The Main Problems of Building the Digital Economy of Azerbaijan
MAYIS GULALIYEV1,2,3, SAMIRA ABASOVA2, SHAFA GULIYEVA2, ELNARA SAMEDOVA2,
MEHPARE ORUCOVA4
1Azerbaijan Technological University, Ganja, AZERBAIJAN
2Azerbaijan State University of Economics (UNEC), Baku, AZERBAIJAN
3Western Caspian University, Baku, AZERBAIJAN
4Azerbaijan Technical University of Economics, Baku, AZERBAIJAN
Abstract: - In the article, the essence and main determinants of the digital economy, the methods of evaluating
the level of digitalization, and the cross-country comparison of digitalization were made. The problems of
creating a digital economy in Azerbaijan, and the current state of the main determinants of the digital economy
in Azerbaijan were analyzed, and the role of ICT in the economy of Azerbaijan was evaluated in comparison
with the countries of the region. The main result of the study is that the "production component" of the digital
economy dominates in developed countries, while the "consumption component" dominates in developing
countries. The increase in the share of both the "consumption component" and the "production component" of
the digital economy in the total economy promotes the economic development of the country and the
improvement of the welfare of the population. In Azerbaijan, the "consumer component" of the digital economy
plays an important role in the development of the economy and in increasing the well-being of the population.
However, there is a serious need to increase the necessary potential for the development of the "production
component" of digital technologies and to increase the share of the digital economy in the country's economy at
the expense of the "production component".
Key-Words: - digital technology, digital economy, ICT, internet, mobile phone, GDP, investment.
Received: January 21, 2023. Revised: June 3, 2023. Accepted: June 13, 2023. Published: June 23, 2023.
1 Introduction
In recent decades, the development of digital
technology has significantly changed the modern
economy, both in form and content. World trade,
financial and banking operations, transactions, and
other economic relations have already taken on a
new character. In addition to reducing production
costs and speeding up decision-making, digital
technology has also led to the emergence of new
types of digital goods and services. Since these
products are innovative, they are more competitive
in the world market. Considering the challenges of
the modern era, every country is trying to acquire,
adopt and apply digital technology. But the
transition to a digital economy requires both a high
level of investment and the cultivation of human
capital with new knowledge and skills. Studies show
that such expenses pay for themselves very quickly
and ensure sustainable economic development in the
future.
After gaining independence, Azerbaijan ensured
the attraction of foreign direct investments to the
country by attracting transnational companies and
international financial institutions to cooperate.
Azerbaijan, like most countries in the Middle East,
is a country rich in oil. General trends related to the
impact of oil revenues on economic development,
[17], in those countries are typical for Azerbaijan.
One of these features is the consumption of oil
revenues for digital infrastructure.
It also made it possible to apply new
technology, especially digital technology, to the
country's economy. The activities of transnational
companies in the country accelerated the wide
application of ICT in the country's economy.
Currently, Azerbaijan ranks among the world's
leading countries in terms of the share of internet
users in the total population. But in Azerbaijan, the
second of the two components of the digital
economy, that is, the "producer" and "consumer"
components, prevails. By importing ICT goods and
services to the country, Azerbaijan increases the
share of the digital economy in the overall economy
and accelerates economic development with digital
technology, ensuring the improvement of the
population's well-being. However, the second
component of the digital economy, i.e. the
"productive component" has not yet developed in
the country. Therefore, there is a need for effective
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use of the country's financial and human potential in
this field.
The objectives of this research are to assess the
current state of the digital economy in Azerbaijan
through a comparative analysis of existing research
on the digital economy. The object of this research
has been taken from the ICT sector of Azerbaijan.
The tasks include conducting a comparative analysis
of the nature of the digital economy and its effects
on economic development. As a methodology, there
were choose comparative analysis, and
econometrics, including panel analysis and time
series analyses. The results obtained in the study can
help to assess the current state of the ICT sector in
Azerbaijan, compare it with developed countries,
and development of the ICT sector in the country
from the "consumer component to
the "producer component in the
future.
2 Prerequisites for the Emergence of a
Digital Economy
The Internet, big data, 5G, and artificial intelligence
play an important role in the integration of the world
economy and lead to the formation of the digital
economy. Undoubtedly, the remarkable value and
importance of any invention or discovery are
determined by its contribution to economic growth
and human welfare. In this regard, the value of
digital technologies is undeniable. In any economic
cycle, digital technology is important because it
increases the quality and speed of activity. Digital
technology has not only introduced completely new
and innovative consumer goods to the economy but
also created new means of production. This is why
the modern economy is different from the economy
of a few decades ago. Figure 1 presents the
dynamics of real GDP p.c. volume ($) in the
countries with different incomes (the base year is
2015).
Fig. 1: Dynamics of real GDP p.c. volume ($) in the
countries with different incomes (the base year is
2015)
Source: [30]
As a result, the total GDP of the world has
increased dramatically in recent decades. However,
in this growth, the GDP of countries that use digital
technology more widely, that is, developed
countries, differed more sharply than developing
countries. According to the report of the World
Economic Forum, as a result of the development of
digital technology, the countries of the Global North
are developing faster, [13]. After 1990, the
introduction of new products, such as mobile phones
and notebooks, to the world market, and the creation
of smartphones, plane tablets, and 3D printers in the
following years, dramatically increased labor
productivity. The presence of new consumer goods
and means of production in the economy, as well as
the emergence of new service sectors along with
these goods, changed the nature of the economy, as
well as the intersectoral ratio. In the last 30 years,
the share of the service sector has increased
dramatically not only in developed countries but
also in developing countries (Figure 2).
