Azerbaijani Economy Research Articles

Impact of Investment on Labour Productivity in Azerbaijan's Chemical and Petrochemical Industry

The subject of research related to the impact of investment on industrial productivity in Azerbaijan is relevant and essential for understanding the economic situation in the country and for designing effective strategies for the development of the industry. The purpose of this research is to explore the relationship between investment and labour productivity in the sectors of the Azerbaijani economy. The research employed a combination of analytical methods, including statistical analysis of data from the State Statistical Committee of Azerbaijan on labour productivity and investment in the chemical and petrochemical sectors. Functional analysis was used to examine the role of labour productivity, while systematic analysis explored the factors influencing productivity. The research also utilized deduction to establish general principles, synthesis to integrate data, and comparative analysis to identify effective investment areas. The study revealed that investing in the chemical and petrochemical sectors in Azerbaijan has a beneficial effect on labour productivity. Technological innovation, labour skills, working conditions, and infrastructure were identified as factors that impact labour productivity in these industries. Various investment areas that can enhance productivity have been identified, including investments in human capital, production organisation, and advanced technology. The study investigates the direct impacts of investments in technology, human capital, and infrastructure on labour productivity within Azerbaijan's chemical and petrochemical industries and identifies which specific areas of investment most effectively enhance productivity and the underlying reasons for their success. The practical significance of this research lies in utilising the identified findings to tackle issues about enhancing labour productivity in Azerbaijan's economic sectors, thereby elevating this process to a higher level.

THE IMPACT OF RENEWABLE AND NON-RENEWABLE ENERGY CONSUMPTION ON ECONOMIC GROWTH IN AZERBAIJAN: FB-ARDL AND A-ARDL COINTEGRATION APPROACHES

The objective of this study is to examine the impact of renewable and non-renewable energy consumption on economic growth in Azerbaijan. It is believed that this study will contribute to the literature by using Fourier ADF, Fourier Bootstrap ARDL and Augmented ARDL methods for the first time in this context. The stationarity of the variables was first tested using ADF, Fractional Fourier ADF, Flexible Fractional Fourier ADF and single structural breakpoint ZA stationarity tests, which revealed different degrees of stationarity of the variables. The cointegration relationship between the variables was first examined using the Fourier Bootstrap ARDL bound test, which found no evidence of cointegration. Subsequently, the Augmented ARDL bounds test was used to examine the cointegration relationship between the variables, which revealed a long-run equilibrium relationship. FMOLS, DOLS and CCR long-run estimation methods were used to examine the impact of renewable and non-renewable energy consumption on economic growth and according to the results of all three methods, both renewable and non-renewable energy consumption contribute to the growth of the Azerbaijani economy. Holding other variables constant, a 1% increase in non-renewable energy consumption leads to a 3.28% increase in economic growth. Holding other variables constant, a 1% increase in renewable energy consumption leads to a 1.29% increase in economic growth. The study concludes with policy recommendations for the Azerbaijani economy based on the econometric results.

Dimensionality reduction analysis of the renewable energy sector in Azerbaijan: nonparametric analyses of large datasets

Although the number of econometric analyses related to the renewable energy sector in Azerbaijan is increasing, studies on nonparametric dimensionality reduction are rather sparse. Principal component analysis (PCA) and multiple correspondence analysis (MCA) were chosen to fill this apparent research gap. As a result, a large dataset including the renewable energy sector and selected key macroeconomic indicators was evaluated. The PCA procedure yielded four distinct principle components reflecting the main macroeconomic variables, renewable energy production, industry-energy relations and natural resource revenues. The PCA method offers the possibility to examine the precise correlations and the underlying patterns between the displayed clusters of variables. Meanwhile, the MCA-based cross-country assessment of Azerbaijan’s wind, solar and hydropower has struck somewhat pessimistic notes, as the country lags behind neighbouring and other post-Soviet countries (e.g. Estonia, Iran, Latvia, Russia) in developing its green energy sector. These findings are of great interest to policymakers, businesses and academics who wish to gain deep insight into the Azerbaijani economy in terms of renewable energy production. The practical value of the present work also lies in the fact that it analyses a multidimensional and relatively longitudinal dataset (1990–2022), which is an example of a methodological application of two nonparametric approaches.

