Income effect of changes in terms of trade of the petroleum exporting countries; Azerbaijan example

Today, energy sources such as oil and natural gas impact on the country's economy and its social life is a well-known fact. The Republic of Azerbaijan recently gained its freedom and in the hands of a limited number of countries had oil and natural gas resources. On the one hand to have oil and gas reserves, bring to Azerbaijan advantages, but on the other hand, it carries some disadvatages too. In this thesis examined the international competitiveness of foreign trade, which is one of the variables indicating, the terms of trade and its income effect. The role of oil in the international relationship and throughout the process of economic development of Azerbaijan are also examined in this thesis by Nicholson and Sachs- Dornbusch methods during the period of 1996-2011. During this period, in the country, starting in 1996, the processes of economic development based on the basic macroeconomic parameters are described in detail. In addition, with a significant share of oil exports in total export, countries such as; Venezuela, Kazakhstan, Russian Federation, Nigeria and also Kuwait?s income effect the terms of trade are calculated and compared with Azerbaijan. On the other hand, investigateing the industrial diversification of the economy of Azerbaijan is also take part in the results of thesis .