Azerbaijan energy resources and Dutch Disease: Macro economic effects and empirical assessment

It is quite clear that, resource boom in Azerbaijan started in 2004, because the oil sector production as a share of GDP and also oil sector share in the export revenues have increased dramatically since 2004. As Dutch Disease theory proposes,via real exchange rate appreciation, oil revenues are tend to effect leading tradable sector negatively, that is non-oil industry. In this study, the existence of relative and absolute de-industrialisation concepts has been investigated. Results suggest that, due to the enclave structure of the oil sector, not only resource movement effect in the Dutch Disease model has not been observed in Azerbaijan economy, but also direct de-industrialisation has not taken place. However, study concludes that after the resource boom, relative de-industrialisation process has occured. In this study, an econometric model has been estimated which covers the 2002 ? 2008 period. The purpose is to examine relationship between oil revenues and budget expenditures. Also, boom based borrowing capacity did not occur in Azerbaijan, as external debt figures show this reality. Budget expenditures, tradable and non-tradable sectors relationships have been estimated with the help of a different econometric model.