Dynamic Linkage between Oil Revenue Fluctuations and Real Economic Growth in Iraq (1992–2024): An ECM-Based Analysis
Abstract
This study aims to analyze the dynamic coupling between oil revenues and real economic growth in Iraq over the period 1992–2024, using an Error Correction Model (ECM) derived from the Autoregressive Distributed Lag (ARDL) framework. The bounds test results indicate the existence of cointegration among the variables, confirming a stable long-run equilibrium relationship. The estimates reveal that oil revenues constitute the most influential determinant of real growth, as a 1% increase in oil revenues leads to a 1.19% rise in real economic growth. The ECM coefficient further indicates a strong adjustment mechanism, correcting 51.9% of short-run disequilibria within an adjustment period of nearly two years.
Additionally, the findings show that fiscal deficits exert a negative impact on real growth, with long- and short-run elasticities of –0.02% and –0.03%, respectively. Meanwhile, the effects of the real exchange rate, inflation, and the dummy variable remain limited. The study underscores the rent-dependent structure and high vulnerability of the Iraqi economy to oil shocks, alongside the weakness of its non-oil productive base. It therefore recommends enhancing economic diversification and improving fiscal management.
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