The Impact of Real Effective Exchange Rate on the Non-Oil Export: The Case of Azerbaijan

Abstract

The paper investigates the impact of the real exchange rate on non-oil exports in Azerbaijan by applying Vector Error Correction Model. The estimation results suggest that real exchange rate of manat has negative impact on non-oil export performance while non-oil GDP affects positively in the long- and short-run. Error correction term indicates that short-run fluctuation can be adjusted into long-run equilibrium relationship. Based on findings of the study can be concluded that appreciating real exchange rate is one of major factors that impede non-oil export growth. Since promotion of non-oil export is one of the urgent issues of the strategic economic policy of Azerbaijan Republic then findings of the study may be useful for policymakers.