Public and Private Investment and Economic Development in Iraq (1970-2010)

Abstract

 Abstract—Based on the neoclassical growth model of Solow (1956), this study analyses the macroeconomic determinants of economic growth, examining the effect of public and private investment on economic growth in Iraq from 1970 to 2010.Cointegration and error correction models were applied to the time series data, followed by a Johansen cointegration test of trace and maximum eigenvalue statistics to establish long run equilibrium relationships among the variables in the model. This study also estimated an error correction model (ECM) and the significance of the coefficient on the error correction term confirms the long run relationship between the explanatory variables and economic development. The empirical results suggest that, in the long run, private investment, public investment, growth in the labour force and growth in oil revenues effect real gross domestic product (GDP) positively and statistically significantly; however, price and exchange rate volatility are found to have an adverse impact on real GDP. In light of these results, several policy recommendations are made to conclude.