Exclusive Linear Modeling Approach to the Natural Resource Curse in the Azerbaijani Economy: Examples of Stepwise Regression

There is a growing body of literature on the possible presence of the Natural Resources Curse (NRC) and Dutch Disease Syndrome (DD) in the Azerbaijani economy. Because of its abundant hydrocarbon resources, Azerbaijan has pursued an oil-oriented strategy for economic growth and development. Certainly, this path has helped overcome serious economic problems such as extreme poverty, lack of capital accumulation, and technology adoption, but it is also believed that a lopsided economic structure hinders overall sustainable growth. Indeed, it has been noted that the high-value-added manufacturing sector is an engine for stable economic growth and that specialization in the primary sector (including oil and related commodities) can pose many challenges to developing countries. Over time, non-oil production has been neglected and volatile commodity prices have been allowed to determine macroeconomic stability in Azerbaijan. This has been a risky path and now requires a comprehensive investigation using widely accepted theories such as NRC and DD. This working paper presents the first results of an econometric and empirical linear analysis of the main NRC- and DD-related variables to shed light on the above phenomena. The main regression approach was a stepwise algorithm to find variable-specific functional relationships. The results are far from perfect and are experimental in nature. Although all conclusions should be drawn with caution, interested parties such as academics, professional economists, decision makers, or policy makers could benefit from the proposed conceptualization of NRC and DD in the Azerbaijani economy for their future studies.