Expected Macroeconomic Impacts of the Accession to WTO on Azerbaijan Economy: Empirical Analysis

World Trade Organization (WTO) is the largest trade organization which is supposed to open the international trade for the benefit of all countries through liberalization or removing impediments over trade. It may directly impact import and export and indirectly other macroeconomic variables. In this context, Azerbaijan’s accession process to WTO has been subject to many discussions in terms of what impacts are expected for the economy in case of the accession. This thesis attempts to do an empirical analysis of the expected macroeconomic impacts of the membership on Azerbaijan economy through application of VAR model. In this thesis, central question is what overall macroeconomic impact is expected for Azerbaijan’s economy if Azerbaijan join to WTO. In this context, I hypothesize that macroeconomic impact of the membership over Azerbaijan economy is expected to be negative. To test my hypothesis, I benefit from the membership experience of Georgia and Armenia and use VAR model to estimate time series data for Georgia and Armenia individually, and panel data consisted of Georgia, Armenia and Azerbaijan’s time series data. After all, I conclude that WTO membership increases import much more than export. However, the research fails to find enough evidence to say that overall impact of WTO membership is statistically significant. After taking Azerbaijan’s economic characteristics into consideration, the research concludes that overall macroeconomic impact of WTO membership is expected to be negative for Azerbaijan.