Page 89 - Azerbaijan State University of Economics

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

national balance of trade in response to just a 2.93% depreciation of the

Manat. Azerbaijani manufacturers will export more non-oil products by
roughly AZN100 thousand per month in the first calendar year following

the devaluation, which amounts to a total of AZN1.8 million of
additional export value.

It is clear that the Azerbaijani non-oil sector can benefit mightily from

a little boost in competitiveness, provided by a depreciated currency. A
weaker Manat will make exportation to the neighboring states seem more

attractive (and profitable), which will drive domestic production volumes up
by significant amounts just several months after the policy intervention. As

a result, additional revenues will allow for more investments to flow back

into the domestic non-oil sector via the private retained earnings channel.
Those investments can improve the technological base of the country’s non-

oil production, thus creating a platform for a real, productivity-based long-
term comparative advantage. With such prospects in mind, we won’t need

to keep the exchange rate policy loosened for too long, since our non-oil
producers won’t require any additional stimulus several years after the

sector starts flourishing “from within”. As a result, we will also see a

decline in the need for state intervention to promote industrial
diversification, as the private sector will have a natural, market-driven

incentive to “price-up” the non-energy segment.
In addition, the average gain in the non-oil area of the economy

will start increasing, causing the general public to perceive the oil and
non-oil sectors as equally competitive from the remunerative point of

view. And not only will the non-oil entrepreneurs and producers become

wealthier and more influential macroeconomic-wise, the export-led
expansion will provide more jobs to the economy. It’s a well known fact

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