The Role of Financial Development in Stimulate Growth Rate: Iraq Economy as a Model (1990-2016)


This study sheds light on the relationship between the financial development and the economic growth in Iraq by using annual time series for the period 1990-2016. Applying the error correction model, it is important to specify the financial and monetary variables (i.e., money supply currency as a ratio of money supply, inflation rate and dummy variable as a proxy of financial crisis with economic growth) in order to provide the essential requirements of planning and resource management in the macroeconomics. The estimated results showed that almost the variables are negatively affected by the internal Iraqi crisis, as well as international crisis 2008. This has been reflected on the economic growth. The results of causality test showed that the direction is from growth to financial development. This agrees with the Demand – leading Hypothesis.