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Identifying the economic factors that affect economic growth is an important issue for each economy. It is a matter of debate to determine the building blocks of non-oil Gross Domestic Product (GDP) growth, especially in oil-rich countries, such as Azerbaijan. Using the Fully Modified Ordinary Smallest Square approach between 2005 and 2019, this study aims to investigate the relationship between real non-oil GDP growth of Azerbaijan and exchange rate and oil prices. Zivot-Andrews unit root test is applied to deal with structural breaks in data and the Gregory-Hansen (GH) test for robustness. While conventional unit-root tests decision that the series are not stationary at their level, the Ziwot-Andrews test decision that the series is stationary with structural break. According to the GH test result, there is a structural break date in the long-run relationship between the real nonoil GDP growth and the oil price and the USD/AZN exchange rate in early 2009. According to Fully Modified Ordinary Least Squared results, the increase in oil price increases real non-oil GDP growth, and the increase in USD/AZN exchange rate has a decreasing effect on it. This study contains considerable information for future economic policies for oil-rich countries that want to develop the non-oil sector.

HOW OIL PRICE AND EXCHANGE RATE AFFECT NON-OIL GDP OF THE OIL-RICH COUNTRY – AZERBAIJAN?