The role of marginal propensity to consume in economic growth in Iraq for the period 2005-2020

Abstract

 This research is limited to examining the role of the marginal propensity to consume (MPC) in economic growth in Iraq during the period 2005–2020, due to its great importance for economic policy. The MPC reflects several key indicators, as it influences the investment multiplier and, consequently, economic growth and employment.

To achieve the research objectives, a scientific methodology was employed, based on extrapolating economic realities and analyzing statistical data through mathematical methods within a fifteen-year time series. The study aimed to identify the nature of changes in this important factor—consumer spending—by analyzing its components: household consumption expenditure and government consumption expenditure, and by deriving the marginal propensity to consume for each component.

From a theoretical perspective, the value of the MPC ranges between zero and one. The closer its value is to one, the greater the increase in national income. Conversely, if its value is close to zero, national income rises only by the amount of change in investment multiplied by the investment multiplier, the value of which depends directly on the marginal propensity to consume.

The findings indicate that the MPC in Iraq was generally low, both for final consumption expenditure and for its components—household and government consumption. This low level negatively affected the value of the investment multiplier, and consequently, economic growth. Although gross domestic product (GDP) and disposable income achieved high growth rates, their impact was not reflected proportionally in the value of the marginal propensity to consume.

These results point to a disparity in income distribution in Iraq and highlight the ineffectiveness of fiscal policy in using the general budget as a tool to guide government consumption spending toward achieving the objectives of the Iraqi macroeconomy. This, in turn, led to a decrease in the MPC, suggesting the need for further independent studies to investigate these factors. It also reflects the inefficiency of resource allocation policies in directing aggregate demand to achieve sustainable economic growth