The Impact of Banks’ Performance on Economic Growth in Iraq: Dynamic GMM Approach

Abstract

This study explores the long-term relationship between banking sector performance and economic growth in emerging economies, with a specific focus on Iraq. Using a dynamic Generalized Method of Moments (GMM) approach, the research analyzes panel data from 18 private commercial banks in Iraq spanning the period from 2005 to 2023. Key banking indicators including return on equity (ROE), return on assets (ROA), and net interest margin (NIM) are examined in relation to gross domestic product growth (GDPG). The findings show that banking performance, particularly ROA and NIM, significantly contributes to economic growth. In contrast, investment activities and lending capacity exhibit weaker links to economic development, highlighting areas in need of policy reform. The study also emphasizes the influence of external factors such as technological advancement and political stability in shaping economic outcomes. By integrating bank-specific metrics into the analysis, this research provides fresh insights into the role of the banking sector in Iraq’s economic development. It underscores the importance of targeted policy interventions to strengthen financial institutions and calls for broader consideration of contextual factors to support sustainable growth. These insights offer practical guidance for both policymakers and researchers in emerging economies.