatively more expensive to import wheat in comparison to wheat flour. As a result of the “floating tariff” on wheat, wheat flour imports skyrocketed and almost fully substituted wheat imports. Eventually, many Georgian mills shut down and local wheat producers struggled to sell domestically produced wheat. Such an increase in flour imports raises the risk of completely replacing domestically produced flour with flour imported from Russia.
To address the above, the government has implemented a temporary import duty of 200 GEL (75 USD) per ton on wheat flour imported from Russia (the average import price ranges between 225 USD/ton and 435 USD/ton). In turn, millers have agreed to purchase 1 kilogram of wheat from Georgian farmers for 0.7 GEL (0.3 USD). This policy measure is in effect until March 1, 2024.
The Georgian Flour Producers Association advocates for an extension of the temporary import duty beyond March 1, 2024, to uphold fair competition in the wheat and flour market. According to the Georgian Flour Producers Association, an extension is desirable due to the following (Resonance daily, 2024):
- Under the import duty, fair competition between wheat flour and wheat has been restored, and Georgian mills have resumed their operations.
- Following the government intervention, farmers have successfully sold over 50,000 tons (on average half of the annual production) of domestically produced wheat. The Ministry of Environmental Protection and Agriculture has reported a 60 percent increase in local wheat production over the past two years, with expectations of sustained growth.
- Wheat imports have resumed, with Georgia importing 20,000 to 25,000 tons of wheat monthly, while prior to the government intervention, the average monthly wheat imports amounted to 15,337 tons (in 2022). Additionally, 8,000 to 12,000 tons of wheat flour, on average, are also imported monthly, while in the absence of government intervention, wheat flour imports surged to over 15,000 tons (in 2022).
- Post-intervention, the price of 100 kilograms of first-quality flour has remained stable, ranging from 45 to 49 GEL. Consequently, the price of bread has not increased but remains steady.
- The import duty has generated an additional 20 million GEL in government revenue.
- Through the efforts of the mills, the country now enjoys a steady and strategically managed supply of wheat, in accordance with UN recommendations. Coupled with the seasonal harvest of Georgian wheat, this ensures complete food security in any unforeseen critical scenario.
While many arguments support the decision to preserve the import duty on wheat flour, in order to make an informed decision on that matter, it is essential to thoroughly assess production, trade and price dynamics in the wheat market in Georgia. Additionally, to design adequate trade policy measures, one has also to consider the issue in a broader perspective and assess the risks associated with a high dependency on Russian wheat, especially given Russia’s history of imposing wheat export restrictions.
Russian Policy on the Wheat Market
Russia has long been one of the dominant players on the global wheat market, and its periodic decisions to halt grain exports have heavily affected international wheat prices (see Table 1). This concern became especially stringent in recent years, during the Covid-19 pandemic and Russia’s war in Ukraine.
Table 1. Russia’s policy interventions in the wheat market and their estimated impact on wheat prices, 2007-2023.

Source: United States Department of Agriculture, 2022.
The Government of the Russian Federation.
The Kansas City Wheat Futures, The U.S. Wheat Associates.
One of Russia’s most recent interventions in the wheat market is its withdrawal from the Black Sea Grain Initiative – an agreement between Russia, Ukraine, Turkey, and the United Nations (UN) during the Russian invasion of Ukraine on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports. While Georgia doesn’t directly import wheat from Ukraine and isn’t immediately threatened by famine, Russia’s export policies regarding wheat have raised significant food security concerns in the country. Georgia heavily depends on wheat imports from Russia, with over 95 percent of its wheat historically being sourced from there. Despite Russia’s recurrent bans and restrictions on wheat exports every 2-3 years, Georgia is yet to successfully diversify its import sources.
The Georgian Wheat Market in Figures
Domestic Production
Historically, Georgia’s agricultural sector has struggled to achieve a large-scale and sufficient wheat production due to the prevalence of small-sized farms. However, over the past decade, Georgian domestic wheat production has shown significant growth (see Figure 1). This growth has been particularly sizeable in recent years, with production increasing by 32 and 53 percent in 2021 and 2022, respectively, as compared to 2020.
Figure 1. Wheat production in Georgia, 2014-2022.

Source: Geostat, 2024.
