Page 88 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

peculiarity of Azerbaijan’s exchange rate management, in addition to the

strictly bilateral approach presented in this paper.
For any resource-rich country, the most important long-term goal

must be industrial diversification and development of the non-energy
sector of the economy. Too often do oil-producing countries get

consumed by the maximization of export-driven growth, forget about the

necessity to build competitive advantage for the broader domestic
industry, and eventually trap themselves in a vicious circle of the

“resource curse”. Industrial diversification, in the broadest context of the
word, is indeed among the strategic imperatives for many developing

nations of the world, and particularly for Central Asia and the Caucasus.

While the issues associated with industrial diversification are widely
known and mostly homogeneous across the nations of this region,

practical solutions to this problem are in great scarcity. I am attempting to
put at least one such proposal onto the tables of regional policy makers.

Supported by both theory and rigorous empirical testing, a currency
devaluation should empower producers in the non-oil sectors of resource-

rich economies to take advantage of price-driven competitiveness and

expand their presence abroad. This will simultaneously diversify the
economy and improve the country’s trade balance via growing exports.

This policy recommendation is derived from a recent research
paper which proves that even a small devaluation of Azerbaijan’s

national currency (the New Manat) can positively affect the country’s
non-oil production and exportation [Jamilov, R. (2011) “J-Curve

Dynamics and the Marshall-Lerner Condition: Evidence from

Azerbaijan” Munich Personal RePEc Archive Paper 32499]. In
particular, we are talking about an 8% improvement in the overall

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