The relationship between government expenditure and GDP in non-oil Iraqi economy

Journal: 
Journal of the Arab American University, Volume 4, Issue 2, 2018
Pages: 
46-71
Abstract: 

In this paper, the relationship between government ependiture and Gross Domestic Product (GDP) in non-oil Iraqi economy has been examined. This study analyzed the evolution of the government expenditure (consumption and investment) in the Iraqi economy for the period of (1990-2014).It is assumed that non-oil GDP is the indicator that reflects the performance of macroeconomic activity and any decline in GDP is attributed to the increase in the consumer behavior in the government expenditure policy , the proportion of the consumer expenditure,which is financed by oil revenues, and the transformation of state institutions into social security institutions at the expense of investment expenditure. This, in turn, will be clearly reflected in the exacerbating problem of the structural imbalance with the trends of government expenditure, which is not conducive to the development of the production sector. Consequently, the economy will not be able to fulfill the total demand. This study analyzed the development of the government expenditure (consumption and investment) in the Iraqi economy for the period of (1990-2014). In addition, the failure or success of the government expenditure policy in the promotion of GDP was invistigated. The Autoregressive Distributed Lag (ARDL) model was used to measure the effect of the government consumption and investment expenditure on non-oil GDP. As a result, it was found out that there is a significant relationship between consumption expenditure and non-oil GDP in the long and short runs. However, there was no positive effect of investment expenditure on the output of Non-oil GDP in the short run. Additionally, the research has come up with a range of conclusions, including that investment had a weak impact on the growth and stimulation of non-oil production sectors in the period before 2003 and the subsequent period. The research recommended that government expenditure should lead to activities that increase the productivity of the economy.

Keywords: 

government consumption expenditure, government investment expenditure, non-oil GDP, ARDL model, non-oil revenue.