IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v6y2018i2p27-d141662.html
   My bibliography  Save this article

The Effects of Fiscal Policy on Non-Oil Economic Growth

Author

Listed:
  • Fakhri Hasanov

    () (King Abdullah Petroleum Studies and Research Center, Riyadh 11672, Saudi Arabia
    Department of Socio-Economic Modeling, Institute of Control Systems, Baku AZ1141, Azerbaijan
    Research Program on Forecasting, Department of Economics, George Washington University, Washington, DC 20052, USA)

  • Fuad Mammadov

    () (Center for Research and Development, Central Bank of Azerbaijan, Baku AZ1014, Azerbaijan)

  • Nayef Al-Musehel

    () (King Abdullah Petroleum Studies and Research Center, Riyadh 11672, Saudi Arabia)

Abstract

We investigate non-oil sector effects of fiscal policy in Azerbaijan over a long time period in which a recent low oil prices sample is incorporated. To obtain robust empirical findings, we use different test and estimation methods as well as address small-sample bias issues in the extended production function framework. Results show that fiscal policy has a statistically significant positive impact on the non-oil sector both in the long and short run. However, the size of the impact is small compared to the findings of earlier studies due to, we believe, the low oil-price environment and different specifications used. Azerbaijani policymakers should take measures to compensate for the declining share of oil revenues in government revenues. They may consider increasing tax rates, import and export fees, energy and other tariffs as rapid remedies to fill the budget but these measures might hurt economic development. Alternative and less harmful remedies would be optimizing government spending, strongly monitoring ongoing projects, and phasing out social and infrastructure projects, which make lower contributions to growth. Our research opens the way for further investigation of this topic for the oil exporting economies in the future.

Suggested Citation

  • Fakhri Hasanov & Fuad Mammadov & Nayef Al-Musehel, 2018. "The Effects of Fiscal Policy on Non-Oil Economic Growth," Economies, MDPI, Open Access Journal, vol. 6(2), pages 1-21, April.
  • Handle: RePEc:gam:jecomi:v:6:y:2018:i:2:p:27-:d:141662
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/6/2/27/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2227-7099/6/2/27/
    Download Restriction: no

    References listed on IDEAS

    as
    1. Yelena Kalyuzhnova & Michael Kaser, 2006. "Prudential Management of Hydrocarbon Revenues in Resource-rich Transition Economies," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 167-187.
    2. Khatai Aliyev & Ceyhun Mikayilov, 2016. "Does the Budget Expenditure Composition Matter for Long-Run Economic Growth in a Resource Rich Country? Evidence from Azerbaijan," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(2), pages 147-168, June.
    3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    4. de Brouwer, Gordon & Ericsson, Neil R, 1998. "Modeling Inflation in Australia," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 433-449, October.
    5. Khatai ALIYEV & Elchin SULEYMANOV, 2015. "Macroeconomic Analysis and Graphical Interpretation of Azerbaijan Economy in 1991-2012," Expert Journal of Economics, Sprint Investify, vol. 3(1), pages 40-49.
    6. Triacca, Umberto, 1998. "Non-causality: The role of the omitted variables," Economics Letters, Elsevier, vol. 60(3), pages 317-320, September.
    7. Sarvar Gurbanov & Jeffrey B. Nugent & Jeyhun Mikayilov, 2017. "Management of Oil Revenues: Has That of Azerbaijan Been Prudent?," Economies, MDPI, Open Access Journal, vol. 5(2), pages 1-20, June.
    8. Hasanov, Fakhri & Mammadov, Fuad, 2010. "The Role of the Fiscal Policy in the Development of the Non-Resource," MPRA Paper 65571, University Library of Munich, Germany.
    9. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Odhiambo, Nicholas M., 2009. "Electricity consumption and economic growth in South Africa: A trivariate causality test," Energy Economics, Elsevier, vol. 31(5), pages 635-640, September.
    12. Odhiambo, Nicholas M., 2008. "Financial depth, savings and economic growth in Kenya: A dynamic causal linkage," Economic Modelling, Elsevier, vol. 25(4), pages 704-713, July.
    13. Solow, Robert M, 1988. "Growth Theory and After," American Economic Review, American Economic Association, vol. 78(3), pages 307-317, June.
    14. Berlemann Michael & Wesselhöft Jan-Erik, 2014. "Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method: A Survey of Previous Implementations and New Empirical Evidence for 103 Countries," Review of Economics, De Gruyter, vol. 65(1), pages 1-34, April.
    15. Aliyev, Khatai, 2014. "Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis," MPRA Paper 55096, University Library of Munich, Germany.
    16. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    17. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    18. Khatai Aliyev & Orkhan Nadirov, 2016. "How Fiscal Policy Affects Non-Oil Economic Performance in Azerbaijan?," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(3), pages 11-29, September.
    19. Bogetic, Zeljko & Smits, Karlis & Budina, Nina & van Wijnbergen, Sweder, 2010. "Long-term fiscal risks and sustainability in an oil-rich country : the case of Russia," Policy Research Working Paper Series 5240, The World Bank.
    20. Douglas, Paul H, 1976. "The Cobb-Douglas Production Function Once Again: Its History, Its Testing, and Some New Empirical Values," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 903-915, October.
    21. Lutkepohl, Helmut, 1982. "Non-causality due to omitted variables," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 367-378, August.
    22. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    23. Khatai Aliyev & Bruce Dehning & Orkhan Nadirov, 2016. "Modelling the Impact of Fiscal Policy on Non‑Oil Gdp in a Resource Rich Country: Evidence from Azerbaijan," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 1869-1878.
    24. Fakhri Hasanov & Frederick Joutz, 2013. "A macroeconometric model for making effective policy decisions in the Republic of Azerbaijan," International Conference on Energy, Regional Integration and Socio-economic Development 6017, EcoMod.
    25. Kirstin Hubrich, 1999. "Estimation of a German money demand system - a long-run analysis," Empirical Economics, Springer, vol. 24(1), pages 77-99.
    26. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
    27. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    28. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, number 9780199285679.
    29. Guglielmo Maria Caporale & Peter G. A Howells & Alaa M. Soliman, 2004. "Stock Market Development And Economic Growth: The Causal Linkage," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 33-50, June.
    30. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sebastian O. Uremadu* & Kingsley O. Onyele, 2019. "Influence of Fiscal Policy on Gross Domestic Investment (GDI) in Nigeria," Sumerianz Journal of Social Science, Sumerianz Publication, vol. 2(7), pages 74-85, 07-2019.

    More about this item

    Keywords

    Azerbaijan economy; fiscal policy; non-oil sector; cointegration; error-correction modeling; Johansen approach; autoregressive distributed lags bounds testing approach;

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • I - Health, Education, and Welfare
    • J - Labor and Demographic Economics
    • O - Economic Development, Innovation, Technological Change, and Growth
    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:6:y:2018:i:2:p:27-:d:141662. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team). General contact details of provider: https://www.mdpi.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.