Modeling of economic growth in Azerbaijan in the post-oil period

Introduction It is an important issue to develop post-oil period models of economic growth which are driving forces of economic development in the context of Azerbaijan’s economy by considering existing realities. The world oil prices have dropped off, and they will less likely increase in the future. Furthermore, the volume of oil production decreases in Azerbaijan as it is not a renewable resource. It must be noted that the main challenge in economic growth models is the proper distribution of income. Efficient distribution of income between consumption and saving leads to balanced and sustainable economic growth. Modern researchers believe that human capital is the main driving force of economic growth. Investment in physical capital loses its value while investment in human capital creates and transmits knowledge to others thereby increasing its value. Many researchers argue that human capital determines the quality of the management institutions of development. The probability of democratic governance increases in countries with higher human capital, and therefore it increases the level of protection of the inviolability of private property and reduces corruption . The investigation and analysis of macroeconomic processes based on growth models permit to evaluate results of the economic activity, detect negative cases, develop economic models, and provide forecasting based on certain theoretical concepts. An economic growth is a part of an economic development, and it positively contributes to the development of a national economy. The primary goal of this study is to produce and implement economic growth models for the post-oil period in Azerbaijan by considering existing realities. Essential objectives - To generalize existing classical, Keynesian, and other economic theories and concepts; - To produce post-oil economic growth model for Azerbaijan; -To consider numerous peculiarities of developing economic growth models for the post-oil period; - To determine cases associated with the break of balance in demand and supply in the transition period and the reasons to explain it; - To determine terms of economic balance by modifying modern capital theory and simple and large repetitive production model of economic growth; -To evaluate the role of natural and human capital as well as tacit knowledge in an economic growth by employing the simple modeling methods. Preparation of modern economic growth models is implemented through mathematical and statistical methods. Indicators are aggregated and movement of the economy is analyzed as the sole organism. Provision of economic stability is reflected in the economic functions of a state. Achieving economic stability is to achieve economic growth, regulate inflation, and reduce the unemployment rate. Economic researchers tend to explain causes and differences of development in various countries of the world by employing economic growth models. Economic growth models are usually classified in the modern economic literature . In general, traditional and modern economic growth models are grouped in the following ways . Traditional economic growth models include classical economic growth models (Smith, Malthus, Ricardo and Keynes) as well as Karl Marx, Joseph Schumpeter, John Maynard Keynes models. Modern economic growth models include neo-Keynesian models (the Harrod–Domar economic growth model, Paul Samuelson’s model of multiplier- accelerator) and neo-classical growth model (Salou model). The economic growth models are characterized with other features too. As macroeconomics is symbolically divided into two divisions, modern economic growth models are divided into two parts too, including Short-run and long-run economic growth models. A number of models of economic growth explain a balanced growth as an exogenous factor. After the mid-80s of the last century, Romer and Lucas endogenous growth theory explains the growth as an endogenous factor on the basis of the technology. The endogenous growth theory explains the growth on the basis of technology and innovation in these models. These models help analyze and forecast in short run and study fluctuations in the long-run. The fluctuations in economic growth were theorized by the English economist U. Jelawi who ‘a Model of Cyclical Growth’. The cyclical growth model was formerly explained through price dynamics, and then it has connected economic growth to debt percentage share. The multiplier–accelerator model developed by Nobel winners in economics Paul Samuelson and John Hicks enables to analytically interpret falling and rising trajectories of economic growth for the first time. It is important to mention that existing economic growth models have some shortcomings. Assessment of countries based on an economic growth model cannot explain differences in economic growth among countries and reasons which create it. However, these models enable to explain and report certain aspect of economic growth. Expected results are the followings: - Determination of potential GDP of the country; - Determination of income distribution which leads to balanced and sustainable economic growth - Determination of mutual relationship of consumption, saving and autonomous investments for continuous economic growth. - Determination of the impact of human capital on economic growth. The importance of the research is that economic growth problems of Azerbaijan is analyzed through scientific models, and received results will help prepare proposals and recommendations which will help increase efficiency in macroeconomic stability. Keywords: Post-oil period, economic growth, human capital, natural capital, macroeconomic stability.