How to Deal with Azerbaijan’s Oil Boom? Policy Strategies in a Resource-Rich Transition Economy

By Christoph B. Rosenberg, Tapio Saavalainen

January 1, 1998

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Christoph B. Rosenberg, and Tapio Saavalainen. How to Deal with Azerbaijan’s Oil Boom? Policy Strategies in a Resource-Rich Transition Economy, (USA: International Monetary Fund, 1998) accessed September 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The petroleum-rich former Soviet republics around the Caspian Sea face the dual challenge of managing the transition to a market economy and a booming resource sector. This paper examines this challenge with particular reference to Azerbaijan. The standard “Dutch disease” model is modified to capture the special conditions of transition economies, with specific attention to the pattern of real exchange rate movement. “Transition factors” are found to add to the speed of real appreciation. Non-oil sectors may suffer, but less through the real appreciation than through transition-specific structural problems. The paper describes a medium-term policy strategy for Azerbaijan, relating its prospects to the experience in the 1970s of Ecuador, Indonesia, and Nigeria. The adverse effects of the Dutch disease may be avoided if Azerbaijan pursues policies to promote savings and open trade, and strengthens the supply side through structural policies.

Subject: Commodities, Commodity booms, Dutch disease, Economic theory, Environment, Foreign exchange, Natural resources, Oil, Real exchange rates

Keywords: Appreciation pressure, Azerbaijan, Azerbaijan economy, Baltics, Central Asia, Central bank, Chapter II, Commodity booms, Current account, Dutch disease, Dutch Disease model, Goods price, Goods sector, Market economy, Money supply, Natural resources, Nominal exchange rate, Oil, Oil boom, Oil sector, Real exchange rates, Traded goods sector, Transition, Unbalanced growth, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/006
Stock No:

WPIEA0061998
ISBN:

9781451929164
ISSN:

1018-5941

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