Georgia is upgrading its principalhighway, running for more than 350 kilometers between theBlack Sea on its western border and Azerbaijan in the east,at a cost of about 2.3 billion US dollars, or nearly 14percent of its 2014 Gross domestic product (GDP). Apart fromthe immediate effects of the construction (financed largelyby international institutions), how much will thisrelatively large investment improve economic conditions inGeorgia? Will it significantly reduce travel costs, and ifso, how much of the gain will flow through to the wholeeconomy? Answers to those types of questions are rarelyquantified for infrastructure projects in developingcountries, either because the projects are too small or thenecessary country-specific model is lacking. The Georgiaproject offered a unique combination of circumstances thatmade the estimations feasible: (1) a large investmentrelative to the size of the economy; (2) an already existingmodel and dataset depicting how the sectors of Georgia’seconomy interact; and (3) partial completion of the roadupgrade that allowed a simulation of expected gains to beinformed by actual interim outcomes.
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