The Impact of Financial Market Development on Economic Growth in Georgia: A Comparative Empirical Analysis of Banking and Capital Markets

Irine Tavadze

Batumi Shota Rustaveli State University

Batumi, Georgia

https://orcid.org/0009-0006-4652-4231

Irina Vashakmadze

Batumi Shota Rustaveli State University

Batumi, Georgia

https://orcid.org/0009-0001-6042-5487

ABSTRACT

This study conducts a comparative analysis of the development levels of the two principal segments of Georgia’s financial system - the banking sector and the capital market - and their respective effects on economic growth. The paper draws on the theoretical framework of finance-growth theory (Goldsmith, McKinnon-Shaw, King and Levine) and employs statistical data from the National Bank of Georgia, the World Bank, and the Georgian Stock Exchange for the period 2000 - 2026. The analysis shows that Georgia’s financial system is markedly bank-based: commercial banks constitute virtually the sole source of private-sector credit, while capital market capitalization relative to GDP has not exceeded 4 percent over the years, lagging significantly behind both developed and many developing economies. The paper argues that this structural imbalance constrains the economy’s access to diversified financing and heightens systemic risk due to the concentration of the banking sector. The concluding section presents policy recommendations for capital market development in the context of Georgia’s EU candidate status and its obligations under the Deep and Comprehensive Free Trade Area (DCFTA).