Diversification Rate of Energy Balance and Energy Export Demand Risk Impacts on Economic Growth: The Case of Azerbaijan

Abstract

The objective of the article was to examine the level of diversification of the energy balance and energy export demand, as well as its impacts on economic growth to ensure energy security in Azerbaijan. Forthe research, the Risk Energy Export Demand Index and its four sub-indexes, i.e.,1) export dependence, were used; 2) risk of monopsonium; (3) the risk of transaction costs; 4) Comparative quantitative assessment of the economic importance of different types of energy in the country's energy exports. The Herfindahl-Hirschman index and the Shannon-Wiener index were used for the assessment of the diversification and concentration rate. The OLS method, the ADF test and cointegration were used to assess the relationship between indicators. It is concluded that the share ofenergy obtained from renewable sources in the country's energy balance is very low (about 3%), and the energy obtained from these sources is mainly used for electricity production. Since an essential part of the country's energy balance is in hydrocarbon reserves, the level of diversification is low.