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The novelty of this study is that it empirically tests four hypotheses of the Dutch Disease in the Azerbaijan economy while systematically controls for other possible explanations of the observed processes over the period 2000–2007. The study concludes that an “absolute de-industrialization” has not taken place in Azerbaijan, rather the country suffers from a “relative de-industrialization” in the non-oil tradable sector. Additionally, the paper shows that the non-tradable sector has substantially expanded during the 2000–2007 period. Analysis also presents that the government expenditures have created a “spending effect”, which is more crucial than the “resource movement effect”. Furthermore, it was found that rapid increases in the wages and the non-tradable prices have led to appreciation of the real exchange rate in Azerbaijan. Finally, the study reveals that foreign direct investments inflow to the oil sector is harmful for non-oil exports and therefore, it contributes to deepening of resource, or oil, dependence. Findings in this paper support the view that to obtain a diversified economy with a long-term balanced growth development of the non-oil tradable sector should be of the major focus for the policymakers.

This study investigates the impact of social and physical infrastructure spending on the non-oil tradable and non-tradable sectors while controlling for non-oil capital stock and employment in the Azerbaijani economy for the period 1995-2014. The analysis employs the Engle-Granger and Phillips-Ouliaris cointegration tests using FMOLS estimation results to test for the existence of long-run relationships. The tests results indicate the existence of long-run relationships among the variables. The estimation results reveal positive impacts of both social and physical infrastructure spending on non-oil tradable and non-tradable outputs. However, the impacts on the non-tradable sector are considerably larger than those on the non-oil tradable sector. Developing the non-resource tradable sector, and thereby reducing possibility of the “Resource Curse” and especially the Dutch Disease, is one of the strategic aims of natural resource-rich countries. In this regard, the findings of this research may be useful for Azerbaijani policymakers in taking measures that aim at fostering the development of the non-oil tradable sector, thereby avoiding possible negative outcomes of resource dependency such as the Dutch Disease.

This study examines the impact of remittances on Nigeria’s real exchange rate and the productivity of its tradable and non-tradable sectors. Drawing on the Dutch Disease Model and the Balassa–Samuelson Effect, the research investigates how remittance inflows influence economic dynamics in a developing, oil-dependent economy. Using annual data from 1980 to 2022 obtained from the World Development Indicators and the Central Bank of Nigeria, the study employs the Autoregressive Distributed Lag (ARDL) approach to analyse both short- and long-term effects. The results reveal a complex relationship that challenges traditional expectations. In the short term, remittances decrease productivity in the tradable sector while improving productivity in the non-tradable sector. However, over time, the tradable sector recovers and experiences sustained gains, whereas the non-tradable sector experiences declines in productivity. Contrary to the Dutch Disease hypothesis, remittances do not exert a long-term impact on the real exchange rate. Other factors, including trade openness, inflation, and terms of trade, also significantly influence the real exchange rate and tradable sector. The findings suggest that Nigeria should avoid over-reliance on remittances as a tool for exchange rate stabilisation. Instead, efforts should prioritise strengthening the capital market, curbing capital flight, and promoting export growth. By shedding new light on the intricate effects of remittances, this study provides valuable insights for policymakers in Nigeria and other developing economies.

Abstract This paper investigates how ideological polarization and constituency factors influence legislators’ voting behaviour on Free Trade Agreements (FTAs). We explore the Chilean case, where trade policy has recently become highly politicized, to test three key relationships. First, we argue that right-wing legislators are more likely to champion FTAs when trade becomes a highly politicized issue, as the ratification of the CPTPP shows. Conversely, when trade is less politically salient, right-wing legislators are less likely to vote favourably for FTAs. Second, legislators representing regions with a high concentration of workers in tradable sectors are less likely to support trade liberalization, as it can put jobs at risk in their districts. Our results show that ideology explains legislators’ support to FTAs but only when the trade policy is politicized. Also, the probability of voting in favour of FTAs decreases as the proportion of workers in tradable sectors within the region increases. From a comparative perspective, the results highlight how the effect of politicization, observed mainly in European settings, is generalizable to a different set up: a presidential developing democracy.

