Analysis of the phenomenon of double deficits in the structure of the Iraqi economy

Prepared by the researcher

Dr. Nagham Hamid Abdul Khader Al-Yasiri : Wasit University/ Faculty of Management and Economics- Iraq

Dr. Ruaa Naseer kadhim : Wasit University/ Faculty of Management and Economics- Iraq

Dr. Hayder Rebh Najm : Ministry of Interior / Directorate of Intelligence and Counter-Terrorism in Wasit- Iraq

Democratic Arab Center

Journal of Afro-Asian Studies : Twelfth Issue – February 2022

A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin.

https://democraticac.de/wp-content/uploads/2022/02/Journal-of-Afro-Asian-Studies-Twelfth-Issue-%E2%80%93-February-2022.pdf

Abstract

The study sought to test the hypothesis that there is a causal relationship between the budget deficit and the current balance deficit in the Iraqi economy, and to achieve this, it aimed at analyzing the macroeconomic variables of the period (1990-2018) to identify the effects of the fiscal deficit on the level of economic activity as a result of the large limit of public revenues to the oil sector instead of looking for other sources of revenue, and the slowdown in the investment of fiscal surpluses during the days of the recovery of oil prices to diversify non-oil revenues, The role of the private sector in economic life has been neglected, as well as the decline in the contribution of manufacturing and the services sector to the GDP structure, while the results have found a unilateral impact from the net trade balance towards the budget deficit.

Introduction

           The relationship between the budget deficit and the trade deficit in the countries of the world has captured the attention of many economies and economic decision makers due to the continuing deficit for a long time, which produced a package of economic effects, which in turn has exacerbated the process of economic development and worked to drain fiscal surpluses to pose a threat to fiscal policy in achieving internal and external economic balance, as most of these countries, especially very unilateral, such as Iraq, suffer from the permanent deficit in the public budget due to the widening gap of government spending. At the expense of the low public revenues, which make up oil exports as the main source, as the association of the country’s financial revenues with external variables difficult to control its price behavior, it made the Iraqi economy a loose economy unable to cope with crises, even simple ones.

 In addition to the underdevelopment of infrastructure and its high expenditures, the rigidity of the tax system, as well as an undeveloped banking system, and the inflexibility of the national production apparatus, which has made the economy in a state of double deficit embodied in the trade balance deficit and deepened the deficit gap of the general budget deficit. The concept of the budget deficit is a chronic phenomenon in the overall economies of both developed and developing countries after the introduction of the ideas and proposals of the Kinzi doctrine through the adoption of the government’s policy of intervention in economic life and its positive role, which exacerbated the problem of the budget deficit and widened the negative impact on economic variables, and the means and channels of financing this deficit varied from country to country according to the advantages and economic features enjoyed by the country as well as technical and economic progress,  Most of the time, the method of financing is adopted through the channel of domestic and external public debt, raising the tax rate or selling the government securities to the central bank, making the economy in a state of structural imbalance.

The trade deficit, which is represented by the growing import side at the expense of exports including foreseeable goods and services, and due to the inflexibility of the national production system, which leads to a decrease in the total supply of goods and services in exchange for a surplus total demand for these goods and services domestically, and since government spending represented by operational and investment expenditures in the general budget,  In view of the inflexibility of the national production system, which leads to a decrease in the total supply of goods and services in exchange for a total surplus demand for these goods and services locally, and since government spending represented by operational and investment expenditures in the general budget, where the proportion of operational expenditures is the largest percentage (salaries and wages of employees) spent on imported goods and services as a result of the undersupply and the inability to meet the total demand, which will contribute to keeping pace with the deficit in the general budget and the deficit in the trade balance In that one.