Such increase in local production positively contributes to the self-sufficiency ratio, which increased from 7 percent in 2014 to 22 percent in 2022, in turn implying higher food security levels.
Wheat Imports
Before the introduction of Russia’s floating tariff on wheat, wheat flour imports to Georgia were almost non-existent. However, after the floating tariff was imposed on wheat, imports of wheat flour increased more than 20 times – from 743 tons in January 2021 to 15,086 tons in May 2023 – peaking at 23,651 tons in August 2022 (see Figure 2). At the same time wheat imports declined by almost 60 percent, from 29,397 tons in January 2021 to 12,133 tons in May 2023, with the smallest import quantity being 2,743 tons in May 2022 (as depicted in Figure 2).
Figure 2. Georgian wheat and wheat flour imports, 2021-2023.

Source: Geostat, 2024. Note: Imports include meslin (a mixture of wheat and rye grains).
After the introduction of the temporary import duty on wheat flour in June 2023, wheat imports have picked up, although not reaching the levels seen in 2021. Similarly, wheat flour imports have declined while remaining at higher levels than in 2021. This indicates a change in Georgia’s wheat market dynamics. Historically, Georgia predominantly imported wheat; now it imports both wheat and wheat flour. This shift must be considered in future policy design, as it has implications for domestic wheat farmers and mills.
The continued wheat flour imports, despite the temporary import duty imposed by the Georgian Government can likely be attributed to a smaller price gap between wheat and wheat flour import prices (see Table 2).
Table 2. Average import prices of wheat and wheat flour in Georgia, 2021-2023.

Source: Geostat, 2024.
In 2021, prior to Russia’s introduction of a floating tariff on wheat, the import price of wheat flour in Georgia was 24 percent higher than the import price of wheat. After the introduction of the floating tariff, importing wheat became more expensive, and the import price gap between wheat flour and wheat decreased to 22 percent by the end of 2021. Subsequently, in 2022, this gap further narrowed, and by the first half of 2023, the import price of wheat flour was 5 percent lower than the import price of wheat. This significant decrease in the price gap resulted in nearly full substitution of wheat imports with wheat flour imports. After the introduction of the import duty on wheat flour and as international wheat prices declined, a marginal positive price gap has reappeared, amounting to just 1 percent. As it stands, importing wheat flour remains more advantageous than importing wheat.
Price Effects
Russia’s floating tariff on wheat led to increased bread and wheat flour prices in 2021-2022. In June 2022, bread prices experienced the most significant surge, increasing by 36 percent, while wheat flour prices reached their peak in September 2022 with a year-on-year increase of 41 percent (see Figure 3). The primary reason for this was the record increase in wheat prices, leading to a corresponding surge in wheat flour prices in 2022. This spike occurred as the world price of wheat reached its highest point in five years.
Figure 3. Annual change in bread and wheat flour prices, 2021-2023.

Source: Geostat, 2024.
Nevertheless, in 2023 bread and wheat flour prices decreased, indicating that the import duty on wheat flour did not lead to increased prices. This could partially be explained by the fact that mills pay farmers 0.5 GEL/kg, which is lower than agreed price of 0.7 GEL/kg. Another and more crucial factor is the decline in global wheat prices. They began their descent in June 2022 and have since maintained a downward trajectory. This decrease, combined with increased local production, has so far acted as a barrier to any new bread and wheat flour price increases.
The Way Forward
The question that must be addressed is whether the import duty on wheat flour imported from Russia should be extended.
The import duty may have contributed to increased local production as higher import duties can incentivize local businesses to invest in expanding their production capacity or improving their technology to meet an increased demand. It is however essential to note that the impact of import duties on local production varies depending on the level of domestic competition, the availability of inputs (high quality seed, fertilizer etc.), technological capabilities, and government policies beyond import duties (such as investment incentives, infrastructure development, and regulatory environment). Additionally, import duties can also lead to retaliatory measures from trading partners, affecting overall trade dynamics – potentially incurring unintended consequences. Therefore, while import duties can contribute to an increased local production under certain conditions, it is just one of many factors influencing production dynamics.
Secondly, as previously detailed, the import duty has so far not resulted in increased bread prices. However, the effect of an import tariff on retail prices depends on various factors, including elasticity of demand and supply, market, competitiveness, and the extent to which the tariff is passed on to consumers by importers and retailers. Since demand for bread is inelastic, one has to keep in mind that the importers and retailers can fully pass on the increased cost from an import tariff to consumers.
