The effect of the financial crisis on macroeconomic variables in Iraq, Iran, and Turkey

Younis Ali Ahmed, Biaban Nwri Rostam, Burhan Ali Mohammed

Abstract

This study investigates the effect of financial crises on macroeconomic variables that include gross domestic product (GDP), export, inflation, and exchange rates, in some developing countries, namely Iraq, Iran, and Turkey, from 1980 to 2017. In doing so, it performed unit root and cointegration tests and employed generalized least square and panel dynamic least squares estimating methods. Findings/Originality: The empirical results show that the financial crises affect GDP, export, inflation, and exchange rates of the countries at different levels. While the Asian financial crisis shows a significant negative effect on GDP in Iran and Iraq, the global financial crisis exhibits a negative influence on export in all countries. Nevertheless, both Asian and global crises positively affect inflation because financial crises reduce expenditure at the family and government levels. Thus, governments worldwide attempt to minimize the inflation rate.

Keywords

Financial Crisis, Macro-economic variables, (ARDL, EGLS and DOLS) Approach, Developing Countries

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Aghighi, Z., Tilehnouei, M. H., & Isfahani, S. T. (2016). The effects of inflation rate and foreign exchange rate changes due to the global financial crisis on the financial performance of banks listed on the tehran stock exchange. Journal of Advanced Research in Accounting and Auditing, 1(4), 1–5. Retrieved from https://www.sid.ir/en/journal/ViewPaper.aspx?id=597779

Ari, A., & Cergibozan, R. (2018). Currency crises in Turkey: An empirical assessment. Research in International Business and Finance, 46(C), 281–293. https://doi.org/10.1016/j.ribaf.2018.04.001

Berkmen, S. P., Gelos, G., Rennhack, R., & Walsh, J. P. (2012). The global financial crisis: Explaining cross-country differences in the output impact. Journal of International Money and Finance, 31, 42–59. https://doi.org/10.1016/j.jimonfin.2011.11.002

Catalbas, N. (2016). The relationship among nominal exchange rate, import and export in Turkey for the period 1988:1 to 2015:3. International Research Journal of Applied Finance, VII(4), 11–25. https://doi.org/10.0704/article-1

Cecchetti, S., Kohler, M., & Upper, C. (2009). Financial crises and economic activity (NBER Working Paper Series No. 15379). Cambridge. https://doi.org/10.3386/w15379

Farzanegan, M. R., & Markwardt, G. (2009). The effects of oil price shocks on the Iranian economy. Energy Economics, 31(1), 134–151. https://doi.org/10.1016/j.eneco.2008.09.003.

Gilchrist, S., Schoenle, R., Sim, J., & Zakrajšek, E. (2017). Inflation dynamics during the financial crisis. American Economic Review, 107(3), 785–823. https://doi.org/10.1257/aer.20150248

Goldstein, M., & Xie, D. (2009). The impact of the financial crisis on emerging Asia (Peterson Institute for International Economics Working Paper No. 09–11). https://doi.org/10.2139/ssrn.1499875

Griffith-Jones, S., & Ocampo, J. A. (2009). The financial crisis and its impact on developing countries (Working Papers No. 53). International Policy Centre for Inclusive Growth. Retrieved from https://ipcig.org/pub/IPCWorkingPaper53.pdf

Hadinejad, M., Mohammad, T., & Shearkhani, S. (2010). 'Examine the sanctions’ efficiency on Iran’s non-oil trade (Gravity Model). New York: Social Science Electronic Publishing, Inc. https://doi.org/10.2139/ssrn.1661723

Kamin, S. B. (1999). The current international financial crisis: How much is new? (Board of Governors of the Federal Reserve System International Finance Working Paper No. 636). https://doi.org/10.2139/ssrn.171714

Katzman, K. (2018). Iran sanctions. Retrieved from https://crsreports.congress.gov/product/pdf/RS/RS20871

Klapper, L., & Love, I. (2011). The impact of the financial crisis on new firm registration. Economics Letters, 113(1), 1–4. https://doi.org/10.1016/j.econlet.2011.05.048

Lee, M. (2005). Asian financial crisis and exchange rate pass-through in Korea. Review of Applied Economics, 01(1), 143484. https://doi.org/10.22004/ag.econ.143484

Li, L., Willett, T. D., & Zhang, N. (2012). The effects of the global financial crisis on China’s financial market and macroeconomy. Economics Research International, 2012, 1–6. https://doi.org/10.1155/2012/961694

Liang, Y. (2012). Global imbalances and financial crisis: Financial globalization as a common cause. Journal of Economic Issues, 46(2), 353–362. https://doi.org/10.2753/JEI0021-3624460210

Mouna, A., & Anis, J. (2017). Stock market, interest rate and exchange rate risk effects on non financial stock returns during the financial crisis. Journal of the Knowledge Economy, 8(3), 898–915. https://doi.org/10.1007/s13132-015-0301-4

OEC. (2019). Iraq (IRQ) exports, imports, and trade partners. Retrieved February 2, 2019, from https://oec.world/en/profile/country/irq/#Exports

Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Storm (Ed.), Econometrics and Economic Theory in the 20th Century: the Ragnar Frisch Centennial Symposium (pp. 1–31). Cambridge: Cambridge University Press. https://doi.org/10.1017/CCOL521633230

Ramli, I. M., Nisa, Z., Khan, H. H. A., & Ramli, S. I. (2011). The impact of foreign direct investment and exchange rate on. Economics and Finance Review, 1(10), 49–54. Retrieved from http://www.businessjournalz.org/efr

Rashid, A., & Saedan, M. B. (2014). Financial crisis and exchange rates in emerging economies: An empirical analysis using PPP-UIP-Framework. Business and Economic Horizons, 9(4), 86–96. https://doi.org/10.15208/beh.2013.24

Reddy, D. V. L. (2012). Impact of inflation and GDP on stock market returns in India. International Journal of Advanced Research in Management and Social Sciences, 1(6), 120–136. Retrieved from http://www.garph.co.uk/IJARMSS/Dec2012/9.pdf

Rose, A. K., & Spiegel, M. M. (2012). Cross-country causes and consequences of the 2008 crisis: Early warning. Japan and the World Economy, 24(1), 1–16. https://doi.org/10.1016/j.japwor.2011.11.001

Seyed, K. T., & Mehdi, Y. (2014). Financial crisis, oil shock and trade in Asia. Journal of Economic Studies, 41(4), 601–614. https://doi.org/10.1108/JES-04-2011-0053

Shula, K. (2017). The impact of GDP, inflation, interest and exchange rates GDP on the stock market in Zambia (Working Paper No. 2). Lusaka. https://doi.org/10.13140/RG.2.2.11457.56160

Victor, O. N., & Kuwornu, J. K. M. (2011). Analyzing the effect of macroeconomic variables on stock market returns: Evidence from Ghana. Journal of Economics and International Finance, 3(11), 605–615. Retrieved from https://academicjournals.org/journal/JEIF/article-full-text-pdf/D41BE5F5772

World Bank. (2019). World Bank Open Data. Retrieved February 5, 2019, from https://data.worldbank.org/

Yurdakul, F. (2014). Factors that trigger financial crises: The case of Turkey. Procedia - Social and Behavioral Sciences, 109, 896–901. https://doi.org/10.1016/j.sbspro.2013.12.561

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