First: The deficit of the general budget

1-Concept

One of the economic phenomena affecting the level of economic activity, whether in developed or developing countries, is the issue of other economic phenomena such as stagnation, inflation and unemployment, as it is necessary to address the multiple views of the concept of budget deficit, some of them know the budget deficit as a phenomenon that reflects the excess of public expenditures from public revenues as a result of the state’s overspending of government spending and the inability of the tax system to respond quickly to this spending during the period of time, whether it is military spending or administratively, socially or servicely, and from another point of view known as increased public revenues and a decrease in some others, i.e. actual revenues are lower than the estimated or expected revenues when the budget is implemented during the fiscal year (Khatib, 2007).

 2- Types of budget deficit

• Regulated deficit

     The phenomenon of organized deficits to address the recession associated with stimulating effective aggregate demand through full operation until maximum production capacity is reached, the government has a set of measures to address the Great Depression, but the expansion of government spending or the reduction of taxes or policies together results in a phenomenon called the theory of the intended deficit (regulator).

  The government also resorted to organized budget deficits when it adopted lower tax collection than government spending, at which point developed countries adopt a successful expansionary fiscal policy, as increased government spending stimulates effective aggregate demand as a result of higher real incomes among individuals and thus a rise in strength. The increase in incomes is more than their tax burden and lower tax collection encourages an increase in overall supply when using better and efficient resources.

     Developing countries, characterized by the inflexibility of the national productive system and the high rate of marginal tendency to consume, will not be able to finance the deficit by issuing government bonds, which have to issue a new cash issue that is growing high (Khalil, 1994) stimulates effective aggregate demand and does not result in an increase in the total supply of goods and services, thus limiting the increase in cash income rather than real to inflation and a decrease in purchasing power.

• Unregulated deficit

There are types of old women under the name of unregulated deficits that are divided into:

1. Current and overall deficits: The rate of difference between total expenditures and government revenues is expressed after government spending was introduced to meet previous government debt, while the overall deficit represents the negative difference between total public expenditures, including interest paid between total public revenues from taxes, customs duties and other revenues (Thomas, 2016).
2. Operational deficit and accumulated deficit: The operational deficit relates to the obligations of government debt and the public sector after the introduction of interest on debt due taking into account the high rate of inflation and the depreciation of the real debt, the government is obliged to pay the difference to creditors as a result of the high prices (Zaki, 1999). The accumulated deficit theory is one of the theories that uses the general budget deficit to reduce the economic deficit during acute crises such as unemployment and recession, where the government spends public spending in the form of salaries, wages, workers and subsidies to absorb unemployment and without public opinion flags to maintain the state’s confidence and financial position, but in the case of emergency crises such as wars, where public spending is financed by issuing banknotes and the government’s trend towards economically unproductive employment such as military production, and to avoid inflation using the system of emergency war. Government price control cards or controls (Qatish, 2013).
3. Structural and cyclical deficits: The structural deficit reflects the inability of public revenues to meet and cover government tunnels permanently and continuously, which is more than the state’s financial outcome, and cannot be addressed by using fiscal policy instruments only because it represents an imbalance in the structure of the national economy, especially in the economies of developing countries, so that the government should take action to reduce the proportion of structural deficits, including (hashish, 1982) :-

(1) Reducing the overuse of government tunnels in accordance with a well-thought-out mechanism consistent with the economic, financial, social and political objectives that the state seeks to achieve, since expenditures vary according to the role and contribution of economic activities and sectors.

(2) The expansion, increase and diversification of public revenues to cover public tunnels that are less returnable and productive than private sector spending due to poor economic planning, guidance, regulation, stagnation and underdevelopment of the tax system, and others point to structural deficits when income is equal to full employment (Musgrev, 2010). As for the periodic deficit: – The concept of periodic deficit applies then exceeds the actual deficit to the deficit of use or full operation. The cyclical deficit is a temporary short-term deficit that is within the economic cycle and is because government expenditures and revenues are linked to (GDP.  2003).