Fig. 2: Dynamics of the share of the service sector
in GDP in countries with different incomes (%),
[30]
The share of the service sector in upper-middle-
income countries increased by 12% in a short time
in the 90s of the last century and was over 50%. Of
0
20000
40000
60000
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1964
1968
1972
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1980
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1988
1992
1996
2000
2004
2008
2012
2016
2020
the world high income
lower middle middle
0
20
40
60
80
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1964
1968
1972
1976
1980
1984
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1992
1996
2000
2004
2008
2012
2016
2020
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middle upper middle
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course, this indicator is much lower than the
indicators of high-income countries. But despite
this, the increase in the share of the service sector in
the GDP volume in all countries is related to the
increase in labor productivity in the economy and
the improvement of the well-being of the
population. The digital economy has increased
aggregate demand on a global scale with the
creation of new types of services, along with
increasing labor productivity in industrial
production and the agricultural sector. Today, in
most countries of the world, they know Uber taxi,
Amazon book sale, Facebook media service,
Alibaba sales company or companies that resemble
them to one degree or another. Digital technology
has dramatically increased the scale of tourism and
study-abroad services. Buying tickets via the
Internet, booking rooms in hotels, choosing
universities for studying abroad or participating in
grant competitions, distance education, and other
services have brought the countries and peoples of
the world much closer to each other. As a result of
the COVID-19 pandemic, the "work from home"
and "distance education" regimes have proven how
wide possibilities digital technology has. Digital
technology allows rapid collection, reliable storage,
in-depth analysis, and easy exchange of primary
information necessary for strategic decision-making
both at the macro level and at the micro level. As a
result, it is possible to increase the creation and
production of innovative products, the expansion of
international trade, the pocket of direct foreign
investments, and increase management efficiency.
Thus, the application of digital technology to
various areas of the economy indicates the growing
strength of a new economic model - the "digital
economy" model. The "Digital Economy" model is
a product of the modern era when the "Green
economy" model is on the agenda, and it differs
from other economic models. At the heart of this
model is the provision of economic growth and
improvement of public welfare by applying digital
technology to the economy. Therefore, the
development of the digital economy is important for
every country. However, it should be taken into
account that in modern times there is no such
country where the Internet and mobile phones are
not used to one degree or another. However, the
main goal is to digitize the country's economy at a
high level and turn digital technology into a leading
means of production. This problem is highly
dependent on the role of the state in managing the
country's economy. Thus, as a result of an in-depth
analysis conducted by [13], it was determined that
the level of economic use of technological
development is determined by the market, but state
support for technological development is also
possible. However, the scope and limits of this
support should be known.
3 Definition of the Digital Economy
and Development of the Idea of the
Digital Economy
The definitions given to the concept of "digital
economy" are meaningless. Let's get acquainted
with some of these parties. According to the
European Commission, [10], the definition of the
concept of "digital economy", "digital economy" is
an economy based on digital technology. The
European Commission, [9], also calls this economy
the Internet economy. In such an economic model,
a) venture capital is directed to the creation of
innovations, b) the role of intangible assets is over;
c) new business models based on network effect are
formed; d) international e-commerce relations are
expanding. EC, [10], believes that the digital
economy is broader than Information
Communication Technologies and covers all areas
of the economy as well as social life. The mobility
of the digital economy, playing the role of
information and database, as well as the nature of
the network, distinguishes it from other economic
models.
According to the definition of the digital
economy by the British Computer Society, [6],
"although we increasingly think of the digital
economy as the conduct of business through Internet
and World Wide Web-based markets, it should be
understood more as an economy based on digital
technologies." According to this definition, the main
features of the digital economy are related to
innovation, cyber security, and digital education.
, [7], [21],
definition of the digital economy, the digital
economy is characterized by digital services and is a
unique economic model characterized by network
effects that promote the concentration of markets.
The digital economy has multiple routes to deliver
digital services to end users and is easier and faster
than more traditional areas of the economy. The
definition of the digital economy by the House of
Commons, [28], considers digital access to goods
and services as well as the possibility of digital
assistance to businesses. In this definition, it is
emphasized that the digital economy is a digital
method for the development of the traditional
economy. Thus, among economic sectors and even
sub-sectors of these sectors, the digital economy is
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not mentioned separately. The contribution of the
digital economy, for example, the reduction of
transaction costs as a result of digitization, or time
savings as a result of activities via the Internet, etc.,
are not separately mentioned in the calculation of
the GDP volume. We cannot get any statistical
measure of the exact benefit of using home or
business software or Internet data collection or any
software package, such as the eViews econometric
calculation package. In this sense, it is
understandable that the House of Commons, [28],
accepts the digital economy as a method for action.
Some countries, for example, Great Britain, the
USA, and Japan use this method in their economy
on a larger scale than others. Therefore, from the
point of view of the digital economy model, the
comparison of countries should be made based on
which country is more digitized.