The study employs system GMM to derive the benchmark impact of foreign direct investment (FDI) on labor productivity (LP) as well as the interactive effects of FDI and productive capacity index (PCI) while dynamic panel threshold technique is used to determine the threshold level of PCI. Later to check the sensitivity test, pooled mean group (PMG) methodology is applied. Using panel data from 88 countries from 2000 to 2018, we examine the effect of FDI on LP contingent on the level of PCI across two economic sectors: tradables and nontradables. Applying novel PCI, the findings demonstrate that initially FDI exacerbates LP in the above two sectors, and the improvement in PCI from FDI diminishes this detrimental impact until a threshold of PCI, and then beyond that level, FDI enhances LP. Meanwhile, the latter benefit is larger in the tradable sector than in the nontradable sector, and this beneficial effect is amplified by increased FDI inflows. A set of robustness tests were performed to corroborate the findings. Notably, the internal mechanism of PCI’s eight indicators moderates the influence of FDI on LP. The study has a significant disadvantage as it spans 19 years (from 2000 to 2018). Since PCI data is not accessible before 2000 and after 2018, we have limited the investigation to this time period. The study applies novel PCI, a wide category index, to assess the host countries’ absorption capacity. Furthermore, according to our knowledge, this is the first attempt to assess the impact of FDI on LP in tradable and nontradable sectors, as well as to determine the PCI threshold level at which the effect of FDI switches direction. Policy implications of this study reveal that, while FDI may not directly increase LP, PCI-backed FDI growth may imply an increase in LP. The study presents policy considerations to enable the potential role of PCI indicators in facilitating the beneficial role of FDI on LP to increase competitiveness of the host economies.

The impact of the digital economy (DE) has become the important faction of the market volume of domestic non-tradable sectors (DNSs). As rising digitalization supersedes traditional market power as a driving force, there is increasing concern about the volume of trade and economy; however, the literature of how the DE procession changed the DNS’s are limited, although the Chinese government is eager to enlarge the scale of the domestic market to be consistent with the trend of digitalization. This paper addressed this issue by employing a series of data from prefecture-level cities between 2010 and 2019 in China. Using panel data methods under fixed effect, synthetic difference-in-differences (SDID), and temporal-spatial econometrics, the paper’s hypothesis sheds light on the positive impact of the DE on DNSs. The regression results showed a 14.84% of improvement for the effects of DE development on DNS growth. The policy impact effect increased the average treatment effect by 3.9% average treatment effect, accompanied by temporal and spatial correlations. Further analysis illustrated that a possible intermediary mechanism through which the DE promotes the development of DNSs is the enhancement of the local product market development. It was concluded that policy-makers of developing countries should be devoted to breaking down domestic trade barriers among different regions to enhance the benefits of digitalization.

The smart specialization concept was implemented in the EU in 2014, stating that regions have to specify specialization areas for development of innovations. Economic specialization reveals a comparative advantage in that field. However, there are different arguments linking specialization to economic development. This study analyzes these arguments and aims to investigate the impact of economic specialization on regional economic development and to give insights into identifying prospective areas in regional economies. A panel fixed effect estimation of industry-level regional data suggests that economic specialization in broader regional employment, called relative specialization, is ambiguously associated with economic development. Our findings suggest that neither economic specialization nor economic diversity are a clear-cut solution for ensuring economic growth. Economic structure in EU regions differs, and there is no one answer for which approach is better for economic development. Specialization measures, particularly the location quotient, cannot fully capture the dynamics in the industry structure that could be essential for formation of regional development strategy.

