Remembering Iraq's Wars

August and September of every year remind me of Iraq wars.

The Iraqi economy was growing quite nicely in the 1970s. Surely high oil prices helped, but there was a promising development plan in place, industrialization was taking shape, and human capital investments were up. A growing middle – income class began to flourish. Real GDP per working-age person (15-64 year) grew from USD 5000 in 1970s to a nearly USD 12,000 in 1980.[1]

Then 25 years of wars. The first war is the Iraq-Iran war (September 22 1980 to August 20 1988); proven oil reserves were of about 30 billion barrels and a large budget surplus of nearly 40 billion dollars. The second war is the Iraqi invasion of Kuwait in August 2, 1990, which led to the American-led war that saw the destruction of Iraq by February 1991. Nothing survived. Real income per working-age person was as low as USD 2,000 in 1991. Third, the 15-year crippling economic sanctions followed, which I believe had more negative effects than the wars. Half million children died. Iraq was deprived from the basics (e.g., hospitals didn’t have bandages and students didn’t have pencils). People paid the heavy price. Fourth, the American-led ground invasion and occupation of the country began March 20, 2003.

Real income per working-age person USD 4,600 in 2003 is lower than the 1970 level.  

Now imagine that Iraq had continued to develop without the wars and ask what would have been its GDP per working-age person. Figure (1) plots my projection of real GDP per working-age person for the period 1981 to 2002 based on baseline period from 1970 to 1979.[2]

Figure (1)

Everything else remained unchanged, I estimate that real income per working-age person could have increased to be somewhere between a low of USD 12,000 and a high of USD 15,500 in 2002. The projections are affected by the small sample and other measurement and estimation problems and should be taken with a grain of salt. However, it is not unreasonable to imagine Iraq’s real GDP per person around USD 20,000 in 2002 had it continued with its development plans of human capital and accelerated its manufacturing production that began in the 1970s. Who knows what Iraq would have looked like today had it not suffered all that destruction?

Mesopotamia  is very old. Twenty or thirty years of wars is relatively short relative to a long history. The people who built the ‘cradle of civilization’ can, at some point and under certain helpful conditions, rebuild again.   

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[1] I am using real GDP in chained PPP and capital stock from the Penn World table 9.0.

[2] I estimate a VAR, which included real GDP per working-age person (15-64), capital – output ratio, and working-age population. The price of oil is a proxy for Terms of Trade shocks. The model was estimated over the short period 1970 to 1980, then dynamic stochastic projections from 1981 to 2002 were computed. I use bootstrapping and solve the model 10,000 times. The mean of the dynamic stochastic projections is plotted.