U.S. Military Academy

Reports from Iraq paint a mixed picture of a country taking steps toward self-governance and economic recovery as well as one experiencing waves of violent internecine conflict. In this paper, we analyze weekly price data for approximately 250 goods from eighteen Iraqi cities between 2005 and 2008. Our paper suggests four empirical regularities associated with price dispersion and market development in post-war Iraq. First, the degree of price dispersion across Iraqi regions is higher than that reported between regions within industrialized countries such as the United States or Japan. Second, the degree of price dispersion fell significantly during 2007, coincident with “the surge.” Third, the economic impact of the surge is geographically uneven. Price dispersion decreased by roughly one-third in areas targeted during the surge but remained relatively unchanged in the Shia south and in the eastern regions bordering Iran, where the surge was nearly nonexistent. Finally, we find the effect of internal “borders ” to be relatively modest. Taken together, our results suggest that the shift in U.S. security policy in 2007 did bring higher levels of economic integration to the majority of post-war Iraq