On Joint Changes in GDP by Purchasing Power Parity per Capita of Ukraine and the Republic of Azerbaijan
Alizade A. R.

Alizade, Arzu Rafik. (2023) “On Joint Changes in GDP by Purchasing Power Parity per Capita of Ukraine and the Republic of Azerbaijan.” The Problems of Economy 3:5–14.
https://doi.org/10.32983/2222-0712-2023-3-5-14

Section: World economy and international relations

UDC 519.86

Abstract:
The article examines the relationships between the key components of the levels of socioeconomic development of Ukraine and the Republic of Azerbaijan. The aim of the study is to build a model of intercountry regression of per capita economic growth of both Ukraine and the Republic of Azerbaijan and to perform a comparative cross-country analysis of the key component of inclusive growth of the two countries under the strong influence of financial and socioeconomic crisis processes and the ongoing war. The study is aimed at an empirical study of the joint movement of both indicators, the identification of cause-and-effect relationships and cointegration dependence, the determination of a long-term integration relationship, allowing to take the necessary steps and measures for the positive mutual impact of trade and economic relations between the two countries on the national socioeconomic development. As the level of economic development, GDP per capita was used, taking into account purchasing power parity (PPP). The analysis of the dynamic relationship of indicators is carried out on the basis of data from January 1990 to December 2022. The study uses econometric methodology, including the extended Dickey–Fuller test for the presence of a single root, the Granger test for causality, the Engle–Johansen tests for cointegration, the vector model of error correction, and standard diagnostic tests. Tests for stationarity, causality, and cointegration were performed at the 10% significance level in the entire sample. The cointegration of the integrated 1st order of non-stationary initial series is revealed, where the preferred variant is the one with a trend, in which the marginal rate of restoration of equilibrium between GDP per capita at PPP of the two countries in the current year after the shock of the independent variable in the previous year is noted. The result, showing that GDP per capita at the PPP of Ukraine is in a slight positive dependence on GDP per capita at the PPP of Azerbaijan, is obtained. The empirical model explains 95% of the variation in the initial levels, and the equation of the vector error correction system 51% explains the differences. Recommendations are provided to ensure a long-term equilibrium of the joint movement of GDP at the PPP of both countries and to reduce the imbalance.

Keywords: cointegration, GDP per capita, lag variables, error correction model, intercountry trade flows.

Fig.: 4. Tabl.: 7. Formulae: 6. Bibl.: 13.

Alizade Arzu Rafik – Candidate on Doctor Degree, Department of Mathematical Economics, Baku State University (23 Academician Zahida Khalilova Str., Baku, Azerbaijan)
Email: arzu.alizade.98@mail.ru

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