Page 90 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

that the oil sector is extremely capital intensive, while accounting for just

over 2% of total employment provision. A more competitive non-oil
sector will thus create more jobs with a good market salary and potential

for future growth and development.
Azerbaijan has been used just as a single case study for testing a

model of industrial diversification. The model can be applied equally

well to other similar resource-rich countries of the region like Russia or
Kazakhstan. The idea is very simple in both its set-up and computation,

and provides a real foundation for an argument for letting the national
currencies of resource-rich states temporarily lose a bit of value.

Whether the national government of Azerbaijan, or any other regional

state for that matter, will actually decide to embrace currency
devaluation is, of course, an entirely different issue. There are, at least,

three potential political obstacles for this proposal.
First of all, devaluation typically goes against the principle of

inflation control, as a weaker currency might lead to higher prices in the
medium-long run. Second, weakening the currency, which also means

letting all the other vis-à-vis currencies to strengthen, may shaken the

population’s trust in domestic money, force people to hold more dollars,
and eventually revive “dollarization” – an old decease very much

common to many developing states of Azerbaijan’s caliber. Third,
devaluation may play the wrong card with the attempts to improve the

functioning of financial institutions and capital markets. In particular, all
saving and deposit accounts, which are denominated in the local

currency, will instantly drop in their relative value, thus forcing savers to

consider relocating their funds abroad or at least converting to a stronger
currency of storage.

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