Serial number: 02/2014

Author(s): M.Bahmani-Oskooe, R.Jamilov, S.Huseynov

Language: English

Date: 2014

Abstract: This paper estimates the J-curve for Azerbaijan using quarterly industry-level data over the 2000-2009 period. A weighted average of the production indexes of Azerbaijan’s major trading partners, which account for 70% of Azerbaijan’s total trade turnover, was chosen as a proxy for foreign income. Ten non-oil industries, the core of Azerbaijan’s non-oil foreign trade, have been analyzed. Empirical results show that in 3 of the 10 cases there is strong evidence for the fulfillment of the Marshall-Lerner condition, as the trade balance in each of those three industries improves in the long run in reaction to a currency depreciation. In most industries the J-curve pattern is observed in the short run. The price effect is strong and present in almost all industries. All 10 cases exhibit long-run cointegration and are stable according to the CUSUM and CUSUMSQ stability tests. These findings are largely consistent with the existing literature on the Azerbaijani J-curve. Our results carry important policy implications as Azerbaijan attempts to stimulate non-oil exports.

Key words: J-curve; ARDL regression; Bounds cointegration; Azerbaijan

JEL classification: C22, F14, F3

Is there a j-curve for Azerbaijan? New evidence from industry level analysis

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