Fiscal policy and economic growth in resource-rich country: Empirical evidence from Azerbaijan

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The relationship between fiscal policy and economic growth is one of the longest-lived economic discourses. In this context, countries with emerging institutions and resource-based economies are of particular interest. Therefore, the Azerbaijani economy was chosen as the object of study. The purpose of this paper is to analyze the relationship between fiscal policy and economic growth in Azerbaijan and analyze the possible existence of the BARS curve relationship in Azerbaijan. The study covers quarterly data for 2005Q1–2023Q2. The autoregressive distributed lag (ARDL) bound test is used to evaluate the relationship between fiscal variables and economic growth (both general and non-oil), as well as the BARS curve relationship. The analysis revealed a positive association between government spending and both overall and non-oil economic growth over the long term. On average, a 1% rise in government spending corresponds to a 0.6% increase in economic growth. Conversely, in the short term, a negative relationship is observed between government spending and economic growth, encompassing both the general and non-oil economy. Notably, no statistical evidence supporting the presence of the BARS curve relationship in Azerbaijan was identified. Amid the circumstances of decreasing oil production in Azerbaijan, these results put more emphasis on the importance of increasing the productivity of government spending.

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    • Table 1. Variable description
    • Table 2. ADF test results
    • Table 3. Selection of optimal models
    • Table 4. F-bounds test results (Null hypothesis: No level relationship)
    • Table 5. Long-run estimate results and robustness check results
    • Table 6. Model 1: Short-run estimate results
    • Table 7. Model 2: Short-run estimate results
    • Conceptualization
      Yashar Kalbiyev, Javid Seyfullali
    • Project administration
      Yashar Kalbiyev
    • Resources
      Yashar Kalbiyev
    • Supervision
      Yashar Kalbiyev
    • Writing – review & editing
      Yashar Kalbiyev, Javid Seyfullali
    • Data curation
      Javid Seyfullali
    • Formal Analysis
      Javid Seyfullali
    • Funding acquisition
      Javid Seyfullali
    • Investigation
      Javid Seyfullali
    • Methodology
      Javid Seyfullali
    • Software
      Javid Seyfullali
    • Validation
      Javid Seyfullali
    • Visualization
      Javid Seyfullali
    • Writing – original draft
      Javid Seyfullali