The G20 DETF, [14], defines the digital
economy as a broad spectrum of economic activity,
including all areas where digital technology is used,
such as areas where information and knowledge are
used as a factor of production, as well as areas
where information and communication technologies
are used. The G20 DETF, [14], believes that the
following principles should be defined for the
expansion of cooperation among the G20 countries
in the direction of the development of the digital
economy: a) innovation; b) cooperation; c) synergy;
d) flexibility; e) inclusiveness; f) formation of an
open and favorable business environment; g)
ensuring the flow of information for economic
growth, security, and mutual trust. For this purpose,
it is necessary to invest in the ICT sector, support
the development of entrepreneurship for the
transition to the digital economy, strengthen
cooperation in the field of e-commerce, expand
digital inclusion, and support small and medium-
sized businesses. [18], in the definition of the digital
economy, the digital economy is separated from the
aggregate economy. They argue that the digital
economy is the added value created by various types
of "digital" spending in total production. Such costs
include digital knowledge and skills, digital
hardware and devices, software, communications,
and digital goods and services. Such a definition of
the digital economy means that it is an important
tool for economic growth at both the macro- and
micro-level. Knickrehm et al. The method proposed
by [18], allows us to determine the share of the
digital economy in the total economy based on these
"costs". Based on calculations with this method in
13 industrial sectors of 11 countries, they claim that
the share of digitalization in the total production
volume is higher, i.e. 28%, instead of 5.2%
calculated by the traditional method.
The study, [3], notes that 300 companies in Asia
and the Pacific have generated $660 billion in
revenue from digital technology and that the digital
economy is becoming a leading area. The
companies involved in the study confirm that they
have digitized every aspect of their business. 97% of
these companies first started as regular companies
and then went digital. Noting the important role of
digitization in the development of companies, [3],
mentions the existence of a "digital dichotomy" in
the digital economy. He notes that Asia and the
Pacific are investing more in the digital economy
than other regional companies, and their profits are
high. [25], [8], [12], [4], and numerous other studies
have focused on the role of digital technology in the
development of the economy in the definitions
given to the digital economy. [26], in their research,
comparing the definitions given to the digital
economy, conclude that this concept has not been
unambiguously defined in the economic literature,
and there is no unified approach to its measurement.
On the other hand, the authors argue that the core of
the digital economy is the "digital sector". This
sector includes the ICT sector, which produces
digital goods and services. The authors argue that
the digital economy is that part of the total economy
in which products are produced exclusively or
mainly based on digital technology. According to
their calculations, in 2016, 3% of the world's gross
domestic product and 5% of employment fell into
the digital economy. In this volume, developed
countries take the leading place. That is an
important part of the 3% share that falls on the share
of developed countries. However, the speed of
development of the digital economy in developing
countries is increasing.
4 Methods of Assessing the Level of
Digitalization of the Economy (Digital
Economy Index)
As we mentioned above, digital technology, which
is the basis of the digital economy, including the
Internet, e-commerce, ICT, mobile phones, the
electronification of public administration, etc., is
applied to one degree or another in all countries of
the world. Therefore, the main question is not
whether there is a digital economy in any country,
but at what level. Therefore, it is important to
measure the level of the digital economy in any
country. Of course, today's level of digital
technology is not the last, and this technology will
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continue to develop and improve. Therefore, when
we say "level of the digital economy" in any
country, we are measuring such level in comparison
with other countries and any period. The difficulty
of comparative measurement of the digital economy
is also confirmed in various studies (for example,
OECD, [19]). The main challenge is the lack of
imprecise data for most countries, especially
developing countries.
Table 1. The countries ranked in the first 30 places
according to the NRI index
Countri
es
Scor
e
Countri
es
Scor
e
Countri
es
Scor
e
1
Netherland
s
82,06
11
Canada
76,48
21
Estonia
71,62
2
Sweden
81,57
12
South
Korea
75,56
22
Israel
71,51
3
Denmark
81,24
13
Australia
74,96
23
Spain
69,94
4
United
States
81,09
14
France
74,79
24
Czech
68,11
5
Finland
80,47
15
Austria
74,37
25
Iceland
67,69
6
Switzerland
80,20
16
Japan
73,92
26
Slovenia
67,30
7
Singapor
e
80,01
17
Luxembour
g
73,79
27
Malta
66,30
8
Germany
78,95
18
Belgium
72,57
28
Italy
66,25
9
Norway
78,49
19
Ireland
72,26
29
China
65,62
10
UK
76,60
20
New
Zealand
72,00
30
Lithuania
65,32
Source, [22]
There are various methods for benchmarking
the digital economy. One of these methods is the
Networked Readiness Index (NRI) developed by the
World Economic Forum. The NRI index measures
the level of use of the available information and
communication technologies in the country. The
latest report includes the status of ICT use in 139
countries. NRI index has 4 pillars, i.e. 1)
technology; 2) population; 3) government; 4)
effects; 12 sub-pillars, i.e. 1) input; 2) content; 3)
future technologies; 4) individuals; 5) business; 6)
government; 7) confidence; 8) regulation; 9)
inclusiveness; 10) economy; 11) quality of life; 12)
contributions to sustainable development goals. All
sub-pillars are based on 60 indicators. Of these, 16
indicators belong to the technology pillars, 15
indicators to the population pillars, 14 indicators to
the government pillars, and 15 indicators to the
effect pillars. The indicators included in each pillar
are normalized between (0-100). Here, "0" is
considered the lowest indicator, and "100" is the
highest indicator.
