Page 86 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

5. Discussion

On average, between 2006 and 2009 the monthly non-oil exports
of Azerbaijan have amounted to AZN 2.2 million. A 2.93% depreciation

of the AZN would drive that value to approximately AZN 2.35 million
within a year. This requires that domestic non-oil producers are able to

adjust their manufacturing volumes on average by around AZN 100K

per month in the first 6 months. In particular, if the volume effect is
indeed present, then non-oil exports, in months 3 and 4 following the

devaluation, must rise by AZN 233K and AZN 114K respectively. Such
flexibility is possible if at least two factors are present. First, the

exported products are technology non-intensive enough, and producers

are able to adjust production numbers quickly without much trouble.
Second, export demand must be to a significant extent price elastic, so

that domestic exporters can realistically expect their exports, which are
cheaper post-depreciation, to be successfully sold abroad.

With regards to the first factor, the largest non-oil-related export
industries in Azerbaijan are edible fruit, animal products, sugars, floating

structures, articles of iron and steel, plastics, and edible vegetables (ITC).

Most of the names listed should have an elastic-enough supply side in the
short-medium run to allow for a quick start of the volume readjustment.

The second factor requires medium-run demand elasticity with
respect to a currency devaluation. In other words, foreign consumers

must perform an effective switch of preferences from their domestic
goods to foreign imports – Azerbaijani exports. Since it generally takes

time for the public to evaluate consumption options and make an

informed purchasing decision, demand is typically inelastic in the short-
run. Thus the worsening of the trade balance. However, as demand

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