The historical driver of economic dynamism—oil revenues that fuel net government spending—has proven unable to prevent economic volatility over the recent period and is a finite resource unable to drive growth in the long-run. The economy currently lacks alternate sources of growth to pick up the slack. 

If past growth has been driven by oil and oil cannot continue to do so in the long run, how can the government manage the transition out of oil to create new growth drivers? The Growth Lab will utilize its core research methodologies and capacities to identify economic opportunities to drive new economic diversification as well as the constraints to those opportunities and policy options for the Government of Azerbaijan to drive new job creation. Creating sustainable growth while adjusting to lower oil incomes will require government to seize the window of opportunity to use oil savings to foster new, sustainable growth engines. 

Research areas include:

• Economic Complexity: identifying opportunities for productive diversification in Azerbaijan, including dimensions of: 
  • Green growth: analyze the industries, supply chains, and markets to supply the world’s decarbonization efforts (as Azerbaijan hosts COP29 in December 2024)
  • Market opportunities: Azerbaijan faces challenges in its export profile across both the small range of goods it produces, as well as in its limited destination markets, centered on former Soviet republics; analysis could assess potential of different market opportunities, including in greater integration with Europe, belt and road initiatives, joining the WTO, etc. 
  • Traded services: most of the existing export growth outside of oil has been in traded services, though the gains were impacted by the global pandemic and have been slow to recover. Research will use new datasets to analyze service export opportunities in tourism, transport, finance, etc.
  • Subnational analysis: Opportunities within Azerbaijan are not uniform across the cities and regions of the country, where this analysis will aim to study the different potential of the regions for diversification and growth.

•    Macroeconomic modelling: Managing oil transfers in the context of declining reserves leads to research workstreams on fiscal management; optimal levels of non-oil revenues and revenue sources; the role of Sovereign Wealth Funds and SOEs in economic diversification; access to finance and banking sector dynamics; “nowcasting” GDP dynamics, among others.
•    Skills, migration, and business networks: if Azerbaijan is to diversify, where will the knowhow come from? The workstream will study opportunities to attract new knowhow to accelerate entry into new economic sectors.