Azerbaijan’s accession to the WTO: Assessing the macroeconomic consequences for the economy of Azerbaijan

Azerbaijan’s accession to the WTO: Assessing the macroeconomic consequences for the economy of Azerbaijan

The paper analyzes the macroeconomic consequences for Azerbaijan’s economy in case the country joins the World Trade Organization (WTO ). Existing studies primarily draw on qualitative methods, while for this study a Computable General Equilibrium (CGE) model of the economy is calculated to simulate the consequences of WTO accession. The authors are able to generate numeric forecasts for macroeconomic variables as a measure for welfare and elaborate how WTO accession, interpreted as an external shock to the economy, would affect these variables.

This study is, therefore, a unique contribution to the public and academic debate as it is the first study to quantitatively gauge the effects of accession beyond qualitative arguments. To contextualize the quantitative findings, several independent experts were interviewed to compile their opinions on WTO accession.

The results of this study suggest positive welfare effects of WTO accession through increases in income, consumption and savings. However, the forecasts generated through our model reveal that exports would plummet as a consequence of accession. This must be of particular concern for the Azerbaijani economy with its oil and energy sector currently being the main driver of gross domestic product, foreign direct investment and exports. As a consequence, the Azerbaijani economy needs to diversify rapidly and decrease its dependence on oil to realize positive effects on general welfare that could be triggered through WTO accession. Whether these positive effects will materialize in the long run is hard to predict, although the qualitative evidence cited in this study suggests that accession would bring along important incentives for diversification.

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