Given that the floating tariff and the import duty make wheat and wheat flour imports to Georgia more expensive, one should expect future bread price increases. This unless international wheat prices continue to decline and/or producers agree to reduce their profit margins or make supply chain changes. Therefore, an extension of the import duty might be a suitable solution in the short and medium-term, but it should not be seen as a permanent solution.
To limit the risks of food scarcity in Georgia in the long run, it is essential to design strategies helping the country to reduce its dependency on Russian wheat and wheat flour. Some measures to achieve this objective may include:
Further supporting local production. Encourage investment in domestic agriculture to increase the productivity and quality of wheat production in Georgia. This can be achieved through subsidies, incentives for modern farming techniques, and access to credit for farmers.
Improving the quality of local production. Currently, most of the domestically produced wheat is unsuitable for milling into wheat flour. A significant portion of domestically produced wheat is of poor quality and instead used for feeding livestock. It is essential to invest in research and development to improve the quality of domestically produced wheat. This includes developing wheat varieties that are resistant to diseases and better suited for local growing conditions.
Seeking alternative markets for import diversification. One alternative for Georgia may be to focus on the Kazakh and Ukrainian markets (once the war is over) and negotiate possible ways to decrease the cost of transporting wheat to Georgia with state and private sector representatives.
Reducing the Georgian dependence on Russian wheat imports requires a multifaceted approach that addresses various aspects of agricultural policy, trade diversification, and domestic production capacity.
References
Resonance daily. (2024). The Association of Wheat and Flour Producers of Georgia requests an extension of the import tax on imported flour. https://www.resonancedaily.com/index.php?id_rub=4&id_artc=197847
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Impact of Rising Gasoline Prices on Households in Sweden, Georgia, and Latvia – Is This Time Different?

Over the last two years, the world has experienced a global energy crisis, with surging oil, coal, and natural gas prices. For European households, this translates into higher gasoline and diesel prices at the pump as well as increased electricity and heating costs. The increase in energy related costs began in 2021, as the world economy struggled with supply chain disruptions caused by the Covid-19 pandemic, and intensified as Russia launched a full-scale invasion of Ukraine in late February 2022. In response, European governments have implemented a variety of energy tax cuts (Sgaravatti et al., 2023), with a particular focus on reducing the consumer cost of transport fuel. This policy paper aims to contextualize current transport fuel prices in Europe by addressing two related questions: Are households today paying more for gasoline and diesel than in the past? And should policymakers respond by changing transport fuel tax rates? The analysis will focus on case studies from Sweden, Georgia, and Latvia, countries that vary in economic development, energy independence, reliance on Russian oil, transport infrastructure, and transport fuel tax rates. Through this study, we aim to paint a nuanced picture of the implications of rising fuel prices on household budgets and provide policy guidance.
Record High Gasoline Prices, Historically Cheap to Drive
Sweden has a long history of using excise taxes on transport fuel as a means to raise revenue for the government and to correct for environmental externalities. As early as in 1924, Sweden introduced an energy tax on gasoline. Later, in 1991, this tax was complemented by a carbon tax levied on the carbon content of transport fuels. On top of this, Sweden extended the coverage of its value-added tax (VAT) to include transport fuels in 1990. The VAT rate of 25 percent is applied to all components of the consumer price of gasoline: the production cost, producer margin, and excise taxes (energy and carbon taxes).
In May 2022, the Swedish government reduced the tax rate on transport fuels by 1.80 SEK per liter (0.16 EUR). This reduction was unprecedented. Since 1960, there have only been three instances of nominal tax rate reductions on gasoline in Sweden, each by marginal amounts in the range of 0.04 to 0.22 SEK per liter. Prior to the tax cut, the combined rate of the energy and carbon tax was 6.82 SEK per liter of gasoline. Adding the VAT that is applied on these taxes, amounting to 1.71 SEK, yields a total excise tax component of 8.53 SEK. This amount is fixed in the short run and does not vary with oil price changes.
Figure 1. Gasoline Pump Price, 2000-2023.
Source: Drivkraft Sverige (2023).