1. Vulnerabilities and power deficits: These old age are new types of budget deficits, the first of which is known as the deficit caused by the weakness of government administration and its inability to generate revenues on the one hand and irrational spending on the other, while the old women of power are known as the deficit resulting from the support provided by the Government in the form of social and economic subsidies, whether for individuals or projects to achieve economic and social goals or work to raise growth rates in their economic sectors(Robert,1974).
2. Nominal deficit and real deficit: The nominal deficit represents the amount of the difference in the digital match in the general budget between public revenues and public expenditures regardless of economic factors, while the real deficit represents the nominal deficit adjusted for inflation (David,2006). The phenomenon of inflation erases debt (accumulated deficits – accumulated surpluses), as debt fades through the phenomenon of inflation and deficit equal to the rate of increase in debt from year to year, and therefore the phenomenon of inflation affects the deficit through the following equation: Real deficit = nominal deficit – (inflation * total debt service)

  Second: – The concept of trade deficit

            The balance of payments is one of the most important tools and indicators used by the state in formulating its foreign economic policy by providing a statistical database of importance to foreign economic policy makers to make an external economic decision, as well as providing information on payments and receipts of the state that contributes to the regulation of monetary policy, as well as showing the degree of international openness to national income within a period of one year, as the balance of payments is an accounting record in which all movements of money between a country with. The rest of the other countries during a certain period of time are mostly one year and the balance of payments is divided into the following (Mohammed, 1999):

1. Current account or trade balance: – It represents the calculation of trade and service account and records all economic exchanges that affect the balance of payments during the same year or period in which they occurred and is divided into: –
2. The balance of trade perspective: – It represents all paragraphs related to the exchange of tangible goods from exports and imports to a country with the outside world and is registered when crossing the border in the customs department.
3. Invisible trade balance: – is the economic processes of services such as navigation, aviation, railways, tourism, travel insurance, and investment returns.

2-Unilateral account of transfers: This account represents one of the sub-accounts of the balance of payments unilaterally transferred free of charge from foreign currency such as grants, donations, transfer of workers abroad, subsidies, which are provided by the state to other countries free of charge where they are fixed in balance accounts Payments upon receipt of foreign currency by the state are in credit either when the state pays foreign currency, which is fixed in the debtor’s custody (Amin, 2008) and for another free of charge where it is fixed in balance accounts.

3- Capital Account: Y=This represents all items related to the creditor and debtor side that reside between residents and non-residents over a certain period of time is not current but previous or subsequent (Sr.2000), and is divided into a long-term capital account (David, 2011) and a short-term capital account.

4. Net international reserves of cash gold and liquid assets: the exchange of gold internationally to settle international payments and not for a consumer purpose to cover the deficit in part or entirely in the balance of payments, results in a balance between creditor and debtor i.e. balance of payments (MIROFI, 2006).

Third: – Types of trade deficit

1-The deficit of the foreseeable trade balance: – It represents the difference between the value of physical commodity exports and the value of the physical commodity imports of a particular country with the countries of the outside world when recorded in the data of the Customs Department within a period of one year.

2-The deficit of the invisible trade balance: – It represents the difference between the value of the creditor and the value of the debtor for the commercial and financial operations of a particular country with the countries of the outside world within a period of one year, which is related to the production process, income and wages such as services, transportation, life insurance, expenses of study missions, commercial commissions.

Fourth: – The causes of the trade deficit

     The trade balance is more important than other sub-accounts within the balance of payments, which include the current account, the capital account and the gold account (Shaqir, 1961) because of its large size and acquisition of all consumer and productivity activities in the national product, as the causes of the trade deficit are divided into the following:

1-Reasons arising from the imbalance in the relationship between the trade balance and national income.

     Exports are the outputs of national product, and imports from national income payments, which indicates an inevitable relationship between the trade balance and national income, and this can be explained by the identical Keynes: –

Y=C+I+X-M (1

     The equation of the national product of goods and services of a particular country is directed to domestic consumption (c), domestic investment (i) and government tunnels (G), these economic variables can be coded by code (B) and called local uses and (x-m) is called the balance of trade balance.

