How Oil Price and Exchange Rate Affect Non-oil GDP of the Oil-rich Country – Azerbaijan?

Authors

  • Famil Majidli Department of Economics and Business Administration, Azerbaijan State University of Economics, Baku, Azerbaijan.
  • Hasraddin Guliyev Scientific Research Institute of Economic Studies, Azerbaijan State University of Economics, Baku, Azerbaijan. Department of Economics and Business Administration, Azerbaijan State University of Economics, Baku, Azerbaijan.

Abstract

Identifying the economic factors that affect economic growth is an important issue for each economy. It is a matter of debate to determine the building blocks of non-oil GDP growth, especially in oil-rich countries, such as Azerbaijan. Using the Fully Modified Ordinary Smallest Square approach between 2005-2019, this study aims to investigate the relationship between real non-oil GDP growth of Azerbaijan and exchange rate and oil prices. Zivot-Andrews unit root test is applied to deal with structural breaks in data and the Gregory-Hansen test for robustness. While conventional unit-root tests decision that the series are not stationary at their level, the Ziwot-Andrews test decision that the series is stationary with structural break. According to the Gregory-Hansen test result, there is a structural break date in the long-run relationship between the real non-oil GDP growth and the oil price and the USD /AZN exchange rate in early 2009. According to FMOLS results, the increase in oil price increases real non-oil GDP growth, and the increase in USD / AZN exchange rate has a decreasing effect on it. This study contains considerable information for future economic policies for oil-rich countries that want to develop the non-oil sector.

Keywords: oil price, non-oil GDP, exchange rate, fully modified ordinary smallest square approach, cointegration analysis, Azerbaijan

JEL Classifications: C22, E32, E37, Q43

DOI: https://doi.org/10.32479/ijeep.9561

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Published

2020-08-10

How to Cite

Majidli, F., & Guliyev, H. (2020). How Oil Price and Exchange Rate Affect Non-oil GDP of the Oil-rich Country – Azerbaijan?. International Journal of Energy Economics and Policy, 10(5), 123–130. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/9561

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