Analyzing the Effectiveness of Macroeconomic Policies in Addressing Poverty in Iraq: An Econometric Study considering Digital Transformation and Artificial Intelligence for the Period (2004–2024)

Research problem

Despite the adoption of various macroeconomic policies in Iraq since 2004, poverty rates are still high and its roots have not been addressed sustainably, as the rapid decline of poverty indicators appears in the years of oil abundance and returns to rise with any economic or financial crisis.

How effective are the macroeconomic policies adopted in Iraq during the period (2004-2024) in addressing poverty and reducing its effects?

Importance of research

The importance of the research stems from the fact that:

It seeks to analytically and quantitatively evaluate macroeconomic policies in Iraq over two decades, contributes to revealing the extent to which fiscal, monetary, and trade policies have succeeded in reducing poverty rates compared to social protection programs, and provides a knowledge framework for decision-makers to develop more effective policies in distributing resources and strengthening social safety nets.

Research hypotheses

The research seeks to test the following hypotheses:

Research objectives

The research aims to:

Research methodology

The research adopted a blended approach between the deductive and inductive methods to measure and analyze the effectiveness of macroeconomic policies in addressing poverty in Iraq in light of digital transformation and artificial intelligence, and used the quantitative econometric approach through the application of the statistical program (EViews 10) for estimation and for conducting the necessary econometric and statistical tests.

Research limits

Research structure

The research is divided into three main axis, preceded by an introduction. The first axis included the theoretical literature on the effectiveness of macroeconomic policies, poverty, digital transformation and artificial intelligence, while the second axis was concerned with standard modeling to analyze the effectiveness of macroeconomic policies in addressing poverty in Iraq for the period (2004-2024), while the third axis included the most important conclusions and recommendations.

Theoretical literature on the effectiveness of macroeconomic policies, poverty, digital transformation and artificial intelligence

The theoretical literature on the effectiveness of macroeconomic policies constitutes a framework for understanding the ability of government interventions to address economic and social imbalances, highlighting poverty and its indicators as essential tools for measuring the results of these policies and the extent to which they are reflected on improving living standards. This framework is becoming increasingly important in light of technological advancements, as digital transformation and artificial intelligence are modern tools that can be employed to enhance the efficiency of these policies and increase their ability to respond to economic and social challenges.

1-1: The Theoretical Framework for the Effectiveness of Macroeconomic Policies and Their Tools:

Economic policies are defined as a set of measures, procedures, laws and positions set by the government, which reflect its perception and philosophy on how to manage economic resources and embody its various goals in the desired direction internally within the country’s economy. (Aday, 2025: 123), and the most important of these policies are the following:

It is the main economic tool adopted by the state to manage public resources and revenues and direct expenditures in a way that achieves a balance between the goals of economic stability and the requirements of development, as it represents the framework through which it exercises the function of government intervention in economic activity through its tax and spending tools in order to address structural imbalances, stimulate growth and reduce poverty. Their effectiveness lies in their ability to coordinate with other macroeconomic policies such as monetary and trade policies to ensure the efficient distribution of resources and their fair use in serving the strategic objectives of the national economy ( Mawarid & Moussa, 2013: 313).

The focus was on the variable of government spending, as it is one of the most important tools of fiscal policy that affects the standard of living of individuals and thus poverty rates, as increasing government spending on the productive and service sectors is supposed to contribute to providing job opportunities and improving public services, which leads to reducing poverty indicators ( Enyim, 2013: 5).

It is the main economic tool used by the monetary authorities, especially the Central Bank, to manage the money supply, direct interest rates, and regulate liquidity in the economy with the aim of achieving financial and monetary stability, and is based on clear theoretical foundations that define the relationship between money, inflation, economic growth and employment, as it works to control inflation rates, support investment, and promote sustainable growth Its importance lies in its ability to adapt to economic changes and coordinate with fiscal and trade policy to ensure the efficient distribution of resources and achieve the goals of economic development and macro-stability ( Fawaz, 2021: 92).

The broad money supply (M2) and the inflation rate are emphasized as monetary policy tools that affect the level of poverty, as an increase in the broad money supply usually leads to an increase in liquidity in the economy and stimulates economic activity, which may reduce poverty if accompanied by real growth, while an oversupply of money may lead to a rise in prices. The inflation rate directly affects the purchasing power of individuals, as the higher the inflation, the lower the capacity Purchasing which increases poverty rates and weakens the standard of living.

It is the set of procedures and strategies followed by the State to regulate foreign trade, whether through exports or imports, with the aim of achieving economic goals such as increasing growth, supporting productive sectors, protecting local industries, and improving the balance of payments, and its effectiveness reflects its ability to influence the movement of goods, services and capital, regulate competition, and ensure the integration of the national economy with global markets while maintaining macro-stability and achieving sustainable development by achieving a balance between local interests and the requirements of the international economy ( Adaika & Bouzid, 2018: 260).

