Conflict, Institutions and The Iraqi Economy, 2003- 2018

This study analyses the causes of the Iraqi economy’s difficulties in rebuilding, provision of basic services and generally declining performance over the last decades. In contrast to accounts that lay stress on Iraq’s statist past, we argue that the sustained decline in formal institutions and human capabilities is the best explanation for Iraq’s economic decline. That is, weakened political institutions and restricted political space in the 1970s and 1980s along with protracted economic sanctions in the 1990s facilitated conflict and damaged Iraq’s developmental institutions and structures. Moreover, the US, when it occupied Iraq in 2003, relegated many of the existing, if deficient and imperfect, institutions and promoted policies that worked against the established political economy, aggravating conflict and instability. Consequently, broken institutions have remained unrepaired, while new institutions that the US created, with the help of new Iraqi elites, often proved fragile. In addition to select microeconomic interventions, we recommend policies that more dependably and equitably distribute oil rents, such as a universal basic income. Our recommendations thus contrast sharply with approaches that emphasize a reduced role for the state. The aim is to facilitate development of institutions and human capabilities under conditions of lowered conflict and greater stability, a binding constraint on development