Azerbaijan ranked 76th among 130 countries in
the ranking of NRI for 2021 with 47.56 points.
Note, from the former Soviet republics Estonia
(71.62), Lithuania (65.32), Lithuania (62.16), Russia
(57.74), Ukraine (55.70), Armenia (52.51),
Kazakhstan (52.17), Georgia (49.10) and Moldova
(49.07) have a better position than Azerbaijan on the
NRI index.
Fig. 3: Dependence of NRI on the logarithm of GDP
volume (cross-country analysis)
Table 2. Dependence of the logarithm of the GDP
volume on the NRI (cross-country analysis)
The significant impact of the NRI index on the
logarithm of GDP suggests that as the level of
digitization in countries increases, the volume of
GDP also increases. Of course, feedback is also
powerful. Thus, as the economic development of the
country increases, the opportunities for
digitalization of the economy also increase.
Since NRI covers technology, governance,
inclusion, and economy as a composite index, it's
the level of economic development as well as NRI
effects level of economic development are possible.
Taking into account the existence of a two-way
causal relationship, it can be considered that high-
income countries have higher financial opportunities
for the development of digital technology. It can
also be argued that in countries with a high level of
development of digital technology, opportunities for
y = 10,307x - 40,473
0,00
20,00
40,00
60,00
80,00
100,00
0 5 10 15
Included observations: 126
Variable Coefficient Std. Error t-Statistic Prob.
NRI 0.085025 0.002868 29.64493 0.0000
C 4.550412 0.155780 29.21053 0.0000
R-squared 0.876349 Mean dependent var 8.969930
Adjusted R-squared 0.875352 S.D. dependent var 1.436710
S.E. of regression 0.507239 Akaike info criterion 1.496075
Sum squared resid 31.90408 Schwarz criterion 1.541095
Log likelihood -92.25273 Hannan-Quinn criter. 1.514365
F-statistic 878.8218 Durbin-Watson stat 1.946638
Prob(F-statistic) 0.000000
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faster growth of GDP per capita are expanding.
Figure 3 shows the dependence of the NRI index on
the logarithm of GDP per capita in 126 countries in
2021, and Table 2 shows the regression analysis of
the logarithm of GDP per capita on the NRI index.
The high level of interdependence of both indicators
confirms the importance of digital technology in
economic development.
One of the methods for benchmarking the
digital economy is the Digitalization Index (DiGiX).
This index allows the evaluation of the factors and
the behavior of agents for the implementation and
use of ICT in the country, [23]. DiGiX is a
composite index calculated based on six sub-indices
with a total of 21 indicators. These sub-indices are
1) infrastructure; 2) acceptance by households; 3)
acceptance by enterprises; 4) expenses; 5)
adjustment; 6) content.
The DiGiX index is calculated by [23], for 100
countries and is based on supply and demand. Here,
the demand component includes output indicators,
i.e. user adoption (mobile broadband subscription,
fixed (wired) broadband subscription, virtual
social networks, internet households, differences in
internet users), enterprise adoption (B2B, B2C,
Firm-level technology adoption), covers digital
content (government online service index). The
supply component includes infrastructure (3G
coverage, bandwidth per Internet user (bit/s), secure
internet services, Bandwidth (bit/s), cost (Fixed
Broadband rates, Internet and telephone
competition), and regulation (ICT laws, Software
piracy rate, Efficiency of legislative bodies, Judicial
independence, Efficiency of the legal system in
resolving disputes, Efficiency of the legal system in
solving regulatory difficulties) sub-indices. The
indicators included in this index are normalized
between (0-1). Here, "0" is considered the lowest
indicator, and "1" is the highest indicator.
A comparison of the level of digitization of
countries based on the DiGiX index suggests that
the level of digitization is also high in high-income
countries, especially in developing countries (Table
3). A comparison of Table 2 with Table 1 suggests
that developed countries are in the first ranks both in
terms of the level of digitalization and in terms of
the Network Readiness Index. It should be noted
that the high-ranking countries in the industrial
sector, but with high incomes, such as Qatar, Oman,
and the UAE, indicate that digitization is important
not only for economic importance but also for social
well-being. There is no doubt that there is a strong
correlation between the DiGiX index and the
volume of GDP per capita or its logarithm.
Table 3. The countries ranked in the first 30 places
according to the DiGiX index
Countrie
s
Scor
e
Countri
es
Scor
e
Countri
es
Scor
e
1
Denmark
1.00
11
Estonia
0.82
21
Ireland
0.76
2
Hong
Kong
0.97
12
N.
Zealand
0.81
22
Korea, R.
0.74
3
Singapore
0.94
13
Iceland
0.81
23
Malaysia
0.73
4
USA
0.92
14
Germany
0.81
24
Austria
0.73
5
Netherland
s
0.91
15
Japan
0.80
25
France
0.73
6
Luxembou
rg
0.90
16
U.
