Page 42 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.82, # 1, 2025, pp. 36-51

economic growth potential between large and small states. Furthermore, this study
explores economic expansion in the context of an expanding economic space—a
concept broader in scope than mere geographical space—highlighting the changes
that accompany such development.
Azerbaijan is not classified as a large country, either by population (10.25 million,
ranked 86th globally, 2024) or land area (86,600 square kilometers, ranked 112th
worldwide). Consequently, the drivers of economic growth in Azerbaijan diverge
significantly from those observed in larger nations. While many countries, particularly
in Europe, have experienced a decline in natural population growth, Azerbaijan’s
population continues to rise steadily. Between 2010 and 2024, Azerbaijan’s
population increased by 1.25 million people. As this cohort reaches working age, the
employed population expands—supported by stable unemployment rates and strong
labor demand—while enhancements in their skill levels emerge as a significant factor
influencing economic growth. Natural population growth, shifts in employment
levels, and the development of human capital, particularly through improvements in
the skill levels of the workforce, constitute critical drivers of economic expansion that
warrant careful consideration. It is noteworthy that countries adopt distinct approaches
to measuring employment and unemployment levels. For instance, in the United
States, individuals who are capable of working but are not actively seeking
employment—often relying on social assistance from government programs and other
sources, numbering in the millions—are excluded from the official unemployment
count. Consequently, this exclusion results in a lower reported unemployment rate. In
contrast, several countries, including Azerbaijan, define unemployment differently.
After accounting for working-age individuals (aged 16–65) who are employed or
otherwise occupied—such as those with restricted freedom, serving in the military,
pursuing full-time education, receiving pensions despite being of working age, or
falling into similar categories—the remaining population is classified as unemployed.
During the first 20–25 years of Azerbaijan’s independence, the country’s severely
constrained financial resources impeded economic growth. It was only through the
influx of foreign investment, coupled with the resolution of other challenges, that
economic growth became feasible. For an extended period, foreign investment
significantly outweighed domestic investment in the economy. Conversely, given the
limited financial capacity of entrepreneurial ventures, a substantial share of domestic
investment originated from state sources. The occupation of Azerbaijani territories by
Armenia reduced the country’s geographical boundaries by approximately 20%. This
contraction excluded significant assets—such as fertile land, natural forests, water
reserves, subterranean and surface resources, and labor reserves—from economic
circulation. Consequently, Azerbaijan’s limited financial resources were necessarily
redirected toward military and defense expenditures. Although the reduction of

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