Dynamic Impact Analysis of Inflation Rates on Real GDP in Iraq for the Period (2004 – 2023)

Abstract

The study aimed to analyze the dynamic impact of inflation rates on the real gross domestic product (RGDP) in Iraq over the period (2004-2023), to understand the short-term and long-term relationship between the two variables. To achieve this, the study adopted a descriptive-deductive methodology and employed econometric analysis to estimate the Autoregressive Distributed Lag (ARDL) model, using annual data for the study variables, which were transformed into natural logarithms to enhance the accuracy of the results and the economic analysis.

The findings revealed a negative impact of inflation rates on real GDP in Iraq in both the short and long terms. A 1% increase in inflation leads to a %-0.055 decrease in real GDP in the short term and a %-0.61 decrease in the long term, reflecting the erosion of purchasing power and weak productive flexibility in the Iraqi economy. Additionally, the Error Correction Term (ECT) indicated that the Iraqi economy requires approximately five years and six months to return to long-term equilibrium following an inflationary shock, due to structural rigidity and ineffective economic policies.

Consequently, the study recommended diversifying the Iraqi economy away from excessive reliance on oil production and export revenues by strengthening non-oil sectors such as agriculture and industry, to mitigate the effects of inflationary fluctuations. It also emphasized the need to direct investments toward these sectors instead of unproductive speculation, thereby contributing to sustainable and stable real economic growth.