B=C+I+G 2

     After compensation equation (2) in equation (1) we get the following: –

Y-B=X-M 3

     The right side represents the balance of trade balance (x-m) the difference between exports and imports of a particular country and represents the bulk of the current account resulting from the trade deficit when GDP is lower than domestic uses y<B and thus the annual government tunnels on imports increase more than exports (m>x) (2) and vice versa in the case of surplus.

2-Reasons arising from the different relationship between domestic savings and domestic investment

I+(X-M) (1) +GDP=C

      GDP includes private consumption (C), domestic investment (I) and net exports, i.e. balance (X-M), as this GDP of domestic goods and services is used against income (Y) and GDP is directed to consumption (C) and the remaining savings (S)

Y=C+S (2)

     This indicates that domestic investment (I) is equal to domestic savings (S) plus trade balance (X-M) after consumption has been completed or excluded

S-I=X-M ( 3)

That the left side of equation (3) S-I determines the right side X-M, the superiority of domestic investment from the level of domestic savings indicates that the tunnels are higher than the level of GDP and leads to increased imports from exports causing a trade deficit (Serenkel, 2015).

3- Unexpected sudden causes (emergency) there are sudden causes that cannot be expected or predictable cause a trade deficit such as natural disasters, the climate affecting seasonal crops, wars, a change in consumer taste, whether at the local or international level, in demand for goods.

4- Structural reasons: these reasons are the different contribution of multiple sectors and economic activities in varying proportions, as well as the sovereignty of the oil sector and giving it leadership and the decline in the contribution of other sectors as a result of the inflexibility of the commodity production system, high labor wages and the depletion of commodity stocks, misuse of available resources, changing consumer tastes, as well as the increasing import of capital productive goods to provide economic development requirements It is called a trend imbalance, causing a long-term trade deficit as a result of the national economy’s transition from underdevelopment to progress.

Ways to address the trade deficit

• The method of reducing spending: The Government uses a deflationary monetary policy to reduce the trade deficit through the central bank, which in turn uses monetary policy instruments, including raising the rebate rate ((interest rate)) or increasing the ratio of legal monetary reserves in order to reduce the monetary reserves of commercial banks and thus reduce their ability and role in granting bank credit and loans, resulting in lower cash spending, and thus lower income and production, this policy leads to a decrease in the supply of cash and a decrease in the level of the year Prices ((inflation phenomenon)) and thus reduce the ratio of the trade deficit, as well as a restrictive fiscal policy can be used to address the trade deficit by reducing government spending, whether consumer or investment, resulting in lower income due to the impact of Doubling and thus production and operation and declining the level of economic activity and thus reducing the deficit of the (Quraishi , 2000) That the deflationary monetary and fiscal policies can be used to address the trade deficit by reducing the tunnels, and can be used in flexible and fixed exchange rates, fixed exchange rates lead to increased effective fiscal policy, while the flexible exchange rate increases the effectiveness of monetary policy, and the International Monetary Fund stressed developing countries with trade deficits by eliminating subsidies for some goods and reducing government tunnels as well as raising interest rates and floating the currency. The measures taken by the state to address the trade deficit through the use of a deflationary fiscal and monetary policy in order to affect the following:
• Reducing the growing total demand for goods and services.
• Identify the amount of goods and services that must be produced after reducing total demand for reduced imports and increased exports

2- How to direct spending or money

      The second way the government is addressing its trade deficit by directing demand towards GDP instead of imported goods through the adoption of a fixed exchange rate in the devaluation of the national currency, leading to higher exports and lower imports of foreign goods as a result of higher prices, the domestic consumer demand for GDP in turn addresses the trade deficit, depending on the ability of the local economy to channel demand and flexibility (Ghandour,1971) The national production system in the production of goods and services to keep up with the growing demand may not reduce the trade deficit for the following reasons:

A- The degree of flexibility of the country’s demand for exports and imports

  B- The level of full operation in the economy and its capacity, as well as the reduction of export prices of goods with a high degree of flexibility and quality for international goods by reducing production costs, convincing trade unions not to demand higher wages, reducing export duties, and supporting domestic export producers and their ability to switch to external exports from competition, efficiency, quality and quality of output in the context of international openness (Zpoon , 2015).

