Measuring and Analyzing the Relationship between the Tariff Barrier and the Foreign Exchange Reserves of the Central Bank of Iraq (2004-2024)

Abstract

This research investigates the relationship between the tariff barrier and the foreign exchange reserves of the Central Bank of Iraq over the period 2004–2024. The primary objective is to analyze how changes in Iraq’s tariff policies—specifically the imposition and collection of customs duties—impact the accumulation and management of foreign exchange reserves. The study is motivated by the hypothesis that the weakness of Iraq’s tariff barrier adversely affects the status of central bank reserves, especially given the country’s heavy reliance on oil exports and the prevalence of customs evasion through informal border crossings.The methodology employs an econometric approach, utilizing the Nonlinear Autoregressive Distributed Lag (NARDL) model to assess both short- and long-run relationships between the tariff barrier and foreign exchange reserves. Unit root and cointegration tests confirm the suitability of the NARDL model, which is shown to explain approximately 77.3% of the variation in reserves, with the remainder attributed to factors such as customs evasion and external economic shocks.

Key findings indicate that while a higher tariff barrier can increase government revenues and support foreign exchange reserves, its effectiveness is limited by the dominance of oil prices and persistent smuggling. The tariff barrier ratio remains weak relative to import volumes, and despite occasional increases in customs revenues (notably during crises), the main driver of reserve fluctuations is oil revenue. The econometric results confirm a positive long-run relationship between the tariff barrier and foreign exchange reserves, but also highlight the need for improved customs administration, reduced evasion, and economic diversification.