ASSESSING THE ROLE OF FOREIGN TRADE IN AZERBAIJAN'S ECONOMIC DEVELOPMENT

This study investigates the role of foreign trade in the economic development of the Republic of Azerbaijan by analysing the relationship between foreign trade turnover and gross domestic product (GDP) over the period 1995–2023, using annual time series data. Trade turnover in this research is defined as the combined value of exports and imports, which serves as a key indicator of Azerbaijan’s integration into the global economy. The primary objective of the study is to determine whether changes in foreign trade activity have a significant impact on the country’s economic growth and long-term development. To achieve this objective, a comprehensive set of econometric and statistical techniques was employed. These include descriptive statistical analysis to examine the historical trends of the variables, unit root tests to assess the stationarity of the data, and regression analysis to evaluate the nature and strength of the relationship between GDP and trade turnover. In addition, the Johansen cointegration test was applied to explore the existence of a long-run equilibrium relationship between the variables, while the Granger causality test was used to determine the direction of causality in the short run. Several diagnostic tests were also conducted to ensure the reliability and validity of the model by checking for problems such as heteroskedasticity and autocorrelation. The empirical results reveal a statistically significant and positive relationship between foreign trade turnover and GDP in Azerbaijan. The Johansen cointegration test confirms the existence of a stable long-term relationship between these two variables, suggesting that foreign trade is closely linked to the country’s economic performance over time. However, the results of the Granger causality analysis indicate that, in the short run, changes in GDP tend to drive changes in trade turnover, rather than trade turnover driving economic growth. This implies that while foreign trade is closely associated with economic development, it may not be the primary short-term catalyst of growth. Overall, the findings suggest that foreign trade plays an important supportive role in Azerbaijan’s economic development. Nevertheless, for sustainable and resilient long-term growth, policymakers should focus on reducing dependence on a limited range of export products and instead implement strategies aimed at export diversification, value-added production, and the expansion of non-oil sectors. Such measures would strengthen Azerbaijan’s position in international markets and enhance its ability to withstand external economic shocks.