Kingdom
0.80
26
S. Arabia
0.68
7
Finland
0.88
17
Canada
0.78
27
Qatar
0.67
8
Switzerlan
d
0.87
18
Norway
0.77
28
China
0.67
9
UAE
0.84
19
Australia
0.77
29
Belgium
0.67
10
Sweden
0.83
20
Israel
0.77
30
Oman
0.65
Source, [23]
One of the methods for comparative evaluation
of the digital economy is the Digital Economy and
Society Index, [10]. The DESI index is used to
evaluate the level of digitization of the economy and
society in European countries. This composite index
is also calculated based on five dimensions such as
1) connection; 2) human capital; 3) use of internet
services; 4) integration into digital technology; 5)
digital public services. Each measure consists of a
different number of sub-indices, that have a
different number of sub-indicators. For example, the
"connection" dimension has some sub-indices such
as a) stable broadband reception; b) stable
broadband coverage; c) mobile broadband; d) a
broadband price index. The "Human capital"
dimension consists of two sub-indices namely a)
Internet user skills; b) It Advanced Skills and
Development. The "Use of Internet services"
dimension consists of three sub-indexes such as a)
use of the Internet; b) online activity; c)
transactions. The
dimension includes two sub-indexes such as a)
digitization of business; b) e-commerce. The last
dimension, i.e.
consists of only one sub-index, i.e. "e-government"
sub-index. It should be noted that when calculating
the DESI composite index are given weights as
follows:
dimension, 15% to the
15% to the . The weights
given to the sub-indices included in each dimension
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are also different. First, DESI considers the weights
given to the sub-indices and then to the dimensions.
It is calculated based on the same. Here are
dimensions, is the corresponding weight.
Calculations by [27], show that Denmark, Sweden,
Finland, the Netherlands, Luxembourg, Ireland,
Great Britain, Belgium, and Estonia have higher
scores than other European countries. Indicators of
Spain, Austria, Malta, Lithuania, Germany,
Slovenia, Portugal, the Czech Republic, France, and
Latvia are considered average indicators. Indicators
of other European countries are lower. Note that this
result is consistent with the results of the other
methods for measuring the digital economy that we
considered above.
In addition to the NRI, DiGiX, and DESI
indices that we reviewed above, other indices are
also used to quantitatively measure the digital
economy or the level of digitization of the economy.
For example, the Adobe Digital Economy Index,
[11], was developed to study inflation in the United
States, Great Britain, and Japan, and the Arab
Digital Economy Index (Arab Federation for Digital
Economy, [2]) was developed to assess the level of
digitalization and the economic effects of
digitalization in Arab countries. In our study, we
used several indicators that indicate the level of
development of digital technology: a) export of ICT
services (in current US dollars); b) share of ICT
services export in total service export (%); c) share
of ICT product import in total product import (%);
d) share of export of ICT products in total product
export (%); e) the amount of investment directed to
the ICT sector with the participation of the private
sector; f) the share of internet users in the total
population (%) and other indicators.
5 Assessment of the Role of ICT in the
Economy of Azerbaijan
Digitalization has made a significant contribution to
Azerbaijan's integration into the world market, as
well as to the expansion of Azerbaijan's bilateral
economic relations with other countries. As a result
of the expansion of the country's foreign trade,
household incomes have increased, [23].
Digitalization has had direct or indirect effects
on the increase in the number of tourists coming to
the country in recent years. Thus, as a result of
digitization, the ease of hotel reservations and the
availability of high-speed Internet for tourists are
important factors. Studies show that a significant
part of the tourists who have come to Azerbaijan in
recent years are from high-income Arab countries,
[23]. Tourists from these countries choose cities
with more digital infrastructure for recreation.
Undoubtedly, the role of ICT, along with other
factors, is the basis of economic development both
in Azerbaijan and in other countries of the region.
We will use two methods to assess the impact of
ICT on economic development. The first method is
the panel analysis method. Here, as a dependent
variable, we will take the growth percentage of the
GDP of the countries of the region compared to
1991, and as an independent variable, we will take
the number of internet users and mobile phone
subscribers in these countries. The effects of both
indicators on economic development are not direct.
so, these indicators affect the production function
through the channel of human capital development.
The second method is the time series method. With
this method, we will try to study the effects of ICT
on the economy of Azerbaijan.
To determine the dependence of economic
development on ICT, it is necessary to determine
indicators that more adequately characterize both
systems. For this purpose, different indicators are
used in different campaigns. Some studies use
normalized composite indices to characterize ICT,
such as the Network Readiness Index or DESI
index, and some studies use the DIGiX index. Some
researchers, by building a new composite index
based on several indicators related to ICT, present
the obtained results as an adequate indicator of ICT.
In our research, we will use the "share of the
number of internet users in the total population"
İ indicator as the main indicator of ICT.
The indicator "increase of GDP per capita compared
to 1993" will be . Given these indicators,
the regression equations we will use for panel
analysis and time series analysis can be expressed as
(1) and (2), respectively:
(1)
(2)
Table 4 shows the results of the panel analysis
based on data for the period 1993-2020 for 6
regional countries. The panel analysis of the
dependence of the indicator "increase in GDP per
capita compared to 1993" on the indicator "share of
the number of Internet users in the total population"
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Mayis Gulaliyev, Samira Abasova,
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suggests that there is a positive relationship between
these indicators. However, the model of the
relationship between these two indicators is not in
the form of a simple pair regression dependence and
is more complex. This is also shown by the fact that
the Durbin-Watson coefficient is very small in table
4. Thus, it is possible to make the model more
adequate by eliminating the existing autocorrelation.
