Cointegration analysis of GDP indicators per capita between the Republic of Azerbaijan and Turkey on purchasing power parity

Abstract

The article analyses the interrelationships between the main components of socio-economic development levels in Turkey and the Republic of Azerbaijan. The purpose of this work is to construct a cross-country regression model of per capita economic growth in Turkey and the Republic of Azerbaijan and to conduct a cross-country comparative analysis of the main components of inclusive growth under the strong influence of both countries. The aim of this research is to enable empirical study of the joint movement of both indicators, determine cause-effect relationships and co-integration dependence, establish long-term integration relationships, and take necessary steps and measures for a positive outcome. The level of economic development was measured using GDP per capita with purchasing power parity (PPP). The study analyses the dynamic interaction of indicators using data from January 1992 to December 2022. Econometric methodology was employed, including the extended Dickey-Fuller test to detect a single root, and the Granger test. The Johansen test, Error correction model, and ARDL model standard diagnostic tests were used to examine the cointegration relationship. Stationarity, causality, and cointegration tests were conducted on the entire sample at a significance level of 10%.