Azerbaijan has demonstrated a substantial economic growth sourcing from oil boom over the last several years. Oil extraction and exportation have been growing substantially and thus turning into a leading sector of the economy.
Increased oil extraction and exportation leads to huge inflows of foreign exchange into country, which, in turn, has created great opportunities for implementation of large scale infrastructure and social projects contributing to socio¬economic development of the country.
However, the given boom in the oil sector in parallel with the above-mentioned noble infrastructure and social development intentions also has been accompanied by different negative trends in the economy such as decrease of the share of non-oil tradable sector in GDP and also total export, rise in overall price level and appreciation of the real effective exchange rate.
The study analyzed whether there are any symptoms of Dutch Disease in Azerbaijani economy during 2001-2007 by employing testable hypotheses while carefully checks alternative explanations of observed consequences. The study concluded that :
there has not been “absolute de-industrialization”, but observed “relative de-industrialization” in the non-oil tradable sector and substantial expansion in the non-tradable sector
government expenditures have created the “spending effect” and this effect has been more significant than the “resource movement effect”
there have been evidences of a rapid increase in average wage and high price in the non-tradable sector and therefore an appreciation of the real exchange rate