 3-Use of trade policy tools

     Trade policy instruments include customs duties, quotas, import permits, and trade protection to address the trade deficit, as the only way to quantify when using trade policy instruments is to increase GDP, full employment and reduce unemployment, where supporters of this policy adhere to the argument because of the following justifications (David,2010):

A- The use of a trade protection policy with positive retaliation against the national product through the work of the Keynesian multiplier, the decline in imports, which represents a leaking factor, is a positive retaliation against the output and national income.

B- The adoption of a trade protection policy that limits competition to GDP and encourages local industry and thus expands domestic industry, increasing production, employment, wages and income and reducing the unemployment rate.

The lack of a trade protection policy results in the inability of domestic industry to compete internationally, reducing production, employment, wages, income and high unemployment.      Another economic impact of followers of trade policy instruments is that members of society bear part of the import tax, with commodity prices rising by import tax on the one hand, and on the other hand, higher commodity prices and the intolerance of the domestic product by an import tax that stimulates increased production ( Abu Sharrar, 2010).

Methodology and Data

Research Problem

The growing budget deficit in light of the adoption of the market economy and the increasing level of government spending to stimulate economic activity, but the imbalance of structures (output – foreign trade – the general budget has undermined the course of the development process, which required studying and analysing the impact of the fiscal deficit on the economic balance and its internal and external stability, which required a diagnosis of the effectiveness of the government budget deficit and its economic effects and implications in order to estimate the total size of the relevant financial revenues in targeting the overall economic balance at both levels.  Internal and external.

 2-The importance of study 

     The importance of the study lies in analysing the severity of the causal relationship between the budget deficit and the trade deficit in the Iraqi economy environment within the framework of a number of economic, political and social variables, as well as the distortion of its production structure, as most countries of renty nature suffer from a growing number of structural imbalances due to the close correlation between them and the fluctuations in world oil prices.  The budget is an effective tool that allows the state to achieve a package of political, economic and development objectives by adopting modern scientific methods in planning and management when preparing and implementing the budget, as well as adjusting the instruments of fiscal policy.

 3-The goal of the study

• Statement of the positions of economic intellectual schools in analyzing the relationship between the budget deficit and the trade deficit.
• Analysis of the pattern of the relationship between the budget deficit and the trade deficit under a recent theoretical framework, as well as clarifying the effects of the budget deficit on the level of macroeconomic activity.

4-The study hypothesis

     The study is based on the premise that there is a causal relationship between the budget deficit and the trade balance deficit in light of the increasing financial fragility of the Iraqi economy to the level that limits the ability of the existing financial system and fiscal policy to create and provide appropriate fiscal space by expanding the financing of the general budget.

 Measuring and analysing the phenomenon of double deficits in the Environment of the Iraqi economy 

First: – Unit root test

     In order to measure the relationship between the budget deficit (NBI) and the net trade balance (NTI) in Iraq, two tests were used to determine the stillness of the time series and to know their degree of integration: the self-association function and the expanded Dickie-Fuller test (unit root test).

 1-Self-association function

      The self-link function shows the strength of the link between the same variable views at different time periods of the time series (Younis, 2012), and the self-link function at the gap (k) symbolizes it with the symbol:-

That:-

  – yk= Represents the heterogeneation (common contrast) at the gap (slowing down).

yo  – Represents the contrast.

Each is estimated, according to the following formula (Attia, 2004):

        The value of the self-association factor ranges from (1+and-1) and the time chain is static if the self-link coefficient is zero or swings around it, for any gap greater than zero (k>0), i.e., the values of self-associations waive as the k slow scores increase and concede quickly and are close to zero.

