Is demography destiny? The economic implications of Iraq's demography

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