Fiscal policy and economic growth in resource-rich country: Empirical evidence from Azerbaijan

The relationship between fiscal policy and economic growth is one of the longest-lived economic discourses. In this context, countries with emerging institutions and resource-based economies are of particular interest. Therefore, the Azerbaijani economy was chosen as the object of study. The purpose of this paper is to analyze the relationship between fiscal policy and economic growth in Azerbaijan and analyze the possible existence of the BARS curve relationship in Azerbaijan. The study covers quarterly data for 2005Q1–2023Q2. The autoregressive distributed lag (ARDL) bound test is used to evaluate the relationship between fiscal variables and economic growth (both general and non-oil), as well as the BARS curve relationship. The analysis revealed a positive association between government spending and both overall and non-oil economic growth over the long term. On average, a 1% rise in government spending corresponds to a 0.6% increase in economic growth. Conversely, in the short term, a negative relationship is observed between government spending and economic growth, encompassing both the general and non-oil economy. Notably, no statistical evidence supporting the presence of the BARS curve relationship in Azerbaijan was identified. Amid the circumstances of decreasing oil production in Azerbaijan, these results put more emphasis on the importance of increasing the productivity of government spending.

Unveiling the Dutch Disease Indexes: Principal Component Analysis in a Small Oil-rich Country

The Dutch disease (DD) theory is a popular approach when analyzing the economies of resource-rich countries. However, despite the extensive examination of both the original DD theory and its variations in numerous country cases, the findings remain contradictory and inconclusive, primarily due to the challenges associated with measuring DD. Building upon the notable case study of the Azerbaijani economy, this paper introduces a novel way to utilise principal component analysis (PCA) in index development, which incorporates the modelling framework of the original theory and provides a profound understanding of DD measurement. The findings of the study reveal that the fundamental variables associated with DD in the Azerbaijani economy can be effectively condensed into a small number of principal components (PCs). In addition, this research introduces not only a total Dutch disease index (TDDI), but also a resource movement index (RMI) and a spending index (SI), with the last of these demonstrating a more pronounced impact in Azerbaijan. The estimated indexes exhibit a significant and negative correlation with the manufacturing sector’s share in the industry, pointing to the presence of the crowding-out mechanism of DD. Moreover, a strong positive correlation is observed with key growth indicators such as gross domestic product (GDP) and gross capital formation, underscoring the exceptional role of the oil boom in the Azerbaijani economy. These findings justify the contention that DD is present in the Azerbaijani economy. The paper also provides a composite index that can be utilised by both policymakers and scholars for measuring DD.

Current trends in digital transformation and their impact on the national economy

In today’s realities, digital transformation plays a very important role in the economic development of the country. This is due both to the high rate of scientific and technological progress and to the common within the economic relations, consumer preferences. Thus, it remains important to assess the impact of digitalization on the welfare of international and national economies. The research examines the current situation in Azerbaijan, one of the countries in which the principles of digital transformation are being actively implemented. The main research methods were analysis, induction, as well as methods of statistical data processing. The research assessed the main reason for the acceleration of the pace of digital transformation in the world and Azerbaijan, that being the beginning of the COVID-19 crisis. Although it was a problem for many companies at the initial stage, subsequently it allowed them to fit into the new economic realities. Thus, at the moment in Azerbaijan, there is a fairly well-developed system for managing the processes of digitalization. The national policy of the country is aimed at motivating enterprises to change the principles of their functioning into more innovative ones, which is quite well received by the institutions responsible for this. A particularly important role is played by financial and non-financial support for small and medium-sized enterprises, the provision of educational programs for citizens in terms of increasing literacy about the latest digital technologies, and the introduction of digital technologies in public administration processes, in which Azerbaijan has been able to achieve significant success. However, there are still various problems that require a solution from the authorities in the shortest possible time. Thus, this study brings new knowledge to the theory of modern digital transformation and allows us to consider the current state of the Azerbaijani economy in more detail