     If time series data are stable, self-association transactions are usually distributed naturally with an average of zero, variation of magnitude and confidence limits for the large sample, such as:

     If the estimated value of the self-association factor falls within these limits, i.e. between the two limits of confidence, :

        In this case, we accept the hypothesis of nothingness because self-association transactions are equal to zero, so the time chain is static, but if the self-association transactions are mostly outside the limits of trust, the time chain is non-static (Muhammad, 2003).

     Instead of testing self-association transactions separately, the Q statistic proposed by Box and Pierce & BOX can be used as follows:

In the case of large samples, the statistics follow the distribution of a degree of freedom and a moral level.

      If the calculated value is greater than the table value, we reject the hypothesis of nothingness that all self-association transactions are equal to zero and the time chain is non-static, and if the calculated value is lower than the table, the string is static, and there is an alternative statistic that gives better results in the case of small   samples called Test Liung-Box (LB) and calculated according to the following formula ( Samir , 2014  (

        The graphs indicate that the variable (budget deficit) is not static at level I (0) through the statistic (Q) which shows the probability score less than (0.05), as well as gradually waiving, for the purpose of addressing non-sleep, the first difference was taken with which the budget deficit variable became inhabited i(1),

Shape )1)

Stability of Iraq’s budget deficit variable for 1990-2018

        Source: – Results of the statistical program.

     As for the change in net trade balance, the results of the self-association function indicate its stability at the level, as in the following form: –

Shape)  2 (

Stability of Iraq’s net trade balance variable for 1990-2018

            Source: – Results of the statistical program.

  2 – Dickie Fuller Extended Test

To test the stability of time series data in Iraq for the budget deficit variables (NBI) and net trade balance (NTI), and after estimating the three models representing a fixed limit, fixed limit, time direction, without fixed limit and time direction at a moral level (1%) and (5%) and by conducting a random error limit stability test at the level and differences, the results described in the following table were reached:

Table  ( 1)

ADF test results at the first level and the first difference of economic variables In Iraq for duration (1990-2018)

            Source: – Results of the statistical program

          Data from the previous table show that the variable budget deficit in Iraq is unstable at the level, as the calculated value of the first model (-2.829568) and (-2.934202) for the second model, while the calculated value of the first model (-2.829568) and (-2.934202) for the second model, while the amount (-2.234028) of the third model, these values are lower than the corresponding scheduling values. As described in the previous table, when taking the first difference of the variable (NBI), the results proved to be devoid of the root of the unit for the three models, with calculated values (-5.366573) (-5.182351) and (-5.482736) respectively, which is Larger than the scheduling values (-3.711457), (-4.356068) and (-2.656915), respectively.

     As for the net balance of trade variable (NTI), the results of the unit root test indicate that it is stable at the level of the three models, with calculated values (-4.160215) of the model (-4.488862) for the second model and (-3.1895) 65) for the third model, these calculated values are greater than their scheduling counterparts (-3.689194), (-4.323979), (-2.305667), respectively, at moral levels (1%) or (5%).

3-Joint integration (self-regression of ardl slow time gaps):

     The joint integration test requires that the entire time series be first-class integrated as a prerequisite (Nasr, 2016) because there are some variables that are integrated at the level and others are integrated at the first teams, presented by Besran and Chen Pesaran & shin general 1999 ARDL (Autoregressive-Distributed Lag) method of joint integration, and then developed this method by Besran and others in 2001, this test features several advantages, the most important of which (- Shrestha, 2005:-

(a) The ARDL model does not require time series to be equally stable, so it can be used whether it is grade 0 I or grade 1, i.e. regardless of sleep.

B- The ARDL model takes a sufficient number of time-slowing periods.

The ARDL model gives the best results that can be relied upon heavily.

C- The error correction model can be obtained from it through simple linear conversion, as the error correction model helps to measure the short-term relationship between the study variables.

D- The ARDL model can be used if the number of views is small.

1. Short-term effects can be separated from the long term, as well as the possibility of determining the complementary relationship between the dependent variable and independent variables in the long and short term in the equation itself, and determining the impact of each of the independent variables in the dependent variable.

