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

Christoph Rosenberg and Tapio Saavalainen

No 1998/006, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; central bank; goods price; current account; money supply; oil boom; Azerbaijan; Dutch disease; transition; oil; goods sector; unbalanced growth; market economy; nominal exchange rate; chapter II; Dutch Disease model; oil sector; Azerbaijan economy; appreciation pressure; traded goods sector; Natural resources; Real exchange rates; Commodity booms; Baltics; Central Asia (search for similar items in EconPapers)
Pages: 43
Date: 1998-01-01
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Citations: View citations in EconPapers (9)

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