The Impact of Artificial Intelligence and Digital Transformation on Economic Growth: A Time Series Analysis of Azerbaijan

Abstract

This study investigates how artificial intelligence and digital transformation have shaped economic growth in Azerbaijan, drawing on time series data spanning 1996 to 2025. Using correlation analysis, Augmented Dickey-Fuller unit root testing, Granger causality testing, and ordinary least squares regression, the analysis traces the relationship between a composite Digital Economy Index and both real and non-oil GDP growth. The Digital Economy Index is constructed as a weighted composite measure incorporating five standardized indicators: internet penetration (sourced from the International Telecommunication Union), mobile subscriptions per 100 inhabitants (ITU and State Statistical Committee of Azerbaijan), ICT sector value added as a percentage of GDP (State Statistical Committee of Azerbaijan and Ibadoghlu, 2025), the United Nations E-Government Development Index (UN DESA, 2024), and the ratio of cashless payments to total transactions (Central Bank of Azerbaijan, 2024). Each component was min-max normalized to a 0–100 scale and aggregated using equal weights to ensure transparency and replicability. The results reveal a marked structural shift after 2016: while overall GDP growth slowed as oil production declined, the Digital Economy Index rose sharply and became closely linked to non-oil growth. In the post-oil period (2016–2025), this relationship is strong and statistically robust (R² = 0.823, p < 0.001), with a one-unit rise in the index associated with a 0.208 percentage-point increase in non-oil GDP growth. These findings are interpreted alongside the objectives of the Azerbaijan Artificial Intelligence Strategy (2025–2028), and the study closes with policy recommendations aimed at translating digital gains into lasting, broad-based economic diversification beyond the hydrocarbon sector.

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