Estimating the Impact of Corruption on the Currency's Value: A Case Study of Iraq Using the ARDL Model

Abstract

The phenomenon of corruption has very harmful economic effects that weaken the structure of the economy and cause major imbalances in its economic activities, in addition to the lack of equity in the distribution of income, and imbalance and change in demand patterns. Corruption weakens the productive capacity, whether for the public sector or even by weakening the domestic and foreign investment, and thus, the country's dependence upon imports. This weakens the value of its currency. In our current study, the effect of corruption on the value of the Iraqi Dinar is studied by taking the inflation rate as an indicator of the value of the currency. The study relied on quarterly data for an extended time series spanning from 2004–2018. The econometrics study included testing the stability of the time series by applying the Dickey Fuller (ADF), and the Philip Byron PP tests, and subsequently estimating the short-term and long-term relationship by using the Autoregressive Distributed Lag model (ARDL). The results clearly indicate the direct relationship between corruption and inflation, and therefore, its negative impact on the value of the Iraqi Dinar.