  ARDL is used in a number of stages, as the joint integration is tested under the formulation of the UECM unrestricted error correction form, which takes the following formula:

 – The child variable.

    -Independent variable.

 -Long-term relationship transactions.

 -Short-term relationship information:

  Time-slowing periods for variables

 – The random error limit (white jamming) represents it in the middle of zero calculations and constant variation and has no serial self-associations between them.  The model works under the following hypothesis:

The hypothesis of nothingness: – There is no common integration (there is no long-term balance between variables).

Alternative hypothesis: a common integration of variables (a long-term balance between variables), and in order to have a common integration (long-term relationship)  between the dependent variable and the independent variable, the ARDL model must be characterized by two conditions: negative and moral, because if it is moral and positive, there can be no correction of error.

     For the purpose of verifying the existence of common integration within the unfettered error correction model (UECM), Pesaran et Al and others in 2001 introduced a modern approach known as bounds testing approach, and in order to test the existence of a long-term balance between model variables we calculate statistically (F) through Wald testing where the hypothesis of nothingness is tested

There is no common integration between model versus alternative imposition variables that provide for a long-term common integration relationship between the level of model variables.

     Through wald test, we compare the F count with its scheduling values developed by Bessran et Al, at indication levels (1%5%) consisting of two limits, the lower Critical Bound, which assumes that variables are integrated in class, and the second is the Upper Critical Bound, which assumes that variables are integrated in the following cases:

• If the calculated F value is greater than UCB, then the hypothesis of nothingness is rejected and the alternative hypothesis is accepted in the sense of a common integration of variables.
• If the calculated F value is lower than LCB, then we accept the premise of nothingness in the sense that there is no common integration between variables.
• If the calculated F value occurs between the UCB and LCB borders, the result is not determined. Prior to the ARDL integration test after the stability of the time series variable data has been tested(Turgut,2016), the presence of the causal relationship between these variables is tested and their direction determined during the period (1990-2018) as the model assumes that the independent variable is stable at the level and the dependent variable is stable in the first difference, and the results shown from table data (2) and according to Granger) indicate a causal relationship at least one way, and the table that shows these results agencies

Table ( 2)

Granger causal consequences of the relationship between the budget deficit and Iraq’s net trade balance for the period (1990-2018)

        Source: – Results of the statistical program.

The results of the causal test note that there is a causal relationship in one direction from the net trade balance as an independent variable to the general budget deficit as a dependent variable, as the value (F-GRANGER) calculated (4.23587) which is moral at the level (1% and 5%), unlike the relationship in the other direction, which indicated that there is no causal relationship between the two variables, and therefore can be tested joint integration according to the ARDL model.

     We use ardl method in estimating the relationship between the net balance of trade, which was found to be static at the level and the deficit of the trade balance that proved to be still at the first difference, this method is done according to three stages, the first relates to tribal tests such as the test of the root of the unit and the second stage, the estimate of the model to know the morale of the correction factor and its indication, if its signal is negative and moral indicated the existence of a long-term balance relationship between the variables under study, and the third stage is the remote tests and includes Stability test using cusum, and finally LM self-association test.

   Bounds test approach will be used to identify the common integration that represents the long-term balance between net trade balance and balance deficit, and this method is based on the F test, as the “H0” hypothesis of no common integration of the variables of the model versus the alternative hypothesis (H1) is tested, which requires a common integration of the estimated model variables.

Table ( 3)

Bond test of the relationship between iraq’s net trade balance and the budget deficit

        Source: – Results of the statistical program.

The results shown in table 3 indicate that the calculated value of the F test was (7.865877) greater than the higher scheduled limits values of their values according to sample size and degrees of freedom at a moral level (1%5%), which means rejecting the hypothesis of nothingness and accepting the alternative hypothesis, i.e. the existence of common integration between the variables.

