THE ROLE OF EXCHANGE RATE FLUCTUATIONS IN INFLUENCING THE IRAQI TRADE BALANCE: AN ANALYTICAL STUDY FOR THE PERIOD (2010–2024)

Abstract

As Iraq’s economy depends on imports and oil revenues; the aim of this research is to study the impact of the exchange rate change on the trade balance of Iraq during the period from 2010 to 2024. The significance of the topic is that the exchange rate affects imports and exports and international trade relations in general especially in rentier economies which don’t have much output diversification. The study found that changes in exchange rates (X) greatly exert a negative effect on the trade balance (Y). A unit increase in exchange rate leads to a (- 0.874567) unit fall in overall trade balance Y. This is true due to the fact that Iraq’s trade balance is largely affected with the exchange rate and the profits from oil. Nevertheless, due to the small contribution of non-oil productive sectors to GDP and the dominance of oil exports in the structure of international trade, this effect remained relatively small. The findings suggest that the depreciation of the Iraqi dinar raised the costs of importations and inflationary effects without resulting in a noticeable increase in non-oil exports. Also, the findings indicated that the fluctuations in global oil prices have affected Iraq’s trade balance more than the fluctuations in exchange rates. As a way to induce economic stability and improve the trade balance, the study suggested the implementation of economic policies that would seek to expand the production base, support the industrial and agricultural sectors, and reduce reliance on imports.