The Role of The Digital Economy in Azerbaijan’s Economic Development

Azerbaijan is taking important steps towards the digital economy in order to support its economic growth and gain competitive advantage. This article examines the critical role played by the digital economy in the economic development of Azerbaijan. The introduction generally evaluates the economic context of Azerbaijan and emphasizes the importance of the digital economy in this context. The research method section describes the paper's basic data collection and analysis strategies. The Digital Economy and Azerbaijan section defines the basic concepts of the digital economy and examines Azerbaijan's progress in this field. Emphasis is placed on digital economy models and technology integration implemented in the country. The Role of the Digital Economy in Azerbaijan's Economic Development section discusses in detail the effects of the digital economy on economic growth. The role of elements such as innovation, e-commerce, digital finance and banking in the Azerbaijani economy is examined in depth. The Result and Discussion section evaluates the general findings of the article and discusses the potential impacts of the digital economy on the Azerbaijani economy. It also includes various perspectives on predicting future digital economy applications. This article aims to make a significant contribution to the country's efforts to achieve sustainable growth and competitive advantage by highlighting the central role of the digital economy in Azerbaijan's economic development.

The relationship between monetary stability and central bank independence: The case of Azerbaijan

The independence of the central bank is one of the most important factors for effective monetary policy. Central bank independence is closely related to monetary stability, which is an important part of monetary policy. In this study, the purpose of the analysis is to understand whether monetary stability functions effectively for central bank independence in Azerbaijan using the vector autoregression method. In addition, the Granger Causality test was conducted to empirically investigate how central bank independence affects the provision of monetary stability in the economy of Azerbaijan over the data period from 1996 to 2022. In this framework, indices or variables are the exchange rate stability index (ERS) in 1996–2022, the level of monetary independence index (MI) in 1996–2020, taken from the “trilemma indexes”, which are defined as the consumer price index (CPI) in 1996–2022, and the broad money supply (M2) in 1996–2022. The findings of the study show that the independence of the central bank has a positive effect on the monetary stability of the Azerbaijani economy.

Analyzing the Interplay between Energy Consumption and Military Expenditure: A Comparative Study of Azerbaijan, Turkey, and Pakistan

This study examines the complex link between energy consumption and defense expenditures in Azerbaijan, Turkey and Pakistan. Policymakers and stakeholders in these nations must understand the intricate interdependencies between energy consumption and defence expenditure. The study's conclusions help create energy and defence strategies that balance national security and sustainability. It also advances scholarly discussion on energy, security, and international affairs. This study compares energy usage and defence spending in Azerbaijan, Turkey, and Pakistan. It offers a foundation for informed decision-making and future study in this field by revealing the complex relationships between these two aspects. The impacts of defence expenditures and causality analyses of oil and natural gas usage between the years 1992 and 2021 are investigated as part of the scope of this research. According to the results, it has been found that there is no link between defence expenditures and the consumption of oil and natural gas within the context of the Azerbaijani economy. This conclusion was reached based on the findings of the investigation. On the other hand, it has been shown that the utilisation of natural gas is the driving force behind the use of oil. When Turkey and Pakistan are compared, there is no correlation between their military spending, the amount of oil they use, and the amount of natural gas they utilise.

