Page 117 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.82, # 2, 2025, pp. 117-137

EVALUATION OF SECTORAL FOREIGN TRADE
ELASTICITIES OF AZERBAIJAN

1,2
3
1,2
Yadulla Hasanli , Günay Rahimli , Fuad Quliyev , Mattia Ferrari 4
1 Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan, AZ1001,
ORCID ID: 0000-0001-8386-6173 (Y.H); 0000-0002-1452-664X (G,R).
2 Laboratory of Modeling of Social and Economic Processes, Institute of Control
Systems, Ministry of Science and Education of Azerbaijan Republic, Baku AZ1073,
Azerbaijan
3 Azerbaijan State Oil and Industry University, Baku Azerbaijan, AZ1010, ORCID
ID:0009-0009-7537-3008
4 Ruhr-University of Bochum, 44801 Bochum, Germany
*Corresponding author: [email protected]

https://doi.org/10.30546/jestp.2025.82.02.2027

Received: May 06; accepted October 30, 2025; published online December 16, 2025

ABSTRACT
This study investigates the foreign trade elasticities of the oil, non-oil, and services sectors
of the Azerbaijani economy, aiming to understand how consumers substitute between
imported and domestic goods and how producers allocate output between domestic and
foreign markets. CES-type Armington and Constant Elasticity of Transformation (CET)
functions are estimated using the Marquardt nonlinear optimization method in Mathcad,
providing a consistent framework for capturing substitution and transformation behaviors
across sectors. The results reveal substantial intersectoral differences in both demand-
side and supply-side elasticities, reflecting structural characteristics that shape the
country’s trade patterns. Although the estimated elasticities are derived under the
assumption of stable behavioral relationships over time, the analysis offers valuable
implications for policy assessment. In particular, the elasticities can be directly used in
the calibration of general equilibrium and trade models designed to evaluate alternative
policy scenarios. The study provides original sector-specific empirical estimates for
Azerbaijan, contributing to a better understanding of foreign trade responses and
supporting model-based policy design.

Keywords: Armington function, CET function, oil-rich economy, import, export.

JEL Classification: C5, F1

117