In this paper, we address the production linkages and employment effects of the petroleum sector on the rest of the Azerbaijani economy. The availability of the input-output tables for the years 2006, 2008, and 2009 enables the assessment of the changes with regard to the multiplier effects of the extractive industries over the first 3 years of the oil boom. We find that despite advanced infrastructure, well-developed petrochemical complex, and local content policies, the degree of integration of the international oil and gas business into the domestic economy is rather weak. In addition, both production and job creation multipliers slightly decreased after 3 years of exponential growth rates of oil production. The assessment of the production multipliers indicates that additional investments in processing, construction, and network industries have the highest production linkages. Concerning employment multipliers agriculture, education, health care, and public sector have the greatest job creation effects. To assess the fiscal employment effects of the oil revenues, which cannot be captured over the static input-output analysis, we employ the cointegrating nonlinear autoregressive distributed lag model. The model reveals a sustainable job creation effect of oil revenues in the case of Azerbaijan.
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The mentioned tables can be downloaded from the following webpage of the SSC http://www.stat.gov.az.
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Appendix 7. IO analysis–based assessment of the employment effects
The aggregate output of all sectors in the economy is the sum of the intermediate, AX, and the final output, Y:
whereby, A is the direct expenses coefficient matrix which is also called technological matrix for representing production technology. X is the total output of goods and services, and Y is the last product vector. Equation (A.1) could be rewritten as follows in Eq. (A.2), whereby E is the respective identity matrix
We start the presentation of the labor balance model by introducing the direct labor coefficient ti, which is calculated as the ratio of the total employment and total output in the individual sectors. This corresponds to Eq. (A.3):
whereby Xi is the total product of the j-th sector and Lj - is the labor force which is employed in the j-th sector for the production of the j-th product. As already mentioned, ti captures only the direct job creation effect. If we denote the full job creation coefficient as Tj, then
whereby aij is the direct material expense coefficient and Tj is full the labor coefficient. If we include direct labor coefficient t = (t1, t2, …, tn) and the full labor coefficient T = (T1, …. Tn) as a line vector, then Eq. (A.4) can be written in the matrix form (A.5):
The multiplication of the LHS of Eq. (A.5) by the identity matrix, E, yields:
(E − A)−1 matrix is the well-known full material expense coefficients matrix. If we denote (E − A)−1 as B, then Eq. (A.6) can be rewritten as:
Equation (A.3) yields:
If we assume that there are n sectors in the economy, then the whole labor force which is employed in the economy, L, can be calculated in accordance with Eq. (A.8):
The multiplication of the both sides of (A.7) by the final product vector, Y yields
This equation shows that the full labor coefficient T and determines the number of the additional employees to produce the final product. Based on Eq. (A.11), the job creation, ∆L, can be calculated as ΔL = tΔX = tB∆Y = T∆Y.Footnote 3 ΔL stands for the direct and indirect job creation effects caused by the change in the amount of the final good, ΔY.
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Sadik-Zada, E.R., Loewenstein, W. & Hasanli, Y. Production linkages and dynamic fiscal employment effects of the extractive industries: input-output and nonlinear ARDL analyses of Azerbaijani economy. Miner Econ 34, 3–18 (2021). https://doi.org/10.1007/s13563-019-00202-6
- Input-output analysis
- Nonlinear ARDL (NARDL)
- Asymmetric error correction model (AECM)