Conceptualizing Public Finance Research in the Context of the Azerbaijani Economy Via Expert Interviews

Conceptualizing Public Finance Research in the Context of the Azerbaijani Economy Via Expert Interviews

De-industrialization in Azerbaijan's Textile Subsectors: Canonical Correlation Analysis and the Dutch Disease Hypothesis

Since 2014, academic studies have increasingly underscored the potential adverse consequences associated with Azerbaijan's imbalanced and dependent economic structure. It is widely recognized that countries relying heavily on the export of primary commodities are ill-prepared for situations characterized by sharp declines in international commodity prices. Hence, the objective of this paper is to examine the Azerbaijani economy amidst two parallel developments: the growth of oil-related macroeconomic indicators and the contraction of non-oil subsectoral industrial production. To achieve this, the analytical framework of the Dutch disease, a widely preferred theory to study commodity exporters, and canonical correlation analysis (CCA) were employed in the period 1995 to 2021. The findings reveal statistically significant canonical correlations between certain subsectors of the textile industry (such as ginned cotton, cotton fabric, silk fabric, bed linen of cotton, and cotton yarn) and the Dutch disease variables (e.g., oil rent, real effective exchange rate), while other subsectors (including carpets, crocheted legwear and garments, outerwear, underwear, and footwear) do not exhibit similar patterns. These results show that non-consumer subsectors of the textile subsectors, especially the cotton sector, are more vulnerable to the effects of Dutch disease than consumer subsectors of the textile subsectors. In addition, the oil rent variable is a persistent channel that shows a negative correlation with the latent variables of the textile subsectors. These results prompt policymakers and researchers to reassess the role of large extractive industries in a small, open economy like Azerbaijan and to formulate economic policies that safeguard and foster specific subsectors.

Effects of oil and natural gas industry on Azerbaijan economy

When macroeconomic indicators are taken into account, it is seen that Caspian energy resources are important for the Azerbaijani economy to re-adapt to the world economy and to restructure the economy. After the years of independence, the agreements made regarding the energy sector and the activities carried out in this context provided an opening to the economy. The existence of the oil industry in Azerbaijan for many years and the inability to find an alternative energy source to oil have increased the importance of the country and the oil industry. In the article, the effects of the oil sector in the economy of Azerbaijan are mentioned.

Heydar Aliyev - founder of sustainable development of the economy of Azerbaijan

The Economic Reform Strategy of National Leader Heydar Aliyev has created a solid foundation for the sustainable development of Azerbaijan. Strengthening economic viability is ensured by the rational and efficient use of the available resources of our country. That is why the country's potential resources play an important role in sustainable development. The development of existing reserves has made a greater contribution to the economy of Azerbaijan. In view of the foregoing, the study of the role of the Great Leader Heydar Aliyev in the sustainable development of the Azerbaijani economy is of particular importance.

STATE SUPPORT FOR FOREIGN TRADE DIVERSIFICATION OF AZERBAIJAN

Global trade, already since the end of 2019, has fallen sharply due to the coronavirus pandemic and the restrictions adopted in connection with it. Then, due to the fall in prices on the world oil market, which is the main source of formation of the state budget of the country, there was a sharp drop in revenues, difficulties arose in financing the development of more important areas of the Azerbaijani economy. Problems were especially manifected in improving the socio-economic well-being of the population, indeveloping the infrastructure of the regions, in the industrial sector of the country in the context of improving the technologies used in production activities of domestic enterprises. In fact, the decline in oil prices forced all oil states and enterprises of various vocational orientations to a sharp transition from active economic activity to passive. New mechanisms and reforms are needed to diversify the national economy, since there are a number of problems that impede the implementation of this process and the expansion of the country's foreign economic activity. The article discusses the priority areas of diversification of Azerbaijan's foreign trade, studies the problems, analyzes the volume of exports and imports of the republic by years.

Diversification Through Promotion of Export-Oriented Production and “Green Transformation” in Azerbaijan

