ECONOMETRIC ANALYSIS OF THE IMPACT OF THE NON-OIL SECTOR, INVESTMENT FLOWS AND TRADE TURNOVER ON REAL GDP (1995–2024)

Abstract

The article investigates the impact of the non-oil sector, investment flows, and foreign trade turnover on real GDP growth in the Azerbaijani economy during the period of 1995-2024 using econometric methods. The relevance of the research stems from the necessity to reduce the economy's dependence on oil and to evaluate the effectiveness of the diversification strategy. In the study, the stationarity levels of the variables were tested using ADF and KPSS tests, which determined that they are integrated at mixed levels of I(0) and I(1). Therefore, the ARDL Bounds Testing approach was applied to determine the long-term relationship between the variables.
The results of the econometric analysis show that there is a statistically significant long-term cointegration relationship between the studied variables at a 5% significance level. According to the results of the long-term model, the highest positive impact on real GDP is exerted by trade turnover (0.847). It has also been confirmed that investment flows (0.462) and the non-oil sector (0.319) make significant contributions to economic growth. Through the Error Correction Model (ECM), it was determined that after short-term shocks, the system returns to its long-term equilibrium at a rate of approximately 20.3% each year. The Granger causality test revealed a unidirectional relationship from the non-oil sector to real GDP. The results of the research prove that non-oil-oriented investments and trade liberalization are crucial for sustainable economic growth.