Figure 1 shows the monthly average real price of gasoline in Sweden from January 2000 to October 2023. The price has slowly increased over the last 20 years and has been historically high in the last year and a half. Going back even further, the price is higher today than at any point since 1960. Swedish households have thus lately been paying more for one liter of gasoline than ever before.
However, a narrow focus on the price at the pump does not take into consideration other factors that affect the cost of personal transportation for households.
First, the average fuel efficiency of the vehicle fleet has improved over time. New vehicles sold in Sweden today can drive 50 percent further on one liter of gasoline compared to new vehicles sold in 2000. Arguably, what consumers care about the most is not the cost of gasoline per se but the cost of driving a certain distance, as the utility one derives from a car is the distance one can travel. Accounting for vehicles’ fuel efficiency improvement over time, we find that even though it is still comparatively expensive to drive today, the current price level no longer constitutes a historical peak. In fact, the cost of driving 100 km was as high, or higher, in the 2000-2008 period (see Figure 2).
Figure 2. Gasoline Expenditure per 100 km.
Source: Trafikverket (2023) and Drivkraft Sverige (2023).
Second, any discussion of the cost of personal transportation for households should also factor in changes in household income over time. The Swedish average real hourly wage has increased by more than thirty percent between 2000-2023. As such, the cost of driving 100 km, measured as a share of household income, has steadily declined over time. Further, this pattern is consistent across the income distribution; for instance, the cost trajectory for the bottom decile is similar to that of all wage earners (as illustrated in Figure 3). In 1991, when the carbon tax was implemented, the average household had to spend around two thirds of an hour’s wage to drive 100 km. By 2020, that same household only had to spend one third of an hour’s wage to drive the same distance. There has been an increase in the cost of driving over the last two years, but in relation to income, it is still cheaper today to drive a certain distance compared to any year before 2013.
Figure 3. Cost of Driving as a Share of Income, 1991-2023.
Source: Statistics Sweden (2023).
Taken all together, we see that on the expenditure side, vehicles use fuel more efficiently over time and on the income side, households earn higher wages. Based on this, we can conclude that the cost of travelling a certain distance by car is not historically high today.
Response From Policymakers
It is, however, of little comfort for households to know that it was more expensive to drive their car – as a share of income – 10 or 20 years ago. We argue that what ultimately matters for households is the short run change in cost, and the speed of this change. If the cost rises too fast, households cannot adjust their expenditure pattern quickly enough and thus feel that the price increase is unaffordable. In fact, the change in the gasoline price at the pump has been unusually rapid over the last two years. Since the beginning of 2021, until the peak in June 2022, the (nominal) pump price rose by around 60 percent.
So, should policymakers respond to the rapid price increase by lowering gasoline taxes? The perhaps surprising answer is that lowering existing gasoline tax rates would be counter-productive in the medium and long run. Since excise taxes are fixed and do not vary with the oil price, they reduce the volatility of the pump price by cushioning fluctuations in the market price of crude oil. The total excise tax component including VAT constitutes more than half of the pump price in Sweden, a level that is similar across most European countries. This stands in stark contrast with the US, where excise taxes make up around 15 percent of the consumer price of gasoline. As a consequence, a doubling of the price of crude oil only increases the consumer price of gasoline in Sweden by around 35 percent, while it increases by about 80 percent in the US. Households across Sweden, Europe, and the US have adapted to the different levels of gasoline tax rates by purchasing vehicles with different levels of fuel efficiency. New light-duty vehicles sold in Europe are on average 45 percent more fuel-efficient compared to the same vehicle category sold in the US (IEA 2021). As such, US households do not necessarily benefit from lower gasoline taxation in terms of household expenditure on transport fuel. They are also more vulnerable to rapid increases in the price of crude oil. Having high gasoline tax rates thus reduces – rather than increases – the short run welfare impact on households. Hence, policymakers should resist the temptation to lower gasoline tax rates during the current energy crisis. With imposed tax cuts, households will, in the medium and long run, buy vehicles with higher fuel consumption and thus become more exposed to price surges in the future – again compelling policymakers to adjust tax rates, creating a downward spiral. Instead, alternative measures should be considered to alleviate the effects of the heavy price pressure on low-income households – for instance, revenue recycling of the carbon tax revenue and increased subsidies of public transport.
