Modeling the Determinants of Public Budgeting Effectiveness in Oil-Dependent Economies: Evidence from Iraq Using Dynamic Panel Data
Keywords:
Public Budgeting Effectiveness, Oil Price Volatility, Institutional Capacity, Corruption, Dynamic Panel DataAbstract
This study aimed to model the determinants of public budgeting effectiveness in Iraq as an oil-dependent economy, with particular emphasis on the effects of oil price volatility, corruption levels, institutional capacity, political stability, and capital expenditure allocation. This study employed a quantitative econometric design based on dynamic panel data analysis. The dataset consisted of longitudinal fiscal, institutional, political, and macroeconomic observations related to Iraq’s public budgeting system across multiple fiscal years and expenditure sectors. Public budgeting effectiveness was measured as a composite index reflecting GDP growth, budget deficit behavior, and budget execution rate. Oil price volatility was measured through the standard deviation of oil prices, corruption levels through a transformed corruption perception index, institutional capacity through an institutional quality index, political stability through a political stability index, and capital expenditure allocation as the percentage of total public expenditure assigned to capital spending. Data were analyzed using Pooled Ordinary Least Squares, Fixed Effects, Random Effects, and Generalized Method of Moments estimations. Model selection and validity were assessed through the Breusch–Pagan LM test, Hausman test, Arellano–Bond serial correlation tests, and Hansen and Sargan tests of instrument validity. The inferential results showed that oil price volatility had a negative and statistically significant effect on public budgeting effectiveness, indicating that greater oil market instability weakens fiscal planning and budget execution. Corruption levels also had a negative and significant effect, confirming that corruption reduces budget credibility and expenditure efficiency. Institutional capacity had a positive and highly significant effect and represented the strongest enabling determinant of budgeting effectiveness. Political stability and capital expenditure allocation also had positive and significant effects. The dynamic GMM results showed that the lagged value of public budgeting effectiveness was positive and significant, confirming the persistence and path-dependent nature of budgeting performance in Iraq. The findings indicate that public budgeting effectiveness in Iraq is shaped by both external oil-market instability and domestic institutional-governance conditions. Strengthening institutional capacity, reducing corruption, improving political stability, and prioritizing productive capital expenditure are essential for improving budget performance in oil-dependent economies.
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Copyright (c) 2025 Jecup Raham Mohamed (Author); Ezatollah Abbasian; Islam Fakher (Author)
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