Page 77 - Azerbaijan State University of Economics

J-CURVE AND THE MARSHALL-LERNER CONDITION - THE CASE OF AZERBAIJAN

Source: Institute for Fiscal Studies (IFS)

The model examined in this paper is about functions of demand,
domestic and foreign.

Based on the approaches from literature, economic reason, and
availability of data, real Gross Domestic Product (Y az) has been taken as

a proxy for domestic – Azerbaijani – demand. It seems that real GDP is
the most suitable, and also obtainable, proxy for the gross demand of a

single country. Foreign demand is approximated by the Industrial

Production Index (IPI) of the Eurozone (Y eur). Given the nature of the
trading partner, which is a composite of 15+ countries, a weighted and

indexed proxy is required for demand approximation. Several literature
examples have suggested using the IPI for bilateral estimation with a

77