The objective of this study was toassess the economy wide indirect benefits of investments inthe East West highway (EWH). This study has used acomputable general equilibrium (CGE) model, which simulatesindirect benefits associated with the completion of theupgraded road corridor. The transmission channel modeled isthe reduction in transportation costs - reduction in vehicleoperating costs, and time savings - resulting from theinvestments in the EWH. A CGE model is a simultaneousequation system that consists of equations representingvarious economic relationships for different economicagents, such as producers and households. CGE models arecommonly used by countries and international financialinstitutions to simulate policy interventions to determineeconomy-wide impacts. This study involved modifying theexisting social accounting matrix (SAM) and CGE model inorder to carry out simulations to answer the question ofeconomy wide impacts of the EWH investments, includingimpacts on real gross domestic product (GDP) growth, jobs,and trade, as well as impacts on households disaggregated byincome. It aims to answer the following questions: how willthe EWH lower the transportation costs for producers ofgoods and services?; what are the economy wide impacts ofthe EWH on employment, real GDP growth, trade, and householdincome?; and can the EWH help bridge the existing economicdivide between rural and urban areas in Georgia? The studyis aims to simulate quantitatively how the EWH as alarge-scale infrastructure investment program can bringsignificant stimulus to foster economic growth and welfarein Georgia.
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