Reassessing Non-Oil Export Diversification in Azerbaijan: An ARDL-Based Empirical Evaluation of Credit Dynamics, Industrial Output, and Technological Innovation in Driving Structural Transformation

Abstract

Resource-dependent economies such as Azerbaijan remain highly vulnerable to commodity price fluctuations due to their structural reliance on hydrocarbon exports. This vulnerability intensifies the strategic imperative of developing diversified non-oil export capabilities. Despite extensive policy initiatives directed toward diversification, empirical examinations of the core macroeconomic determinants remain limited. This study provides a systematic econometric assessment of three theoretically salient predictors of diversification—credit investment (CI), industrial production (IP), and technological innovation (TI)—using the Herfindahl-Hirschman Index (HHI) as the dependent measure of export concentration. An Autoregressive Distributed Lag (ARDL) framework was applied to annual data spanning 2010–2024 to investigate both short-run dynamics and long-run equilibrium relationships. The findings demonstrate a counterintuitive structural pattern. Industrial production expansion is associated with increased export concentration in the long run (elasticity = 0.219, p = 0.01), suggesting that industrial growth is occurring within existing dominant sectors rather than enhancing the diversity of output. Conversely, credit investment and technological innovation display statistically significant negative elasticities of –0.152 (p = 0.01) and –0.085 (p = 0.01), respectively, indicating that financial intermediation and innovation contribute meaningfully to export diversification. Model performance is robust, with adjusted R² = 0.623 and satisfactory diagnostic indicators. The evidence underscores the limitation of industrial expansion without sectoral restructuring and highlights the need for qualitative transformation through targeted credit allocation and innovation-driven upgrading in emerging, high-value, export-oriented sectors. These insights provide actionable guidance for policymakers seeking to shift the Azerbaijani economy toward a more resilient and diversified export architecture.a one-fold attention on increasing the quantitative growth of industrial output.