Economic Diversification and Industrial Policy in Azerbaijan

This paper evaluates the state of industrial policies and their effect on economic diversification in Azerbaijan. As an oil-rich country, Azerbaijan economy has long relied on oil export. However, the double currency crisis in 2015 openly demonstrated the fragility of resource-based growth model. Azerbaijan government declared economic diversification policy to reduce excessive dependence on oil sector. The industrial policies are investigated under the categories of horizontal and vertical (targeted) policies. To analyze horizontal industrial policies, dynamics of higher education including coverage of tertiary education and development of its quality and technological development in the context of expansion of R&D activities and change in patents, industrial design is evaluated. To investigate vertical industrial policies, targeted government policies to develop agricultural and tourism, as well as logistics sectors is critically examined. To measure the improvement in economic diversification, change in the share of non-oil export, and dynamics of non-oil export is evaluated, as well as productivity growth in agricultural, tourism and non-oil manufacturing sector is examined. This study covers the period between 2016 and 2024. The results indicate that presence of a slight improvement in coverage and quality of higher education while lack of development in R&D and patenting activities and there is not a visible improvement in productivity in agricultural, tourism and manufacturing sectors.