The Impact of Oil Financial Dominance on the Optimal Size of Foreign Reserves in Iraq for 2004-2023: A Vision to Economic Digitization

This study measures and analyzes the effects of oil financial dominance on the optimal size of foreign reserves for the period 2004–2023. The econometric results were estimated and analyzed using the autoregressive distributed lag (ARDL) model to assess both long- and short-term equilibrium and causal relationships. The key finding is the existence of a long-term equilibrium relationship moving from the explanatory variable—oil exports to total exports ratio and oil revenues to total revenues ratio—toward the dependent variable, which is the foreign reserves to GDP ratio. This relationship is confirmed by the error correction parameter, which was negative and less than one (–0.009777), indicating a rapid correction of disequilibrium and a return to balance within 0.0097 of the time, consistent with the study’s hypothesis. Additionally, diagnostic tests confirmed that the model is free from econometric issues and that all study variables stabilized at the first difference, as they were not stationary at their original levels, indicating first-order integration. The study also explores future prospects based on digital economy mechanisms, emphasizing their role in data analysis, forecasting, and providing policymakers with clear insights to design fiscal and monetary policies that diversify income sources and promote economic growth and stability.