Table 4. Dependence of GDP p.c. growth (compared
to 1993) on the "share of the number of Internet
users in the total population"
Note: calculated by the authors
The results of the time series analysis performed
based on the data of the individual countries
included in the study (Table 5) show that there is a
strong correlation between the number of Internet
users and the level of public welfare in these
countries.
Table 5. Dependence of the GDP growth compared
to 1993 on the "share of the number of Internet users
in the total population"
Azerbaij
an
Georgi
a
Russi
a
Turke
y
Armen
ia
0.630130
0.831503
0.14725
0
0.76295
5
0.676650
0.713367
Number of
observatio
ns
28
28
28
28
28
28
coefficient
477.4383
108.3519
196.8670
1.208061
33.96598
227.5764
Std. error
205.6645
31.91827
48.10714
22.19650
18.22685
59.74400
t-Statistic
2.321442
3.394669
4.092261
0.054426
1.863513
3.809193
Prob.
0.0284
0.0022
0.0004
0.9570
0.0737
0.0008
coefficient
29.95423
10.90744
3.048168
4.364495
3.484280
13.59683
Std. error
4.500709
0.962942
1.438585
0.477104
0.472368
1.690276
t-Statistic
6.655447
11.32720
2.118866
9.147886
7.376198
8.044147
Prob.
0.0000
0.0000
0.0438
0.0000
0.0000
0.0000
Note: calculated by the authors
The results obtained in both Table 4 and Table 5
prove that the development of the Internet, which is
one of the main determinants of the digital economy
in the country, and the increase in the number of
people using it, have a positive effect on economic
development.
6 Current Situation of the Main
Determinants of the Digital Economy
in Azerbaijan (Comparative Analysis)
After Azerbaijan gained independence, the process
of faster integration into the globalization process
began. As a subject of international law, our country
began to integrate with other countries and
international organizations in political, economic,
and cultural fields, as well as in the field of
information exchange. In the first years of
independence, a legislative network began to be
formed to ensure information security and the right
of the population to receive information. In 1998,
"The Law of the Republic of Azerbaijan on
Information, Informatization, and Protection of
Information", "The Law of the Republic of
Azerbaijan on Freedom of Information", in 1999
"On Approval of the Agreement on Cooperation in
the Development and Use of Cellular Mobile
Communication Systems" of the Republic of
Azerbaijan Law", 2000 "Law of the Republic of
Azerbaijan on acceding to the Charter and
Convention of the International Telecommunication
Union, as well as amending documents", Law of the
Republic of Azerbaijan on acceding to the Statute
and the Rules of Procedure of the said Conference
to establish the Pan-European Conference of Postal
and Telecommunications Administrations",
"Television and "Law of the Republic of Azerbaijan
on Radio Broadcasting" and other important laws
played an important role in regulating the activity of
receiving and distributing information in
Azerbaijan, [20]. The development of digital
technology on an international scale and the creation
of new digital goods and services immediately
found its consumer in our country. In September
1994, the signing of the "Agreement of the Century"
and the attraction of large-scale investments to
Azerbaijan allowed new technologies and
management methods to enter our country. The use
of the latest technology, including digital
technology, by transnational companies in their
activities, has encouraged the spread of such
technology in other areas of the economy and social
life.
The expansion of Information Communication
services, including mobile phone and Internet
services in Azerbaijan, created new opportunities
for the development of the economy. To regulate the
spread and application of digital technology in
Periods included: 28
Cross-sections included: 6
Total panel (balanced) observations: 168
Variable Coefficient Std. Error t-Statistic Prob.
INTERNET 12.43050 1.691526 7.348688 0.0000
C 142.7677 66.26427 2.154520 0.0326
R-squared 0.245466 Mean dependent var 474.5525
Adjusted R-squared 0.240920 S.D. dependent var 721.5708
S.E. of regression 628.6699 Akaike info criterion 15.73692
Sum squared resid 65607499 Schwarz criterion 15.77411
Log likelihood -1319.902 Hannan-Quinn criter. 15.75202
F-statistic 54.00322 Durbin-Watson stat 0.079798
Prob(F-statistic) 0.000000
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Azerbaijan, the "Law of the Republic of Azerbaijan
on electronic signature and electronic document"
was adopted in 2004, the "Law of the Republic of
Azerbaijan on Electronic Commerce" and the "Law
of the Republic of Azerbaijan on
Telecommunications" and other laws were adopted
in 2005. The extensive activity of Transnational
Companies and International Financial Institutions
in Azerbaijan, as well as the creation and
development of a favorable environment for the
activity of small and medium-sized businesses,
made it possible for the wide application of digital
technology in the country. In the last 20 years, as a
result of the increase in the income of the population
and the deepening of the globalization process, the
expansion of international relations has increased
the possibilities of using digital technology in the
country, especially the Internet (Figure 4) and
mobile communication (Figure 5). It should be
noted that according to the level of internet usage,
Azerbaijan is the leader among the countries of the
region. According to this indicator, Azerbaijan is
almost at the same level as developed countries. In a
short period, that is, in just 12 years, this indicator
of Azerbaijan rose from 14.5% to 84%. Armenia
and Georgia lag far behind Azerbaijan on this
indicator. The level of internet usage in Azerbaijan
and the region as a whole has increased sharply in
the last 10 years. Of course, the main reason for this
is the increase in technological possibilities for
digitization and the increase in the income of the
population.
