REPUBLIC of AZERBAIJAN UN DEVELOPMENT PROGRAM Azerbaijan Trends of improving the competitiveness of regional economy (An example of Lankaran economic region) BAKI - 2009 AZ 1011, Republic of Azerbaijan, Baku city, H.Zardabi Avenue, 88a Telefon/Faks: +994 12 4300215, E-mail: [email protected] Website: www.ier.az UN Development Program (UNDP) is the UN's global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. We are on the ground in 166 countries, working with them on their own solutions to global and national development challenges. As they develop local capacity, they draw on the people of UNDP and our wide range of partners. EXECUTIVE SUMMARY One of the main goals of the economic policy carried out in the Azerbaijan Republic in recent years has been to achieve the social and economic development of the regions. A wide range of activities has been implemented in country to support this goal and this process is still underway. In order to promote the high social and economic development of the regions in country, to further improve the people’s living standards, to enhance the effectiveness of using the current capacity in regions, to ensure the creation of new jobs, the development of various fields of industry, as well as the agrarian sector, the expansion of processing agricultural products, and to implement other sets of activities, the President of the Azerbaijan Republic approved the State Program on Social-Economic Development of the Regions in the Azerbaijan Republic (2004-2008) on February 11, 2004, and the State Program on Social-Economic Development of the Regions in the Azerbaijan Republic (2009-2013) on April 14, 2009. Despite all the work carried out, the fact that the social and economic development level of the regions is still lagging behind, calls for implementation of research in this area. First of all, it is important to investigate the issues on improving the competitiveness of regional economy. From this standpoint, researching the issues related to the improvement of economic competitiveness in the Lankaran economic region is of utmost importance. The research work has studied the status of the region in recent years. The studies employ M.Porter’s “National rhombus” and the cluster approach used in assessing the regional competitiveness. The research work has been carried out using the comparison, statistical analysis, logical generalization, and other methods. The studies have identified a weak exercise of the economic capacity in the region. Suffice to emphasize that 1.7 percent of the total product output has been produced in the Lankaran economic region, which constitutes 9.2 percent of the country’s population and 7% of the overall territory. CONTENTS SUMMARY INTRODUCTION CHAPTER 1. THORETICAL AND METHODOLOGICAL FOUNDATIONS OF IMPROVING THE COMPETITIVENESS OF REGIONAL ECONOMY 1.1. Theoretical foundations of regional competitiveness 1.2. Literature review CHAPTER 2. THE PROBLEMS OF UNEQUAL DEVELOPMENT IN AZERBAIJAN’S ECONOMIC RAYONS (REGIONS). DIVERSIFICATION COEFFICIENT CHAPTER 3. ASSESSMENT OF A REGION’S COMPETITIVENESS LEVEL 3.1. Methodology 3.2. Assessment of the level of the Lankaran economic region’s provision with economic resources 3.3. Analysis of the current status of a social and economic development of the Lankaran economic region 3.4. Assessment of the progress level of the infrastructure sectors in Lankaran economic region 3.5. Assessment of the entrepreneurship environment 3.6. Assessment results CHAPTER 4. TRENDS OF IMPROVING COMPETITIVENESS OF THE LANKARAN ECONOMIC REGION 4.1. Development of agriculture 4.2. Dvelopment of industry 4.3. Investment sphere 4.4. Development of infrastructure 4.5. Development of tourism sector 4.6. Trends of improving entrepreneurship climate 4.7. Improvement of governance system CONCLUSION AND RECOMMENDATIONS REFERENCES INTRODUCTION In transition economies and developing states, along with the efforts to maintain the global development rate at national level, another issue that is the regional inequalities has arisen. Such an inequality is further increased mainly due to greater development of the advanced territorial units, and the lagging of other regions. One of the major instruments to reveal the noted issues is regional competitiveness. The concept of competitiveness is a new theme in the theory and practice of economic development, the economic policies of states. Previously, the theme of competitiveness was limited in business sphere and the international trade framework. However, in recent years, this has gained importance within a country, that is at the regional level. In the new programming period of ADB for 2007- 2013, along with the concept of economic and social equality, the construct of regional competitiveness has also become a crucial factor. For such an unequal development of the regions is not only a problem of the transition economies, but also exists in the developed economies of ADB.1 In developing states and transition economies, the roots of this concept date back to the 2nd of the 90s. One can state that this issue has gained importance in our country following the adoption of the social-economic development program of the regions. Efficient placement of the country’s productive forces and the full enjoyment of the economic potential of various regions is largely important for the country’s economic development. Unequal distribution of the productive forces by the territory is characteristic for the Azerbaijan Republic. Hence, in terms of the total product output in 2008, the share of Baku city, where 22.9 percent of the country’s population lives, has constituted 78.9 percent. During the transition period of the country’s economy to the market relations, the increase in unemployment rates as a result of the fall in production in various regions has led to the aggravation of the social-economic status, the flow of people from the regions to Baku and foreign countries, as a whole, to the incomplete use of the country’s economic potential, and creation of additional social problems. Therefore, the full and efficient use of the existing economic potential in the Republic’s economic zones at the present time and increasing the regions’ social-economic development rates have been identified as one of the strategic areas of the economic reforms carried out in the country. Due to these reasons, the State Program on Social-Economic Development of the Regions in the Azerbaijan Republic (2004-2008) adopted in 2004, and the State Program on Social-Economic Development of the Regions in the Azerbaijan Republic (2009-2013), approved in 2009, distinguish the elimination of poverty in regions, efficient use of the potential in regions, development of entrepreneurship and ensuring the economic development as a whole as the major issues of state importance. While identifying the activities to be implemented for distribution of the productive forces, it should be taken into account that the extreme concentration of production in large cities is inadmissible. The enterprises should be created in small and medium-size cities under favorable economic conditions. This requires the improvement of regions’ competitiveness and increasing their investment attractiveness. Under the market economy relations, the profit rates gained by the commodity producers directly affect the selection of the rayons where they are placed. In this respect, since the competitiveness of a region indicates the status of the region and its commodity producers, which are specified by the economic, social, political, and other factors in 1 Miklos LUKOVICS, Measuring Territorial Competitiveness: Evidence from Hungarian Local Administrative Units (LAU1), Institute of Economics and Economic Development, 2007, s.1 internal and external markets, economic units cannot obtain the expected results unless they are located in a region, which provides favorable conditions for their operations. Therefore, it is necessary to increase the regions’ competitiveness in order to achieve the optimal placement of productive forces in the country. The objective of the research is to make make proposals and recommendations on increasing economic competitiveness at regional level, based on the comprehensive analysis of the current status of social-economic development of a region, in an example of the Lankaran economic region, and referring to the existing competitiveness theories available internationally. In order to achieve this objective, the research work has investigated the theoretical- methodological and practical issues of improving competitiveness of economy at the regional level. The results of the research work and the proposals made can contribute to the activities to be implemented by the state in order to ensure the economic development in the Lankaran economic zone, especially the regions included here. CHAPTER 1. THORETICAL AND METHODOLOGICAL FOUNDATIONS OF IMPROVING THE COMPETITIVENESS OF REGIONAL ECONOMY 1.1. Theoretical foundations of regional competitiveness This section will touch upon the attitudes of different theoretical movements of economic theory toward competitiveness and their relationship with the regional competitiveness. The development theory represents the beginning of the theoretical model of regional competitiveness.2 The major assumption of this theory is that the concentration of knowledge in one region creates increased productivity. Knowledge and technical skills