Does the COVID19 pandemic change the relationship between government expenditures and economic growth in Azerbaijan?

Abstract

This paper investigates the impact of the Government's capital and current expenditures on economic growth in Azerbaijan. The estimation strategy of the research consists of two directions. First, all estimation approaches were used for the period of 2005Q1-2019Q4. The estimated model for this period is called Model 1. Second, the model which is called Model 2 was estimated for whole period of 2005Q1-2021Q1. This approach allows comparing the role of the Government expenditures on non-oil economic activity in normal times and during the COVID-19 pandemic in Azerbaijan. Estimations show that coefficients characterizing the impact of Government current expenditures and capital expenditures on non-oil economic growth are almost the same for both periods. Therefore, we can state that COVID-19 pandemic did not affect the structure of the relationship between Government expenditures and non-oil economic growth. Results show that 1 percent increase in capital and current expenditures of state budget increases the real non-oil GDP by 0.10 and 0.40 percentage points, respectively. Accordingly, both capital and current expenditures of the state budget have positive impact on the real non-oil GDP growth for the both periods. This is in contrast to findings in the literature, which argue that increasing current expenditures financed by tax hikes lead to a lagged decrease in private investment, having an overall negative impact on economic growth. We attribute this opposing finding to the Azerbaijani state budget revenue system, which is financed by transfers from the State Oil Fund (Stabilization Fund). Thus, large government investment and social projects mostly rely on non-tax sources. Therefore, we argue that positive impact of capital and current expenditures of government budget on non-oil GDP seems plausible for Azerbaijan. Another result of our estimation is that expansion of economic openness accompanied by non-oil economic growth plunge in Azerbaijan. We interpret this phenomenon with very low share of non-oil export, where openness is mostly caused by increase in import volume.

Social expenditure multiplier: Assessment of economic effect and optimal values

“…So, e.g., even Baltic countries that are very close in terms of economic level and structure of the economy have differences in the impact of fiscal multipliers on economic development and social benefits (Szymańska, 2022). Structural and resource factors can be taken into account in the search for opportunities to ensure the multiplier effect of government social expenditures, as, e.g., in the case of the search for "non-oil" growth opportunities (Abbasov et al, 2021). But more common are the studies of general market changes through the links of aggregate demand and social development (Tung, 2020;Tvrdon & Verner, 2022), the impact of social programs and payments on the standard of living (Mishchuk et al, 2018), willingness to participate in formal relationships (Virak & Bilan, 2022) as well as the multiplier effect on the labour market, which is achieved through financing of the social protection system, including social security for the unemployed (Sabyrzhan et al, 2021).…”

A new simple test to evaluate the efficiency of government spending

“…Hence, on average, in the period 2005Q1-2017Q3, the factual composition of the state budget between capital and current expenditures was 0.33 and 0.67, respectively. Meaning that state budget capital Abbasov et al (2021) investigate the impact of the government's capital and current expenditures on economic growth, comparing the role of government expenditures on non-oil economic activity before and during the COVID-19 pandemic in Azerbaijan. Their results show that coefficients characterizing the impact of government current expenditures and capital expenditures on non-oil economic growth are almost the same for both periods.…”

Impact of coronavirus disease (COVID-19) on food security: bibliometric analysis and empirical evidence

“…The shadow economy is another negative factor affecting sustainable economic growth recovery after the COVID-19 pandemic (Shpak et al, 2020). On the other hand, in some countries, the pandemic has almost no effect on the structure of public expenditures (Abbasov et al, 2021). In general terms, researchers believe that in order to overcome the consequences of the pandemic effectively, it is necessary to coordinate the efforts of different countries in terms of the development and implementation of the postpandemic recovery policy (Androniceanu, 2020), which key vector is the development of the system of early warning and response to threats to national security as a whole and its elements specifically (including food security) (Alkubaisy, 2020;Dutta et al, 2020;Drelich-Skulska and Domiter, 2020;Mikhnevych et al, 2020).…”