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

Economies, Vol. 5(2), 2017; DOI:10.3390/economies5020019

20 Pages Posted: 18 Jul 2017

See all articles by Sarvar Gurbanov

Sarvar Gurbanov

ADA University, SPIA, School of Public and International Affairs

Jeffrey B. Nugent

University of Southern California - Department of Economics

Jeyhun Mikayilov

Azerbaijan State University of Economics (UNEC)

Date Written: December 20, 2016

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.

Keywords: Oil Windfall Gains; Government Capital Expenditures; Non-Oil Diversification; Industrial Policy; Sovereign Wealth Funds; Azerbaijan

JEL Classification: Q01; Q32; Q43; H54; L52; O23; O25; O53

Suggested Citation

Gurbanov, Sarvar and Nugent, Jeffrey B. and Mikayilov, Jeyhun, Management of Oil Revenues: Has That of Azerbaijan Been Prudent? (December 20, 2016). Economies, Vol. 5(2), 2017; DOI:10.3390/economies5020019 , Available at SSRN: https://ssrn.com/abstract=3000354

Sarvar Gurbanov (Contact Author)

ADA University, SPIA, School of Public and International Affairs ( email )

11 Ahmedbay Aghaoglu
Baki, AZ 1008
Baku, AZ 1008
Azerbaijan

Jeffrey B. Nugent

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
510-740-2107 (Phone)
510-740-8543 (Fax)

Jeyhun Mikayilov

Azerbaijan State University of Economics (UNEC) ( email )

Istiglaliyyat street 6
Baku, AZ Az1001
Azerbaijan

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