Problems of the national economy diversification in modern economic conditions

Abstract

Topicality. The article addresses the persistent structural vulnerability of Azerbaijan’s national economy arising from its long-standing dependence on hydrocarbon revenues. Despite sustained growth driven by the oil and gas sector, external shocks – particularly oil price volatility – continue to destabilise macroeconomic performance, expose fragile institutional mechanisms, and constrain the expansion of the non-oil sector. In the context of global economic transformations and the increasing importance of diversified, innovation-driven development models, the study underscores the urgency of accelerating economic diversification as a prerequisite for stability, competitiveness, and resilience. The issue is further amplified by the uneven development of sectors, the technological backwardness of several industries, and the limited capacity of financial institutions to support productive investment. Aim and tasks. The study aims to examine structural constraints hindering effective diversification of Azerbaijan’s national economy and to assess mechanisms capable of enhancing the development of non-oil sectors. Its key objectives include analysing the current economic structure, identifying the principal barriers to diversification, evaluating strategic policy directions, and determining the potential contributions of manufacturing, services, and high-technology industries to sustainable growth. The research also seeks to formulate general conclusions on the conditions required for long-term, balanced economic development. Materials and methods. The research methodology is based on descriptive and qualitative analysis appropriate for policy-oriented economic studies. It draws on official macroeconomic and sectoral statistics from the State Statistical Committee of Azerbaijan, reviews national strategic documents and state programmes, and synthesises insights from domestic and international scholarly literature. Comparative illustrative examples from Norway, Saudi Arabia, and the United Arab Emirates provide contextual understanding without constituting formal cross-country modelling. Expert-narrative interpretation is employed to integrate theoretical insights with observed structural dynamics. Research results. The analysis demonstrates that Azerbaijan’s economic structure remains highly concentrated in the hydrocarbon sector, while the non-oil sector – despite showing periods of recovery – continues to exhibit instability and insufficient technological upgrading. Comparative examples reveal that successful diversification in other oil-producing states has depended on long-term institutional reforms, strategic investment in manufacturing and high-technology industries, and the expansion of advanced service sectors. The article identifies core constraints in Azerbaijan: the fragility of industrial capacities (particularly machine-building), limited financial sector support for productive investment, and the incomplete implementation of structural reforms. At the same time, emerging technoparks, improvements in logistics and transit services, and targeted industrial policy initiatives provide a foundation for accelerating diversification. Conclusion. The study concludes that sustainable diversification requires a comprehensive and regionally balanced approach that strengthens the non-oil sectors, enhances innovation capacity, modernises industrial infrastructure, and improves the efficiency of investment allocation. Azerbaijan must refine its development model by integrating universal economic mechanisms with national priorities, avoiding the direct imitation of foreign strategies, and deepening structural reforms. Expanding competitive, export-oriented industries and service sectors is essential for reducing dependence on hydrocarbons and ensuring long-term macroeconomic stability. Further research is needed to develop integrated analytical frameworks and sector-specific roadmaps tailored to Azerbaijan’s institutional and structural context.