Does the Budget Expenditure Composition Matter for Long-Run Economic Growth in a Resource Rich Country? Evidence from Azerbaijan
Does the Budget Expenditure Composition Matter for Long-Run Economic Growth in a Resource Rich Country? Evidence from Azerbaijan

Summary/Abstract: This study investigates the role of budget expenditure composition over Azerbaijan’s non-oil economic growth in the long-run by classifying public spending as capital, social and other expenditures. Authors’ employ ARDLBT approach toco-integration for the period of 2000 Q1-2014 Q4 to estimate long-run contribution of each spending category before-and-after the oil boom while controlling for oil related factors. Empirical results endorse the validity of long-run association among variables. Results concluded insignificant negative impact of capital expenditures, and significant negative impact of other expenditures. However,social spending has statistically and economically strong positive impact over then on-oil output growth. Therefore, research findings confirm that public expenditure composition significantly matters for long-run non-oil economic growth, and social expenditures have the greater positive impact in a resource-rich economy, Azerbaijan. Research results are highly useful for the government officials to consider while planning the expenditures in order to minimize negative response of non-oil sector to the fiscal contraction.

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