Management of Oil Revenues: Has That of Azerbaijan Been Prudent?

Sarvar Gurbanov,Jeffrey Nugent,Jeyhun Mikayilov

doi:10.3390/economies5020019

Abstract

To help explain the common failure of oil or other natural resource exporting countries to diversify into industry, it has been common to trace this failure to real exchange rate appreciation. This has also been done in Azerbaijan. However, because Azerbaijan has devoted so much of its oil revenues to government investment, Azerbaijan provides a suitable case for examining an alternative link through government investment. This study applies the ARDL cointegration method to quarterly time series data on oil prices, government capital formation, non-oil exports and non-oil GDP to estimate the long run relationships linking oil prices to government investment expenditures and further to generation of non-oil GDP. The results show that despite the massive government investment expenditures, extremely little non-oil production of the tradable type has been generated, calling attention to the need for policy reform.

Highlights

Oil production data dates from 1846 and shows that during its first oil boom (1885–1920)Azerbaijan was very innovative in its drilling and lifting processes but was usually producing about half of the world’s oil (Balayev 1969; Mir-Babayev and Fuchs 1999; Pomfret 2006, 2011)
That study did use techniques to reduce the small sample bias, since our study extends the duration of time series up until to 2013
We model the relationship between oil prices and government capital expenditures

Summary

Introduction

Oil production data dates from 1846 and shows that during its first oil boom (1885–1920)Azerbaijan was very innovative in its drilling and lifting processes but was usually producing about half of the world’s oil (Balayev 1969; Mir-Babayev and Fuchs 1999; Pomfret 2006, 2011). It is clear that Azerbaijan has been a large oil producing country for some time. Its oil revenues were accrued mainly to the central government of the USSR. Since the time of Azerbaijan’s independence in late 1991, its oil revenues have increased and their use has come under the management of the Azerbaijan state. Its heavy reliance on central government subsidies for its the Soviet Union was very painful . It displayed symptoms similar to those of Russia and manufacturing sectors rendered these industries uncompetitive after the breakup of the USSR. Its heavy reliance on central government subsidies for its they faced competition in free world markets beginning in 1991, these sectors collapsed as shown in manufacturing sectors rendered these industries uncompetitive after the breakup of the USSR.

Methods

Results

Conclusion