Este artículo estudia la disminución de la participación del trabajo en el ingreso (PLI) en México durante el periodo de 1990 a 2015. En su mayor parte, esta reducción puede ser explicada por disminuciones dentro de los principales sectores de la economía (entre ellos las manufacturas y los de bienes comerciables y no comerciables), más que por una recomposición del valor agregado hacia sectores que tienen bajas participaciones del trabajo en el ingreso. En contraste con la agricultura, en la que la pli cayó debido a un desplazamiento de la fuerza de trabajo desde el autoempleo hacia el trabajo asalariado, en otras importantes áreas de la economía la disminución de la PLI se explica por reducciones en el sector de empleo asalariado. Las estimaciones econométricas indican que disminuciones paralelas en la participación del trabajo y la productividad relativa en los bienes no comerciables, así como en la participación del trabajo en las manufacturas de los Estados Unidos, desempeñaron —todos— un papel importante en la reducción de la participación de los salarios en el sector manufacturero de México. Más generalmente, el análisis sugiere que el rezago de la productividad en el sector informal de bienes no comerciables, que es en sí un reflejo de la baja tasa agregada de crecimiento, es un factor crucial en la reducción de la PLI en los sectores formales. El artículo concluye con una discusión de posibles explicaciones para la paradoja de la lenta tasa de crecimiento económico en México a pesar del aumento en la participación de las ganancias en el ingreso. 

The economics of growth has come a long way since it regained center stage for economists in the mid-1980s. Here for the first time is a series of country studies guided by that research. The thirteen essays, by leading economists, shed light on some of the most important growth puzzles of our time. How did China grow so rapidly despite the absence of full-fledged private property rights? What happened in India after the early 1980s to more than double its growth rate? How did Botswana and Mauritius avoid the problems that other countries in sub--Saharan Africa succumbed to? How did Indonesia manage to grow over three decades despite weak institutions and distorted microeconomic policies and why did it suffer such a collapse after 1997? What emerges from this collective effort is a deeper understanding of the centrality of institutions. Economies that have performed well over the long term owe their success not to geography or trade, but to institutions that have generated market-oriented incentives, protected property rights, and enabled stability. However, these narratives warn against a cookie-cutter approach to institution building. The contributors are Daron Acemoglu, Maite Careaga, Gregory Clark, J. Bradford DeLong, Georges de Menil, William Easterly, Ricardo Hausmann, Simon Johnson, Daniel Kaufmann, Massimo Mastruzzi, Ian W. McLean, Lant Pritchett, Yingyi Qian, James A. Robinson, Devesh Roy, Arvind Subramanian, Alan M. Taylor, Jonathan Temple, Barry R. Weingast, Susan Wolcott, and Diego Zavaleta.

MENA is one of the richest regions in the world in terms of natural resources: it holds more than 60 percent of the world’s proven oil reserves, mostly located in the Gulf region, and nearly half of gas reserves. Oil represents 80-85 percent of merchandise exports in the region, making it highly depending on fluctuations in international prices. A long strand of economic literature has suggested that such dependence may hurt a country’s growth prospects and the scope for job creation by reducing economic diversification. This volume investigates the effect of natural resources and the role of policies on achieving higher and sustained growth through diversification away from oil. It explores analytical questions which include: (i) the impact of the real exchange rate on manufacturing and tradable services competitiveness in MENA; (ii) the role of fiscal policy in supporting diversification; (iii) how “weak links” (input sectors with low productivity) play a critical role in explaining the concentration of economic activities, in addition to the classical Dutch Disease effect and (iv) the impact of macroeconomic factors on the drive for regional integration Several policy recommendations emerge from this analysis: (i) policymakers should strive to avoid real exchange rate overvaluation through consistent fiscal policies, flexible exchange rates and adequate product and factor market regulations; (ii) reforms to improve the competition and efficiency of upstream input activities are crucial for improving the performance of downstream activities and diversification in MENA (iii) a consistent and transparent fiscal policy is essential to reduce instability, build the fiscal space needed to invest in core infrastructure and human capital and create a favorable environment for diversification; (iv) while regional trade integration is desirable for political, social, cultural and economic reasons, in terms of trade liberalization, this is not the best option for resource-rich countries of the region. Policymakers should take this into account in discussing regional integration options. It is hoped that the findings of this work will be of interest to policymakers, the civil society, donors and practitioners in MENA countries and stimulate the debate of such an important topic.