Diversification is an important component of the development of any economy. The reason for this is the increase in the country's resilience to external stimuli, which makes progress more gradual, constant and predictable. Thus, the study of the possibilities of diversifying the economy is very relevant, especially in today's geopolitical conditions. The purpose of the work was to analyse some methods of diversifying the economy of Azerbaijan, namely the development of export-oriented production and the implementation of the “green transformation”. Analysis became the main method in writing the article, but historical, modelling, deduction, abstract-logical methods also played an important role. Thus, the work examined and analysed the export of Azerbaijan, during which a significant dependence of the country on oil sales to foreign markets was revealed. Since such a prospect is dangerous for the sustainable development of the country, it is important to carry out certain measures aimed at increasing the diversification of its exports. First of all, they are associated with publicprivate partnerships, but they also take other forms, such as attracting investments and building infrastructure. In addition, the paper describes how the “green transformation” of the country can help achieve the goals of economic diversification and at what stage is the level of “greening” of the state economy; the paper also describes the prospects for the state in achieving these goals. The article brings new knowledge to understand the features of the functioning of the Azerbaijani economy, as well as to the theory of economic and sustainable development, as well as trade

ANALYSIS AND TRENDS OF THE LEVEL OF ECONOMIC DEVELOPMENT OF AZERBAIJAN

Azerbaijan has been constantly strengthening and developing rapidly since independence. Successful economic policy supply, stability in the macroeconomic development of Azerbaijan was ensured, economic growth rates were achieved, which for a long time could not be achieved by many developing countries. Today, as a result of breakthrough development and numerous achievements in the economy, Azerbaijan has entered a qualitatively new economic stage - the era of modernization. The path to such economic development was not easy. In the first years of its independence, the Azerbaijani state faced many political and economic crises. Only after the return to power of the great leader Heydar Aliyev did a turning point come in the development of the country. Thus, since Azerbaijan was part of the Soviet Union for a long time, the economy of Azerbaijan developed within the framework of a single space. With the collapse of the Soviet Union, processes of disintegration began between the union republics, which worked together in a planned socialist system. In the countries that gained state independence, including Azerbaijan, the foundation was laid for a new historical stage - the transition period. Our article mainly reflects the stages of development of the Azerbaijani economy in this transitional period and in the subsequent period. Economic development was studied and analyzed in stages. At the same time, this analysis was compared in the form of statistical indicators and reflected in the article. It is also clear from research and analysis that the economy of Azerbaijan developed rapidly after gaining independence. Keywords: Azerbaijan, economy, indicator, oil, economic growth, GDP, social, banking, interest.

MODELING AND ANALYSIS OF THE ECOMOMIC DEVELOPMENT OF AZERBAIJAN BASED ON THE PRODUCTION FUNCTION

The study aims to identify the economic development potential by modeling and identifying the turning points in the development of the Azerbaijani economy corresponding to the phases in the economic cycle. Overall, the paper presents the results of the analysis of the development of the Azerbaijani economy using production functions (PF). The empirical characteristics of the PF made it possible to periodize the considered time interval i.e. identify areas with different behavior of empirical characteristics. Moreover, it was revealed that these sections are repeated within a certain period. The specifics of economy modeling are determined using the methods of production variables based on the annual data of the State Statistical Committee for 1997–2021. The methodological basis of the study is the economic and mathematical apparatus of the classic Cobb–Douglas production function. The calculations were performed using freely distributed modern software, the statistical environment R: which is one of the most dynamically developing programs in its class. As a result of the study, we identified the chronological boundaries of short-term and medium-term economic cycles in the economy of Azerbaijan, analyzed the patterns of production variables in different periods of the cycle. The article provides the results of modeling the GDP dynamics in Azerbaijan, which are described by production functions with a significantly different set of parameters; identifies important macroeconomic variables; provides an econometric analysis of the models, production variables, and corresponding conclusions.