The other step is to determine the short- and long-term relationship between the net trade balance and the budget deficit, and the error correction model is estimated, and table data (4) shows the error correction model and short- and long-term flexibilities between the two agency variables: –

Table (4 )

Common integration formula and partial flexibles in the short and long term

        Source: – Results of the statistical program.

The results of the table above indicate that coinEq (-1) was valued at (0.774102),as it is statistically negative and moral, which means a common integration between the net trade balance and the general budget deficit, and deviations Long-term economic growth corrects at a rate (0.77-) between two periods of time, i.e. the pace of adjustment towards the long-term balance is 77%, which is a fairly high ratio between the net trade balance and the budget deficit, and we can infer the results The estimate also has a very weak impact on the net trade balance in the budget deficit for the short term, as the value of flexibility was short-term in the current year (0.013), and was positive, moral and very weak in the previous year at (0.013). 512), meaning that if the net trade balance increases by 100%, the budget deficit will increase by 0.5%, which is very low and does not correspond to the net trade balance in the budget deficit in Iraq, and this conclusion is justified by the fact that Iraq’s budget after 2003 does not depend as much on the net trade balance as on political tensions and the attempt at power The legislature used it as a tool to achieve the greatest support by increasing public spending, especially current spending, through the allocation of central appointments and unjustified expenditures that burdened public expenditures and caused structural imbalances in the general budget, meaning that the general budget is considered without taking into account considerations of the trade balance.

       In the long term, the results indicate a positive and weak impact on the net trade balance in the budget deficit, which means that increasing the net trade balance by 100% leads to an increase in the net general budget by (0.017%) and this is in line with the economic theory that assumes a expletive relationship between the budget deficit and the trade balance deficit.

The other and most important step is the STABILITY test of the ARDL model to know that there are no structural changes in the estimated model, done using the cumulative total of the following pyetal test (CUSUM), and this test shows the extent to which there is a structural change in the data, and to know the stability and harmony of long-term parameters with short-term parameters,

Conclusions

1. The concept of the budget deficit expanded continuously and continuously during the study period as a result of high government spending and low public revenues or limited to one supplier, and to meet domestic demand and due to the inflexibility of the national production system, non-oil countries turned to the import channel, creating a deficit in the trade balance, while the oil countries represented by Iraq that oil exports exceed the volume of domestic demand.
2. The supremacy of inflationary effects when financing the deficit directly from the central bank (new monetary issue) when the economy reaches maximum production capacity and thus leads to deepening the trade deficit.
3. Unjustified departure in harmony and coordination between the instruments of fiscal and monetary policy in Iraq after 2003, which weakened the role of fiscal policy in the face of internal shocks of military spending, financial and administrative corruption, and an inefficient tax system, but the external shocks of the decline in oil prices financed to public revenue, which in turn paved the way for external public borrowing and acceptance of unfair conditions from international economic institutions.
4. There is a common correlation between the economic objectives that economic decision makers try to achieve after drawing up the country’s economic policy to achieve internal stability represented by production, employment, wages and prices, while external stability balances the balance of payments.
5. The dominance of current government spending with a large percentage of total spending in exchange for low investment spending in the Environment of the Iraqi economy.
6. The results showed a unilateral impact of the budget deficit towards the trade deficit in Iraq.

   Recommendations

1. Diversifying sources of intervention and not adopting oil revenues as a major source by diversifying the GDP structure and providing support to the agricultural and manufacturing sector, as well as the services sector.
2. Work to reduce the budget deficit by reducing unnecessary consumer spending.
3. Increasing the amounts allocated for investment in the general budget, especially supporting economic development projects and infrastructure projects crisis to promote the agricultural and industrial sector.
4. Supporting the private sector and giving it the greatest role in the implementation of investment projects through the provision of incentives and loans.
5. Work to increase the revenues of the turkish from the border crossings by controlling them in accordance with the marginal methods of collection
6. The functional structure of the Iraqi government is being bribed by new ministries and independent bodies.

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