The average foreign trade per capita variable, which is one of the most important indicators used to measure the extent of the integration of the national economy in international trade, regardless of the restrictions imposed on it, was used, and this index represents the average of the per capita income of the country’s foreign trade, reflecting the relative importance of trade in the national economy. Poverty rates while the decrease in per capita reflects the limited benefit from trade and increases the severity of poverty and is calculated according to the following formula ( Al-Shabibi, 2008: 54):

1-2: The Theoretical Framework of Poverty:

Poverty is one of the most prominent economic and social challenges, as it is not limited to low income, but extends to include multiple dimensions such as education, health, and standard of living, and these dimensions are measured through quantitative and qualitative indicators that reflect the level of economic well-being and the extent of equity in the distribution of resources within society.

First: The concept of poverty: Poverty is defined as a state of inability to meet the basic needs of food, housing, health, and education, ( Ephilip and Martine, 2014: 7), and the poverty rate is not just a lack of income as is sometimes imagined, but it is a broad, multidimensional concept, and economists and researchers usually identify several dimensions of poverty so that its measurement and analysis is more accurate, and the most important dimensions of poverty are the following ( Youssef and Mahmoud, 2025: 6) and ( Ahmed & Ali, 2024: 781):

Second: Types of Poverty: There are many types of poverty according to the angle of view (economic, social, temporal or geographical), the most important of which are the following:

Third: Economic Causes and Effects of Poverty in Iraq: Poverty in Iraq is a complex phenomenon in which political, security, economic and social factors intertwine, making it one of the most prominent obstacles to sustainable development, as dependence on oil, weak economic diversification, administrative corruption and unemployment have contributed to deepening the roots of this problem, and this has negatively reflected on economic growth and productivity and increased the financial and social burdens on the state and members of society.

1-3: Theoretical Framework for Digital Transformation and Artificial Intelligence:

Digital transformation and artificial intelligence are contemporary tools that contribute to supporting the effectiveness of macroeconomic policies and addressing poverty through the introduction of advanced technologies that contribute to improving economic management and enhancing the efficiency of targeting the most vulnerable groups, so digital transformation and artificial intelligence can be addressed and defined as follows:

It is defined as the process of employing modern technologies to develop databases and strengthen economic information systems in a way that contributes to improving the management of public resources, increasing levels of transparency, and expanding access to information, and digital transformation provides accurate and wide-ranging data that supports the efficiency of fiscal, monetary, and trade policies, which enhances the ability of decision-makers to make decisions based on realistic data ( Mustafa and Noureddine, 2023: 53).

Artificial intelligence represents an advanced analytical dimension by relying on big data analysis techniques and predictive algorithms, which provides accurate tools for decision-makers to predict future economic trends, prioritize public spending, enable the design of economic and social programs that are more targeted to the poor, and enhance the ability of macroeconomic policies to achieve their goals of reducing poverty and promoting social justice ( Aldosari, 2020: 146).

1-4: The Theoretical Relationship between Macroeconomic Policy Tools and the Poverty Line according to Economic Logic:

The logic of economic theory assumes that there is a direct relationship between the efficiency of macroeconomic policies and poverty levels, as a stable monetary policy reduces inflation and reduces income erosion, an efficient fiscal policy promotes social justice through redistribution and expansion of social spending, and a balanced trade policy creates a productive and operational environment that contributes to poverty reduction, and in turn, the imbalance or poor coordination of these policies exacerbates economic and social problems and increases poverty rates These relationships can be summarized as follows ( Baloul, 2009: 555):

Standard modeling for the analysis of the effectiveness of macroeconomic policies in addressing poverty in Iraq for the period (2004-2024).

2-1: Characterization of the Standard Model:

The stage of characterization (formulation) of the Standard Model is one of the most important and difficult stages of building the economic model, as it requires the identification of the economic variables used in the Standard Model correctly and accurately by relying on economic theory and previous studies to transform the relationship between independent and dependent variables into mathematical equations and determine the direction and type of the relationship between those variables to build the Standard Model to analyze the effectiveness of macroeconomic policies in addressing poverty in Iraq, and the standard description stage of the used model includes two main steps, which are:

First Step: Determining the Variables of the Standard Model Used: Table 1 shows the time series data used in the standard side, as it includes the independent variables that represent the macroeconomic policy tools, which are four (broad money supply, inflation rate, average foreign trade per capita and government spending), and the dependent variable, which is the absolute poverty line index. It should be noted that the indicators of artificial intelligence and digital transformation for addressing poverty in Iraq are mostly qualitative, and the quantitative ones do not have available time series data for the period (2004–2024), The time series data for these variables can be presented as follows:

Second Step: Specifictiom the Standard Model:

The standard model for analyzing the effectiveness of macroeconomic policy tools in addressing poverty in Iraq can be formulated according to the following important relationship:

Whereas:

Yi: Absolute poverty line, X1: Broad money supply, X2: Inflation rate, X3: Average foreign trade per capita, X4: Government spending.

