Empirical analysis of the investment potential of the financial market of Georgia

Constant growth in the quantity of goods and services produced in a country is an indication of economic development. As the most important economic sector, manufacturing requires easy access to capital to maintain business continuity. Due to the underdeveloped mechanisms of financing capital flows in the real sector of the economy, the financing of the production process of enterprises in Georgia using favourable financial instruments remains problematic despite more than three decades of economic system transformation. In Georgia, the financial market is limited to the segment of the money market, which is the primary driving force of businesses in the developed nations of the world for the smooth financial provision of the production process. Unfortunately, the securities market is limited to the distribution of shares among joint-stock companies, which is the best opportunity for both financing and investment for enterprises and individuals who participate in the market. The economies of developed nations have validated Adam Smith’s observation from two centuries ago that “the more perfect the markets, the more efficient the economy”. A perfect market is one in which there are no impediments to the free flow of resources among market participants. Inclusion of all financial market institutions in the distribution of resources is the issue that could not be eradicated from the Georgian economy. Based on the current situation, it was aimed to analyse the role of each financial institution in the financing of enterprises. The institutional structure of the financial market and the investment potential of each institution were analysed for this purpose. The effect of financial institution investment opportunities on the nation's gross domestic product was determined through empirical analysis. With the results obtained by institutions operating on the financial market, including the correlation, the regression equation was clarified. Using the method of forecasting, the 10-year increase in the volume of bank loans and insurance company investments was calculated. On the basis of the obtained results, proposals to maximize the use of the defective segment of the financial market were developed.