The Crowding Out of Government Investment Over Private Investment in Iraq: A Standard Study Using the Model (VECM) for the Period 2004-2021

Saad A. Hammad


The purpose of this research is to investigate the impact of crowding out government investment upon private investment in Iraq during the period 2004-2021. We hypothesize that the investments made by the government crowd out the investments made by the private sector. Econometric methods were used to clarify the crowding-out effect through unit root tests by using the Augmented Dickie-Fuller test (ADF), the Phillips-Peyron (PP) test for time series, and the co-integration test according to Johansen. Vector Error Correction Mechanism (VECM) and model integrity tests were also applied. The independent and dependent variables undergo a long-term equilibrium relationship. It also turns out that there is a long-standing equilibrium causal correlation that goes from the independent variables, government investment (LX1), GDP (LX2), interest rate (X3) to the dependent variable private investment (LY), because the error correction limit parameter adopts the negative mark. It is also significant according to the (t) test (p > 0.05), where there is an inverse significant relationship for government investment (LX1) on private investment (LY) in the long term. This means that there is crowding in-out by the investments made by the government, and an inverse significant relationship to the GDP (LX2) on private investment (LY) in the long term, and an inverse significant relationship to the interest rate (X3) on private investment (LY) in the long term. the model's effectiveness in performing and its resistance to common issues has been confirmed.

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Applied Economics and Finance    ISSN 2332-7294 (Print)   ISSN 2332-7308 (Online)

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