Analysis of The Relationship Between Financial Markets and Fiscal Policy Variables During The Period (2005-2023)

Abstract

This study explores the dynamic relationship between fiscal policy and the performance of the Iraq Stock Exchange (ISX) during the period (2005-2023), in light of the economic and security challenges facing the country. The need for this research arose from the lack of comprehensive analyses linking fiscal policy instruments (public expenditures,  revenues, public debt) and financial market indicators (the general index, market capitalization, trading volume, and share turnover), especially following the structural changes witnessed by the Iraqi economy. The research problem is the extent to which fiscal policy variables, such as public expenditures, public revenues, and public debt, affect the Iraq  Stock Exchange indicators. Based on this problem, the research aims to analyze the current reality of the financial market in Iraq. To achieve the research objective, the research relied on an integrated methodology that combines descriptive and quantitative analysis. The development of the main financial market indicators was monitored over a period of eighteen years, with the ARDL model applied to measure the equilibrium relationship between the variables. The results revealed a long-term impact of fiscal policy on the market, with clear statistical significance (F=6.2148), as government expenditures and oil revenues directly impacted market value (with a correlation of 0.78). The market also recorded a 34% decline during the crises of 2014-2017. The study recommends adopting a set of development measures, including linking the increase in government expenditures to development projects that support the sectors listed on the market, and issuing government bonds at competitive interest rates (5-7%) to finance infrastructure. It also emphasizes the need to enhance transparency by creating a unified electronic platform for publishing financial data and simplifying the procedures for listing small and medium-sized enterprises.