Modelling the Impact of Fiscal Policy on Non-Oil Gdp in a Resource Rich Country: Evidence from Azerbaijan

Abstract

This paper analyses the impact of public expenditures and tax revenues on non-oil economic growth in Azerbaijan for the period of 2000Q1-2015Q2 by employing OLS, ARDL, FMOLS, DOLS, CCR and Granger Causality techniques. Different cointegration methods result in consistent results. In this study, there is strong evidence of significant long-run positive contributions from public expenditures to non-oil sector output. Results also show that tax revenues significantly slow down non-oil economic growth in the long run. Granger Causality analysis finds the existence of a bidirectional short-run association between non-oil GDP and public expenditures, while tax revenues Granger Cause both variables. The research findings should be useful for Azerbaijan fiscal policy makers to consider now and in the future. Current plans in Azerbaijan for both public expenditure cuts and tax revenue increases are likely to cause contraction in the Azerbaijan's non-oil sector GDP.

Testing Wagner's Law and Keynesian Hypothesis in Selected Post-Soviet Countries

“…For Azerbaijan, Wagner's law is found to be valid in Bashirli and Sabiroglu (2013) while here it is not. However, existing studies mostly support existence of Keynesian hypothesis (see Dehning et al, 2016;Aliyev and Mikayilov, 2016;Hasanov et al, 2018 among others). Magazzino et al (2015) reveals validity of both in case of Estonia and non for Latvia and Lithuania.…”

“…For the case of Nigeria, Ighodaro and Okiakhi (2010) reveals negative association while Igve et al (2015) conclude with positive relationship between the variables of interest. The issue is still remains its attractiveness in latest empirical literature (see Quy, 2017;Pascual Sáez et al, 2017;Chan et al, 2017;Lupu and Asandului, 2017;Dehning et al, 2016;Kargi, 2016;Aliyev and Mikayilov, 2016;Atasoy and Gur, 2016;Merza and Alhasan, 2016;Magazzino et al, 2015;Afonso and Jalles, 2014;Alshahrani and Alsadiq, 2014;Dogo et al, 2013;Bashirli and Sabiroglu, 2013, among others).…”

The impact of oil price changes on selected macroeconomic indicators in Azerbaijan

“…The question of whether this oil abundance is a “curse” or a “blessing” has been examined by Hasanov (2010) , who emphasizes that oil revenues mainly go to the nontradable sector. Further studies (e.g., Aliyev, 2019 , Aliyev and Mikayilov, 2016 , Aliyev and Nadirov, 2016 , Aliyev et al, 2016 , Dehning et al, 2016 , Gurbanov et al, 2017 , Hasanov, 2013b , Hasanov and Alirzayev., 2016 , Hasanov et al, 2016 , Hasanov et al, 2018 ) confirm that (oil revenue-financed) government expenditures have a positive impact on economic growth in the non-oil sector in Azerbaijan. Huseynov and Ahmadov (2013) provide a theoretical framework for this effect in an oil-exporting country and show that the procyclicality of fiscal policy is the major transmission channel of oil price shocks to the rest of the economy.…”

Oil Factor in Economic Development

“…There is a regression equation for variables which are originally stationary in the first phase and simultaneously are differentiated stationarily. We have to note that there is a calculation for stationarity checking (single root tests) below: in terms of checking the reliability of results, Musayev and Aliyev have assessed variables through FMOLS, DOLS and CCR co-integration methods [93,94].…”