Cointegration Analysis of Trade and Economıc Cooperatıon Between Russıa and Azerbaijan Under Sanction Conditions

Purpose of the study . The purpose of the study is to analyze the development dynamics of trade and economic relations between the Republic of Azerbaijan and the Russian Federation under sanction conditions using econometric methods. This involves constructing an econometric model of the relationship between key macroeconomic indicators such as the GDP per capita of both countries, the number of economically active populations, and the trade turnover between the two countries - within the framework of an empirical study covering the years 1992 to 2023. Materials and methods . Econometric methods were employed to evaluate the dynamics of economic relations. The study included statistical processing of initial data, the construction of a formal regression model, Granger causality analysis, and the application of Granger-Johansen cointegration analysis. As a result, the Error Correction Model (ECM), which demonstrated statistical significance, was implemented. All calculations were conducted using the EViews 12 software. Several diagnostic tests were performed to verify the model’s correctness and the reliability of the results. Results. The results indicate that the trade turnover between Azerbaijan and Russia is in a state of long-term equilibrium, and mutual influences are observed between economic indicators. The model has been constructed considering the effects of sanctions imposed against Russia by Western countries and the United States in 2014, as well as their intensification in 2022. The impact of factors on trade turnover has been analyzed using a newly modified baseline gravity model. The reaction of outcome variables to shocks in causal factors has been examined, and the yearly decomposition of the variance of residuals has been obtained. A statistically significant cointegration relationship has been analyzed, and the extent of deviations from the equilibrium trajectory has been determined. Conclusion. It has been determined that the sanctions imposed in 2014 did not significantly impact trade turnover, whereas the sanctions imposed in 2022 had a positive effect. This can be explained by Russia developing new economic strategies and strengthening its cooperation with partner countries such as Azerbaijan. Considering the uncertainty of sanctions and the international economic environment, new economic strategies should be implemented to sustain trade relations between Azerbaijan and Russia. These strategies should aim to enhance long-term economic partnerships and mutual investments.