This paper examines the fiscal and economic implications of Iraq’s current demographic trajectory. We find that, given Iraq’s almost total dependence on oil for government revenues, slight changes in the demographic transition rate could result in significant cumulative per capita expenditure changes- equivalent to $2.9bn, or approximately 7% of the current health budget, 9% of the current defence budget, or 17% of current aid flows. Furthermore, evidence from the entire Middle East and North Africa (MENA) region, suggests that Iraq’s relatively slow demographic transition is reducing per capita economic growth, especially as it is combined with a hostile business environment. Specifically, using a panel dataset, we find that the interactive effect of a 1% decrease in the dependency ratio and a 1% decrease in the unit costs of starting and running a business could add, on average, 1.2% to GDP per capita in a typical MENA country. Therefore, investing in Iraq’s demographic transition could potentially yield significant economic returns. This is especially pertinent
if the COVID-19 induced recession results in a significant increase in the budget deficit. As reducing demographic momentum will be equivalent to a per capita increase in resources available for basic services. Evidence from other MENA countries, especially neighbouring Iran, suggests that interventions that support a faster demographic transition, by promoting reproductive rights, are feasible to implement and could, therefore, have quite a profound effect on future economic growth.
About he Author
Alexander Hamilton is an economic adviser for the UK Foreign, Commonwealth and Development Office (FCDO) based in Baghdad, where he leads the FCDO’s economic reform programme in Iraq. He completed his PhD in Political Economy at the University of Oxford and has previously worked for the World Bank. His area of expertise is the economics of fragile states. Specifically, he focuses on the application of political economy tools to better understand and support economic reforms in resource-rich, fragile state contexts
Klick on following link to download the full report as PDF file
Source: London School of Economics, Middle East Centre