DEVELOPMENT STRATEGY AND WEIGHT OF THE NON-OIL SECTOR IN THE ECONOMY OF AZERBAIJAN

After the collapse of the USSR, the socialist system collapsed in Azerbaijan, as well as in other allied states. That collapse completely destroyed almost all sectors of the country’s economy, especially the non-oil sector. This means that the period of recession in both the oil and non-oil sectors in the country reached its peak. The stagnation of the country’s economy was felt in many areas. It should be noted that agriculture, tourism, manufacturing, and engineering reached such a decline that the country became dependent on imports in most areas. The transition to economic development after such a tense situation in the country’s economy was remembered by our economists by highlighting three historical stages of the development of Azerbaijani economy in the period after the restoration of independence. The following stages ca be singled out: 1) A period of economic recession, 1991-1994. 2) A period of stability and consistent growth beginning, 1994-2003. 3) A period of dynamic development, 2003- until now. The period from 1991 to 1994 is considered the first period for the economy development. During that period, the political and socio-economic situation in the country became more complicated. According to the statistics provided for this period, during 1991-1994, the gross domestic product (GDP) decreased by 16.5 per cent annually. It is also known that in Azerbaijan, especially in the non-oil sector, a decrease in industrial production by 10% in 1991, 37% in 1992 and 50% in 1993 compared to 1985 was recorded. As a result of the collapse of the USSR, the production areas were almost completely out of order, and as a result, the level of unemployment increased to a high level. Again, referring to the statistics of that period, we can say that in 1991-1995, the monetary income of the population in real terms decreased by 3.3 times, and monetary income per capita decreased on average by 3.6 times. In parallel with this, the wages of the population decreased by 5.7 times. Since the times of the USSR, in agriculture, which has strong production and economic potential for Azerbaijan, the cultivated area of the main crops, the number of livestock has decreased sharply, and the level of production has almost fallen to the state of recession. Comparing 1996 with 1990 on the basis of given statistical data, it can be concluded that in 1996 agricultural production in the Republic decreased by more than 2-3 times. In parallel with this, the tense situation in agriculture also had a negative impact on the processing sector. Based on the calculations, it was found that in 1995, compared with 1993, the production of cereals and legumes decreased by 19.7%, cotton production – by 3.7%, tobacco production – by 74%, vegetable production – by 13%, fruit production – by 6.4%. At the same time, that trend was observed in meat and eggs production. During that period, meat production decreased by 10 thousand tons, egg production – by 128.7 million units. It was found than the processes that took place in Azerbaijan in 1991-1994 led to the fact that the country’s economy, especially the non-oil sector, collapsed on a large scale.

Principal component and regression analysis of the natural resource curse doctrine in the Azerbaijani economy

The Azerbaijani economy has long been discussed in academic literature with reference to the theories of the natural resource curse (NRC) and Dutch disease. This is due to Azerbaijan’s heavy dependence on the oil and gas industry for its economic growth and development since 1995. While revenues from mineral resources helped overcome extreme poverty and increased GDP and GDP per capita, macroeconomic stability was shaken by the sharp decline in commodity prices in 2014 and 2015. This reality prompted scholars to look into the significance of NRC and Dutch disease in Azerbaijan. This paper therefore aims to contribute to the literature by analyzing NRC using principal component and regression techniques (dynamic and ordinary least squares) in a way that has not been studied before. The results of this study show that the oil industry had a negative impact on institutional quality in Azerbaijan between 1996 and 2019, which may translate into further negative impacts. For this reason, the human capital channel of NRC was tested for possible negative impacts of NRC and several negative associations were found. These results indicate that policymakers need to take the NRC doctrine more seriously. Although the first oil boom (2005–2014) is over, the Azerbaijani economy is facing a second oil boom starting in 2020, and the lowered quality of institutions could significantly reduce the benefits of mineral revenues if left unmanaged.

Exchange rate regime in a crisis: The case of Azerbaijan

This study aims to substantiate the practicality of establishing a fixed exchange rate (FER) under external shocks to the Azerbaijani economy. Using regression analysis, principal component analysis, and the Granger causality test, we substantiated the inexpediency of a fixed FER for the manat (the national currency) due to: the ineffective fiscal and monetary policy of the state, weak integration into the U.S. economy, distrust of the manat in the population, and the weakness of currency hedging. Artificial retention of a FER will lead to devaluation and chronic economic recession (inflation growth, a decrease in real incomes of the population, a reduction of GDP per capita, and an increase in unemployment). It is substantiated that an increase in public confidence in the national currency should become the basis for the transition to a floating exchange rate (FER) for the manat as it will help to get the actual value of the manat.