Conclusion
To reach environmental and climate goals, Sweden urgently needs to phase out the use of fossil fuels in the transport sector – Sweden’s largest source of carbon dioxide emissions. This is exactly what a gradual increase of the tax rate on gasoline and diesel would achieve. At the same time, it would benefit consumers by shielding them from the adverse effects of future oil price volatility.
The most common response from policymakers regarding fuel tax rates however goes in the opposite direction. In Sweden, the excise tax on gasoline and diesel was reduced by 1.80 SEK per liter in 2022 and the current government plans to further reduce the price by easing the biofuel mandate. Similar tax cuts have been implemented in a range of European countries. Therefore, the distinguishing factor in the current situation lies in the exceptional responses from policymakers, rather than in the gasoline costs that households are encountering.
Gasoline Price Swings and Their Consequences for Georgian Consumers
The energy crisis that begun in 2021 has also made its mark on Georgia, where the operational expenses of personal vehicles, encompassing not only gasoline costs but also maintenance expenses, account for more than 8 percent of the consumer price index. The rise in gasoline prices sparked public protest and certain opposition parties proposed an excise tax cut to mitigate the gasoline price surge. In Georgia, gasoline taxes include excise taxes and VAT. Until January 1, 2017, the excise tax was 250 GEL per ton (9 cents/liter), it has since increased to 500 GEL (18 cents/liter). Despite protests and the suggested excise tax reduction, the Georgian government chose not to implement any tax cuts. Instead, it initiated consultations with major oil importers to explore potential avenues for reducing the overall prices. Following this, the Georgian National Competition Agency (GNCA) launched an inquiry into the fuel market for motor vehicles, concluding a manipulation of retail prices for gasoline existed (Georgian National Competition Agency, 2023).
The objective of this part of the policy paper is to address two interconnected questions. Firstly, are Georgian households affected by gasoline price increases? And secondly, if they are, is there a need for government intervention to mitigate the negative impact on household budgets caused by the rise in gasoline prices?
The Gasoline Market in Georgia
Georgia’s heavy reliance on gasoline imports is a notable aspect of the country’s energy landscape. The country satisfies 100 percent of its gasoline needs with imports and 99 percent of the fuel imported is earmarked for the road vehicle transport sector. Although Georgia sources its gasoline from a diverse group of countries, with nearly twenty nations contributing to its annual gasoline imports, the supply predominantly originates from a select few markets: Bulgaria, Romania, and Russia. In the last decade, these markets have almost yearly accounted for over 80 percent of Georgia’s total gasoline imports. Furthermore, Russia’s share has substantially increased in recent years, amounting to almost 75 percent of all gasoline imports in 2023. The primary reason behind Russia’s increased dominance in Georgia’s gasoline imports is the competitive pricing of Russian gasoline, which between January and August in 2023 was almost 50 percent cheaper than Bulgarian gasoline and 35 percent cheaper than Romanian gasoline (National Statistics Office of Georgia, 2023). Given the dominance of Russian gasoline in Georgia, the end-user (retail) prices of gasoline in Georgia, are closer to gasoline prices in Russia than EU gasoline prices (see Figure 1).
Figure 1. End-user Gasoline Prices in Georgia, Russia and the EU, 2013-2022.
Source: International Energy Agency, 2023.
However, while the gasoline prices increased steadily in 2020-2022 in Russia, gasoline prices in Georgia increased sharply in the same period. This more closely replicated the EU price dynamics rather than the Russian one. The sharp price increase in gasoline raised concerns from the Georgian National Competition Agency (GNCA). According to the GNCA one possible reason behind the sharp increase in gasoline prices in Georgia could be anti-competitive behaviour among the five major companies within the gasoline market. Accordingly, the GNCA investigated the behaviour of major market players during the first eight months of 2022, finding violations of the Competition Law of Georgia. Although the companies had imported and were offering consumers different and significantly cheaper transport fuels compared to fuels of European origin, their retail pricing policies were identical and the differences in product costs were not properly reflected in the retail price level. GNCA claims the market players coordinated their actions, which could have led to increased gasoline prices in Georgia (National Competition Agency of Georgia. (2023).
Given that increased gasoline prices might lead to increased household expenditures for fuel, it is important to assess the potential impact of recent price developments on household’s budgets.
