Political constraints on economic diversification in the Kurdistan Region of Iraq

Sarwar Abdullah and Tim Gray

Energy Policy, 2022, vol. 171, issue C

Abstract: In many oil-rich-countries, diversification is often mentioned as a strategy for reducing the ‘curse’ of oil resources. This curse is twofold – economic and political. The economic curse is that over-dependence on oil and gas exports makes a country vulnerable to the fiscal shock of fluctuations in the price of oil and gas on the international markets which undermines the government's ability to deliver welfare programmes without running up large budget deficits by borrowing heavily to hedge against price falls. The political curse is that the oil resource invariably leads to elites monopolizing the resource for their own benefit. Advocates of economic diversification claim it could eliminate both economic and political curses. We test this claim in a case study of the Kurdistan Region of Iraq (KRI) where two political party elites control the region's oil resources, and where steps are being taken to develop the private sector to reduce the KRI's over-dependence on oil. Our finding is that while the elites approve of economic diversification as a means of reducing the region's reliance on oil, they are unwilling to allow the private sector to develop into an independent economic force which could challenge their political power. Accordingly, the political elites have taken charge of the economic diversification programme, but this has undermined its independent development because the two major political parties who share power in the Kurdistan Regional Government (KRG) have vested interests in continued imports of certain foreign products into Kurdistan and reduced imports of other foreign products. So, the parties manipulate the economic diversification policy and thereby undermine its effectiveness, in order to safeguard their own financial interests, and as a result the political curse has largely thwarted attempts to deal with the economic curse.

Keywords: Oil resource; Resource curse; Economic diversification; Political constraints; Political losers; Kurdistan of Iraq (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:171:y:2022:i:c:s0301421522004931

DOI: 10.1016/j.enpol.2022.113274

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