Production linkages and dynamic fiscal employment effects of the extractive industries: input-output and nonlinear ARDL analyses of Azerbaijani economy

In this paper, we address the production linkages and employment effects of the petroleum sector on the rest of the Azerbaijani economy. The availability of the input-output tables for the years 2006, 2008, and 2009 enables the assessment of the changes with regard to the multiplier effects of the extractive industries over the first 3 years of the oil boom. We find that despite advanced infrastructure, well-developed petrochemical complex, and local content policies, the degree of integration of the international oil and gas business into the domestic economy is rather weak. In addition, both production and job creation multipliers slightly decreased after 3 years of exponential growth rates of oil production. The assessment of the production multipliers indicates that additional investments in processing, construction, and network industries have the highest production linkages. Concerning employment multipliers agriculture, education, health care, and public sector have the greatest job creation effects. To assess the fiscal employment effects of the oil revenues, which cannot be captured over the static input-output analysis, we employ the cointegrating nonlinear autoregressive distributed lag model. The model reveals a sustainable job creation effect of oil revenues in the case of Azerbaijan.

Automated summary

The petroleum sector in Azerbaijan has relatively weak production linkages and employment effects on the rest of the economy. Despite initial growth, both production and job creation multipliers slightly decreased after the first 3 years of the oil boom. Additional investments in processing, construction, and network industries have the highest production linkages, while agriculture, education, health care, and the public sector have the greatest job creation effects.