Page 102 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.77, # 1, 2020, pp. 100-112

economy in terms of the mining sector and gradually increased oil prices, which
caused the economy to boom. The most frequently observed symptoms of Dutch
disease in this case were the increased role of the mining sector and the
simultaneous decreased share of manufacturing and agriculture, REER appreciation,
higher output, and employment in services due to the spending effect. However,
generally, the resource movement effect is very low or absent when the booming
sector is capital-intensive rather than labor-intensive. In fact, extractive industries,
particularly the oil and gas sector, are capital-intensive. That is why the resource
movement effect is not anticipated in the case of Azerbaijan, at least in its direct de-
industrialization form. Hasanov (2013) also discusses the actuality of spending
effect in the economy of Azerbaijan, rather than the resource movement effect.

So far, several studies focused on the booming and diversification aspects of the
Azerbaijan economy. Boom and bust cycles alongside with the competitive nature of the
national economy, provide all necessary starting points to conceptualize the primary
rationale of the Dutch disease in the Azerbaijan economy. For instance, Musayev (2019)
outlined that Azerbaijan’s economic growth was higher than the indicator of balanced
growth during the oil era but lower during the post-oil period. The commodity crisis of
2014–2015 decreased economic growth in Azerbaijan. Bayramov (2016) emphasized new
opportunities that were emerged in 2015 to diversify the national economy in Azerbaijan,
which overlaps with the critical concept of turning crises to opportunities.

All in all, specific policy implications and the experience of the other oil-rich countries
should be considered in the Azerbaijani case as well. Babayev (2019) argued that, based
on the case of the United Arab Emirates (UAE), Azerbaijan might benefit from the policy
decisions of the UAE even if the outcomes might occur in different magnitude. This will
increase economic opportunities and decrease current and potential monopolistic trends in
the economy of Azerbaijan to boost economic growth (Hajiyev, 2013).

Statistical data regarding the economy of Azerbaijan displays certain symptoms that
the Dutch disease model indicates. Figure 1 shows how the mining sector assumed a
major role in the economy until 2013, reaching a peak in 2007 at 56.3% and
becoming a booming sector; however, services replaced the mining sector following
rapid growth between 2013 and 2017, comprising 46.5% on average share per
annum. Other economic activities like manufacturing and agriculture never
exceeded an upper bound of 10% in a 12-year timescale. Figure 2 indicates that
during the high oil price levels, the GDP growth rate also rose, leading to rapid
foreign currency inflow and exchange rate appreciation. In fact, on the edge of oil
booming (2008–2011) GDP growth rate was 34.5%, but it collapsed after the global
financial crises in 2009 and commodity price slumps in 2014–2015.
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