Impact of Oil Price Fluctuations on Economic Growth, Financial Development, and Exchange Rate in Iraq: Econometric Approach

Abstract

Oil is the main source of energy, which plays a pivotal role in the global economy. Therefore, its price fluctuations have a significant impact on the economy of the countries that trade oil. The objective of this study is to investigate the effects of oil price fluctuations on economic growth, financial development and exchange rate in Iraq. To achieve this objective, IRFs and VDCs, which are estimated from VAR, have been used. This study found that great fluctuations in economic growth, financial development, and exchange rate are due to oil price fluctuations. It is a reflection of oil resource mismanagement besides the rampant corruption in the state administrations additional to allocating most of financial resources to the war efforts when Iraq fought against terrorism. Therefore, it is necessary for the decision makers to adopt a certain strategy based on reducing the dependence of the Iraqi economy on crude oil. Prompting financial sector by developing well-regulated economic policies of economic diversity is needed as well. It could be done institutionally by regulating frameworks to build confidence in the economy and reducing the dominance of the public sector.