Exploring Gasoline Price Impacts
Using data from the Georgian Households Incomes and Expenditures Survey (National Statistics Office of Georgia, 2023), weekly household expenditures on gasoline and corresponding weekly incomes were computed. To evaluate the potential impact of rising gasoline prices on households, the ratio of household expenditures on gasoline to household income was used. The ratios were calculated for all households, grouped in three income groups (the bottom 10 percent, the top 10 percent and those in between), over the past decade (see Figure 2).
Figure 2. Expenditure on Gasoline as Share of Income for Different Income Groups in Georgia, 2013-2022.
Source: National Statistics Office of Georgia, 2023.
Figure 2 shows that between 2013 and 2022, average households allocated 9-14 percent of their weekly income to gasoline purchases. There is no discernible increase in the ratio following the energy crisis in 2021-2022.
Considering the different income groups, the upper 10 percent income group experienced a slightly greater impact from the recent rise in gasoline prices (the ratio increased), compared to the overall population. For the lower income group, which experienced a rise in the proportion of fuel costs relative to total income from 2016 to 2021, the rate declined between 2021 and 2022. Despite the decline in the ratio for the lower-level income group, it is noteworthy that the share of gasoline expenditure in the household budget has consistently been high throughout the decade, compared to the overall population and the higher-level income group.
The slightly greater impact from the rise in gasoline prices for the upper 10 percent income group is driven by a 4 percent increase in nominal disposable income, paired with an 8 percent decline in the quantity of gasoline (Figure 3) in response to the 22 percent gasoline price increase. Clearly, for this income group, the increase in disposable income was not enough to offset the increase in the price of gasoline, increasing the ratio as indicated above.
For the lower 10 percent income group, there was a 23 percent increase in nominal disposable income, paired with a 9 percent decline in the quantity of purchased gasoline (Figure 3) in response to the 22 percent gasoline price increase . Thus, for this group, the increase in disposable income weakened the potential negative impact of increased prices, eventually lowering the ratio.
Figure 3. Average Gasoline Quantities Purchased, by Household Groups, per Week (In Liters) 2013-2022.
Source: National Statistics Office of Georgia, 2023.
Conclusion
The Georgian energy market is currently fully dependent on imports, predominantly from Russia. While sharp increases in petrol prices have been observed during the last 2-3 years, they do not seem to have significantly impacted Georgian households’ demand for gasoline. Noteworthy, the lack of impact from gasoline price increases on Georgian households’ budgets, as seen in the calculated ratio (depicted in Figure 2), can be explained by the significant rise in Georgia’s imports from the cheap Russian market during the energy crisis years. Additionally, according to the Household Incomes and Expenditures survey, there was in 2022 an annual increase in disposable income for households that purchased gasoline. However, the data also show that low-income households spend a high proportion of their income on gasoline.
Although increased prices did not significantly affect Georgian households, the extremely high import dependency and the lack of import markets diversification poses a threat to Georgia’s energy security and general economic stability. Economic dependency on Russia is dangerous as Russia traditionally uses economic relations as a lever for putting political pressure on independent economies. Therefore, expanding trade and deepening economic ties with Russia should be seen as risky. Additionally, the Russian economy has, due to war and sanctions, already contracted by 2.1 percent in 2022 and further declines are expected (Commersant, 2023).
Prioritizing actions such as diversifying the import market to find relatively cheap suppliers (other than Russia), closely monitoring the domestic market to ensure that competition law is not violated and market players do not abuse their power, and embracing green, energy-efficient technologies can positively affect Georgia’s energy security and positively impact sustainable development more broadly.
Fueling Concerns: The True Cost of Transportation in Latvia
In May 2020, as the Latvian Covid-19 crisis began, Latvia’s gasoline price was 0.99 EUR per liter. By June 2022, amid the economic effects from Russia’s war on Ukraine, the price had soared to a record high 2.09 EUR per liter, sparking public and political debate on the fairness of fuel prices and potential policy actions.
While gas station prices are salient, there are several other more hidden factors that affect the real cost of transportation in Latvia. This part of the policy paper sheds light on such costs by looking at some of its key indicators. First, we consider the historical price of transport fuel in Latvia. Second, we consider the cost of fuel in relationship to average wages and the fuel type composition of the vehicle fleet in Latvia.