Fig. 4: Share of the number of Internet users in the
population in Azerbaijan (%), [30]
Fig. 5: Number of mobile phone subscribers per 100
people, [30]
The level of use of mobile phones has also
developed with approximately the same scenario.
However, according to this indicator, Azerbaijan
and Turkey are slightly behind the countries of the
region. This indicator is around 100 for both
countries, that is, the number of mobile phone
subscribers is 100 for every 100 people. This could
mean that one in every hundred people, almost
everyone, uses a mobile phone. The interesting
thing about this indicator is the occurrence of a
"saturation level" after 2010. So, except for Iran, the
increase in mobile phone subscriptions after 2010 in
each of the countries of the region is negligible.
However, despite this, the level of use of digital
technology and the level of digitization of the
economy and society in Azerbaijan lags far behind
developed countries. On the other hand, the weak
process of importing digital technology and creating
new digital goods and services in Azerbaijan
indicates that the share of the digital economy in the
country is still not at the desired level.
The GDP per capita volume dynamics (in US
dollars) is presented in Figure 6. It should be noted
that the volume of GDP per capita of the countries
of the region has also increased sharply compared to
1991 (Figure 7). In the first years of independence,
Azerbaijan's GDP per capita was the smallest
among the countries of the region. The transfer of
the planned economy of the former Soviet system
seriously affected not only the oil economy but also
agriculture in Azerbaijan. Since a significant part of
the products produced in the agricultural sector in
Azerbaijan were sent to the Soviet republics, the
breakdown of economic relations with these
countries hurt the sale of products. Despite this, the
economy of Azerbaijan revived and developed
rapidly in the following years. In the early 2000s,
Azerbaijan left other countries of the region behind
due to the speed of economic development. In 2014
0,00
50,00
100,00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Azerbaijan Georgia Russia
Turkey Armenia Iran
0,0000
50,0000
100,0000
150,0000
200,0000
Armenia Azerbaijan Georgia
Iran Russia Turkey
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in Azerbaijan per capita. The volume of GDP was
3667% more than in 1991. Despite a certain
reduction in economic growth during the
devaluation of 2015, high growth was maintained in
the following years.
Fig. 6: GDP per capita volume dynamics (in US
dollars), [30]
Fig. 7: Growth of the volume of GDP p.c. compared
to 1991 (%), [30]
As we mentioned above, the digital economy is
characterized by the production of digital
technology and new digital goods and services (the
"production component" of the digital economy), as
well as the import and consumption of these
technologies, goods, and services ("the consumption
component" of the digital economy). Most of the
world's countries, especially industrially less
developed countries, are more engaged in the
"consumption component" of the digital economy.
Such countries import computers, tablets, mobile
phones, and other digital goods, devices, and
equipment required for the Internet, various ICT
equipment, and software. Such imported digital
technology and goods are used in the country
through various channels to create added value at
one level or another. The main role of such products
in the creation of added value is related to the
development of human capital. However,
maintenance of digital goods during their use in the
country of importation, software upgrade or
hardware repair, and other services also make an
additional contribution to the economy. However, it
should be taken into account that the production
potential of such products is extremely low in
developing countries, as digital technology and
digital goods and software are rapidly becoming
"obsolete". Therefore, the difference between
imports and exports in these countries is quite large
and continues to grow. Unfortunately, the difference
between the shares of the import and export volume
of ICT products in Azerbaijan, respectively, in the
total import and export volume is very large.
7 Discussion
A comparative analysis of a large number of studies
devoted to the digital economy suggests that the
digital economy has two distinct aspects. The first
aspect is related to the application of digital
technology. Almost every country in the world uses
digital technology at one level or another, such as
the Internet, mobile phones, e-commerce, e-
government, e-transportation management, and so
on. In some countries, the level of such use is high,
while in others it is low (Figure 8). Internet users
made up 90% of the population in 2020 in high-
income countries. This means practically anyone of
any age who can read and write. In just 30 years,
60% of the world's population has gained access to
Internet services. Developed countries export ICT
services to developing countries, increasing the
level of use of digital technology in those countries.
Based on the statistics of the World Bank, it can be
noted that middle and upper-middle-income
countries prefer ICT products in their imports.
Therefore, as a result of the application of digital
technology in these countries, GDP growth has
accelerated (Figure 9)
Fig. 8: Share of Internet users in the population (%)
in countries with different incomes, [30]
0,00
20000,00
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Armenia Azerbaijan Georgia
Iran Russia Turkey
-2000,0
0,0
2000,0
4000,0
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Armenia Azerbaijan Georgia
Iran Russia Turkey
0,00
100,00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
high low
lower middle middle
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Fig. 9: Imports of ICT products in different income
countries (% of total imports), [30].
The impact of digital technology on economic
development and the level of well-being was felt
more prominently during the COVID-19 pandemic.
The pandemic has dramatically increased the
demand for digital technology. Digital technology,
in turn, prevented a sharp weakening of the
system was almost able to continue its activities.
