Econometric Analysis of Factors Influencing Export Diversification in the Iraqi Economy

Abstract

This comprehensive study meticulously explores and delves into the critical determinants of Iraq's export diversification over the extended period from 2005 to 2023, with a particular and concentrated focus on a wide range of economic, financial, and political factors. By thoughtfully employing the advanced Autoregressive Distributed Lag (ARDL) Bounds Testing method, the research rigorously examines both the short-term and long-term relationships between export diversification (DIV) and several interconnected variables, including exports of goods and services (EXGS), political stability (POST), oil revenue (OILR), and trade openness (TRADE). The detailed findings clearly and unequivocally highlight that trade openness and political stability emerge as the most significantly influential positive determinants of export diversification, as they collectively create a more conducive and enabling environment for broader market expansion and substantially reduce economic vulnerabilities. Conversely, a higher dependence on exports of goods and services exerts a pronounced negative impact on diversification, likely due to excessive and unsustainable overreliance on limited economic sectors. The F-Bounds test robustly confirms the existence of a stable and enduring long-term relationship, with an F-statistic of 11.72, while the error correction term indicates a substantial 50.95% adjustment rate toward achieving equilibrium. Furthermore, diagnostic tests comprehensively validate the robustness and reliability of the model utilized in this research. These compelling results underscore the urgent and critical need for policies that systematically and effectively promote trade liberalization, enhance and ensure political stability, and prudently manage oil revenues to achieve sustainable economic diversification and reduce Iraq’s overdependence on volatile oil exports.