The Price of Fuel in Latvia
Latvia’s nominal retail prices for gasoline (green line) and diesel (orange line) largely mirror each other, though gasoline prices are slightly higher, in part due to a higher excise duty (see Figure 1). These local fuel prices closely follow the international oil market prices, as illustrated by the grey line representing nominal Brent oil prices per barrel.
The excise duty rate has been relatively stable in the past, demonstrating that it has not been a major factor in fuel price swings. A potential reduction to the EU required minimum excise duty level will likely have a limited effect on retail prices. Back of the envelope calculations show that lowering the diesel excise duty from the current 0.414 EUR per liter to EU’s minimum requirement of 0.33 EUR per liter could result in approximately a 5 percent drop in retail prices (currently, 1.71 EUR per liter). This at the cost of a budget income reduction of 0.6 percent, arguably a costly policy choice.
In response to recent years’ price increase, the Latvian government opted to temporarily relax environmental restrictions, making the addition of a bio component to diesel and gasoline (0.065 and 0.095 liters per 1 liter respectively) non-mandatory for fuel retailers between 1st of June 2022 until the end of 2023. The expectation was that this measure would lead to a reduction in retail prices by approximately 10 eurocents. To this date, we are unaware of any publicly available statistical analysis that verifies whether the relaxed restriction have had the anticipated effect.
Figure 1. Nominal Retail Fuel Prices and Excise Duties for Gasoline and Diesel in Latvia (in EUR/Liter), and Nominal Brent Crude Oil Prices (in EUR/Barrel), January 2005 to August 2023.
Source: The Central Statistical Bureau of Latvia, St. Louis Federal Reserve’s database, OFX Monthly Average Rates database, The Ministry of Finance of Latvia, The State Revenue Service of Latvia.
The True Cost of Transportation
Comparing fuel retail prices to average net monthly earnings gives insight about the true cost of transportation in terms of purchasing power. Figure 2 displays the nominal net monthly average wage in Latvia from January 2005 to June 2023 (grey line). During this time period the average worker saw a five-fold nominal wage increase, from 228 EUR to 1128 EUR monthly. The real growth was two-fold, i.e., the inflation adjusted June 2023 wage, in 2005 prices, was 525 EUR.
Considering fuel’s share of the wages; one liter of gasoline amounted to 0.3 percent of an average monthly wage in 2005, as compared to 0.12 percent in 2023, with diesel displaying a similar pattern. Thus, despite recent years’ fuel price increase, the two-fold increase in purchasing power during the same time period implies that current fuel prices may not be as alarming for Latvian households as they initially appeared to be.
Figure 2. Average Nominal Monthly Net Wages in Latvia and Nominal Prices of One Liter of Gasoline and Diesel as Shares of Such Wages (in EUR), January 2005 to June 2023.
Source: The Central Statistical Bureau of Latvia.
Another factor to consider is the impact of technological advancements on fuel efficiency over time. The idea is simple: due to technological improvements to combustion engines, the amount of fuel required to drive 100 kilometers has decreased over time, which translates to a lower cost for traveling additional kilometers today. An EU average indicator shows that the fuel efficiency of newly sold cars improved from 7 liters to 6 liters per 100 km, respectively, in 2005 and 2019. While we lack precise data on the average fuel efficiency of all private vehicles in Latvia, we can make an informed argument in relation to the technological advancement claim by examining proxy indicators such as the type of fuel used and the average age of vehicles.
Figure 3 shows a notable change in the fuel type composition of the vehicle fleet in Latvia. Note that the decrease in the number of cars in 2011 is mainly due to a statistical correction for unused cars. At the start of the 21st century, 92 percent of Latvian vehicles were gasoline-powered and 8 percent were diesel-powered. By 2023, these proportions had shifted to 28 percent for gasoline and 68 percent for diesel. Diesel engines are more fuel efficient, usually consuming 20-35 percent less fuel than gasoline engines when travelling the same distance. Although diesel engines are generally pricier than their gasoline counterparts, they offer a cost advantage for every kilometer driven, easing the impact of rising fuel prices. A notable drawback of diesel engines however, is their lower environmental efficiency – highlighted following the 2015 emission scandal. In part due to the scandal, the diesel vehicles growth rate have dropped over the past five years in Latvia.
Figure 3. Number of Private Vehicles by Fuel Type and the Average Age of Private Vehicles in Latvia, 2001 to 2023.