The application of digital technology to various
areas of economic activity before and after the
COVID-19 pandemic undoubtedly increases labor
productivity. On the other hand, the digital economy
is accompanied by the creation of new goods and
services. The production of such products means the
creation of new added value, jobs, and new
incomes. Although the creation of new digital
products, such as computers, telephones, software,
etc., is mainly the share of technologically
developed countries, during the use of these
products, service areas for them allow the creation
of new jobs and the formation of additional income
in developing countries. In this sense, developing
countries can not only import digital technologies
but also create added value by providing services to
them. Thousands of people who master digital
technology in developing countries work in
developing countries and their financial transfers to
their own countries also have an important share in
the economic development of developing countries.
That is why the quantitative assessment of the
effects of the digital economy and its various
aspects on the level of economic development and
well-being is of great scientific and practical
importance.
Scientific studies devoted to the effects of the
digital economy on economic development are often
found in the economic literature in recent years. For
example, [31], studied the effects of the digital
economy on economic development in the post-
Covid-19 era using the Belt and Road countries.
Based on the method proposed in the study, the
development dynamics of the digital economy in 31
countries on the "Belt and Road" project in the
period between 2009 and 2019 were calculated.
Then, the impact of the digital economy on
economic development was studied through a panel
analysis until the COVID-19 pandemic. Then, the
effects of the COVID-19 pandemic on the digital
economy in these countries were calculated based
on the GTAP (Global Trade Analyzes Project)
model. The researchers conclude that, firstly, the
level of development of the digital economy in the
countries on the "Belt and Road" project is very
different. The level of development of the digital
economy is high in the countries of East Asia, and
Southeast Asia, as well as in the countries of Central
and Eastern Europe. Except for Israel, the digital
economy is poorly developed in West Asian
countries, as well as in Central and South Asian
countries. Secondly, in these countries, the digital
economy has a significant impact on economic
development, stimulates the development of
industry, and increases the level of employment.
Third, COVID-19 has increased the demand for
digital technology in these countries relative to the
supply. In some of the countries involved in the
study, including Israel, Latvia, Estonia, and
Armenia, it was found that the potential for the
development of the digital industry is great.
COVID-19 has negatively affected the development
of the digital economy in some countries, such as
Ukraine, Egypt, Turkey, and the Philippines.
In their study, [21], analyzed the economic
effects of digitization in Sub-Saharan African
countries about OECD countries. Making such a
comparison made it possible to determine the
differences between the effects of digitalization
depending on the level of development. According
to the results of the research, digitalization has a
positive effect in all countries, regardless of the
level of development. However, the use of the
Internet in developed countries and mobile
telecommunications in developing African countries
is at a higher level. the main conclusion is that lower
levels of digital technology create greater
opportunities in developing countries. Based on the
results of the study, it is recommended to the
decision-makers that to achieve economic
development, a larger amount of investment should
be focused on digitalization.
The study, [24], analyzed the impact of the
innovative digital economy on production factors
using the example of the Chinese economy. The
obtained results prove that digital technology has a
0
5
10
15
20
25
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
high lower middle
middle upper middle
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positive effect on the sustainable development of
production factors.
In their research, [1], ask why some countries
are rich and others are poor. A panel analysis of 123
countries shows that poor countries benefit more
from ICT development and their economic
development level rises faster.
[29], studied the impact channels of ICT on
economic development in his research. The
researcher claims that the impact of ICT on the
economy occurs mainly through three channels.
First, ICT facilitates the faster diffusion of
technologies and innovations. Second, ICT provides
a more optimal option in decision-making. Thirdly,
demand increases and production costs decrease.
8 Conclusion
1. The "production component" of the digital
economy dominates in developed countries,
while the "consumption component" dominates
in developing countries.
2. The increase in the share of both the
"consumption component" and the "production
component" of the digital economy in the total
economy promotes the economic development
of the country and the improvement of the
welfare of the population.
3. The "consumer component" of the digital
economy in Azerbaijan plays an important role
in the development of the economy and in
increasing the well-being of the population.
However, there is a serious need to increase the
necessary potential for the development of the
"production component" of digital technologies
and to increase the share of the digital economy
in the country's economy at the expense of the
"production component".
The main finding of the study is that the digital
economy consists of two aspects, namely 1) the
aspect of consuming digital knowledge-
intensive products and 2) the aspect of
producing digital knowledge-intensive products.
Both aspects play an important role in modern
economic development. But the long-term
competitiveness of the country depends more on
the second aspect.
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Mehpare Orucova
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
-Gulaliyev M- Writing - review & editing &
methodology
-Guliyeva Sh.- Data curation and resources
-Abasova S.- Writing - original draft
-Samedova E.- Formal analysis and project
administration
-Orucova M.- Investigation
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
There is not any funding for this research
Conflicts of Interest
The authors have no conflicts of interest to declare
that are relevant to the content of this article.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
Creative Commons Attribution License 4.0
https://creativecommons.org/licenses/by/4.0/deed.en
_US
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2023.20.123
Mayis Gulaliyev, Samira Abasova,
Shafa Guliyeva, Elnara Samedova,
Mehpare Orucova
E-ISSN: 2224-2899
1395
Volume 20, 2023