Source: The Central Statistical Bureau of Latvia, Latvia’s Road Traffic Safety Directorate.
Figure 3 also shows that Latvia’s average vehicle age increased from 14 years in 2011 to 15.1 years in 2023. This is similar to the overall EU trend, although EU cars are around 12 years old, on average. This means that, in Latvia, the average car in 2011 and 2023 were manufactured in 1997 and 2008, respectively. One would expect that engines from 2008 have better technical characteristics compared to those from 1997. Recent economic research show that prior to 2005, improvements in fuel efficiency for new cars sold in the EU was largely counterbalanced by increased engine power, enhanced consumer amenities and improved acceleration performance (Hu and Chen, 2016). I.e., cars became heavier, larger, and more powerful, leading to higher fuel consumption. However, after 2005, cars’ net fuel efficiency started to improve. As sold cars in Latvia are typically 10-12 year old vehicles from Western European countries, Latvia will gradually absorb a more fuel-efficient vehicle fleet.
Conclusion
The increase of purchasing power, a shift to more efficient fuel types and improvements in engine efficiency have all contributed to a reduction of the overall real cost of transportation over time in Latvia. The recent rise in fuel prices to historically high levels is thus less concerning than it initially appears. Moreover, a growing share of cars will not be directly affected by fuel price fluctuations in the future. Modern electric vehicles constitute only 0.5 percent of all cars in Latvia today, however, they so far account for 10 percent of all newly registered cars in 2023, with an upward sloping trend.
Still, politicians are often concerned about the unequal effects of fuel price fluctuations on individuals. Different car owners experience varied effects, especially when considering factors like income and location, influencing transportation supply and demand.
First, Latvia ranks as one of the EU’s least motorized countries, only ahead of Romania, with 404 cars per 1000 inhabitants in 2021. This lower rate of vehicle ownership is likely influenced by the country’s relatively low GDP per capita (73 percent of the EU average in 2022) and a high population concentration in its capital city, Riga (32 of the population lives in Riga city and 46 percent in the Riga metropolitcan area). In Riga, a developed public transport system reduces the necessity for personal vehicles. Conversely, areas with limited public transport options, such as rural and smaller urban areas, exhibit a higher demand for personal transportation as there are no substitution options and the average distance travelled is higher than in urban areas. Thus, car owners in these areas tend to be more susceptible to the impact of fuel price volatility.
Second, Latvia has a high Gini coefficient compared to other EU countries, indicating significant income inequality (note that the Gini coefficient measures income inequality within a population, with 0 representing perfect equality and 1 indicating maximum inequality. In 2022, the EU average was 29.6 while Latvia’s Gini coefficient was 34.3, the third highest in the EU). With disparities in purchasing power, price hikes tend to disproportionately burden those with lower incomes, making fuel more costly relative to their monthly wages.
These income and location factors suggest that inhabitants in rural areas are likely the most affected by recent price hikes. Distributional effects across geography (rural vs urban) are often neglected in public discourse, as the income dimension is more visible. But both geography and income factors should be accounted for in a prioritized state support, should such be deemed necessary.
References
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- Hu, K. and Chen, Y. (2016). Technological growth of fuel efficiency in European automobile market 1975–2015. Energy Policy, 98, pp.142-148.
- IEA. (2021). Fuel Consumption of Cars and Vans. Tracking Report. International Energy Agency.
- International Energy Agency. (2023). End-Use Prices Data Explorer. https://www.iea.org/data-and-statistics/data-tools/end-use-prices-data-explorer?tab=Overview
- National Competition Agency of Georgia. (2023). Regarding the investigation carried out in accordance with the order of the Chairman of the National Competition Agency of Georgia dated August 16, 2022 N04/165.
- National Statistics Office of Georgia. (2023). External Trade Portal. Retrieved from https://ex-trade.geostat.ge/en
- National Statistics Office of Georgia. (2023). Households Incomes and Expenditures Survey. https://www.geostat.ge/en/modules/categories/128/databases-of-2009-2016-integrated-household-survey-and-2017-households-income-and-expenditure-survey
- Sgaravatti, G., Tagliapietra, S., & Zachmann, G. (2022). National policies to shield consumers from rising energy prices. Bruegel Datasets.
- Statistics Sweden. (2023). Average hourly wage statistics. http://www.statistikdatabasen.scb.se
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Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.