2-2: Results of the Time Series Stationary Test for the Research Variables according to the Unit Root Test:

In order to make sure that the data of the time series of economic variables are more accurate and to detect the problem of the root of the unit, there are many tests that are used for this, and these tests are the Phelps Peron test, which has been employed in this research as the most accurate and reliable test in detecting the stillness, so the time series of the research variables must Passing this test for the purpose of determining the appropriate model in measuring and estimating the effectiveness of macroeconomic policies in addressing poverty in Iraq and Table 2 shows the results of the test:

It is clear from the results of Table 2 that not all of the research variables are static at the level except for the variables (X2, X4) that were static at the level according to the pp test, and since there are non-static variables at the zero level, the first difference should be taken and it is clear that all the variables have become static At the first difference of the variables’ data, where the calculated values of (t) were greater than their tabular value at the level of significance (1%), which means rejecting the hypothesis of nothingness (H₀:B = 0) and accepting the alternative hypothesis (H₁:B ≠ 0) that confirms that the time series in question are devoid of the root of the unit of stillness, and on this basis, it is preferable The use of the Autoregressive Distributed Lags Model (ARDL) as the research data are static at the level and the first difference, in addition to the number of observations (research sample) is small, and the quarterly data Are (84) observations for the period (2004-2024) were relied on using the standard program equation and adopting the linear formula The ARDL model in estimation to obtain constant linear relationships in which the estimators are interpreted as marginal salopes with respect to independent variables. Which takes the following formula:

Y_t: Dependent variable. X_K: Independent variables. $\mathrm{\Delta }$ : First differences.

C: Constant term. ${\mathrm{u}}_{\mathrm{t}}$ : Random error term. B: Long-run relationship parameters.

$\mathrm{\lambda }:$ Short-run relationship parameters at first differences_.

(P، q₁، q₂ … q_K) Represent the optimal lag periods of the variables. (Y، X₁، X₂ … X_K) Respectively.

Y_t: Absolute poverty line, X₁: Broad money supply, X₂: Inflation rate, X₃: Per capita foreign trade, X₄: Government expenditure.

2-3: Results of Estimating the Effectiveness of Macroeconomic Policies in Addressing Poverty in Iraq for the Period (2004-2024):

2.3.1: Preliminary estimate of the Poverty Model (ARDL):

Table 3 presents the results of the preliminary estimation of the Poverty Model (ARDL), which shows the relationship between the dependent variable (absolute poverty line) and the independent variables (macroeconomic policy tools) under discussion, as it is clear that the determination coefficient (R²) was (0.94) and this value gives explanatory power is high for the studied standard model, i.e., the independent variables (macroeconomic policy tools) explain (94%) of the changes that occur in the dependent variable (absolute poverty line), and the remaining percentage (4%) represents the effect of other variables that were not included in the model, and the value of the test (F) statistic was (90.55) and it indicates The model used is significant in estimating the short- and long-term parameters, and that the optimal rank of the standard model selected according to the (ARDL) methodology is (0, 1, 0, 1, 6) based on the criteria of the optimal deceleration duration tests (HQ, BIC, AIC). The slowdown duration was chosen according to the (AIC) criterion because it represents the least value used for this criterion, and the Figure 1 shows the optimal rank of the (ARDL) model according to the (AIC) standard:

Figure 1. Optimal rank of the (ARDL) model according to the (AIC) standard.

2.3.2: Results of the Bounds Test:

To test the existence of a long-run equilibrium relationship between the independent variables (macroeconomic policy tools) and the dependent variable, using the statistics (F), Table 4 presents the results of the Cointegration test of the poverty model using the ARDL Boundary Test.

It is clear from Table 4 that the calculated value of the (F) statistic (8.492) which is higher than its tabular value at the level of (1%) significance, which means rejecting the null hypothesis (H₀) that there is no long-term equilibrium relationship between the research variables, and accepting the alternative hypothesis (H₁).) that there is a mutual complementarity relationship between the variables during the period under study, i.e. There is a long-term equilibrium relationship that goes from the explanatory variables (macroeconomic policy tools) to the dependent variable (absolute poverty line), which confirms the validity of the research hypothesis, which requires estimating the short- and long-term response and the error correction parameter (CointEq(-1)).

2.3.3: Results of estimation of short- and long-term parameters and error correction parameters (CointEq(-1) for the (ARDL) model):

After performing the bound test and verifying the existence of a long-term equilibrium relationship (co-integration) between the independent variables and the dependent variable, it is necessary to estimate the short-term and long-term parameters, in addition to the error correction parameter. The results in Table 5 indicate that there is a co-integration relationship between the independent variables This is confirmed by the error correction parameter of (-0.168) with a probability value of (prob=0.0001), which means that the error correction parameter achieved the negative and statistical significance conditions, i.e. (0.168) of short-term errors are automatically corrected within the unit of time to achieve equilibrium in the long run, and this result shows that the long-term is more responsive to changes in macroeconomic policy tools, which makes the error correction parameter statistically significant in the interpretation of the poverty model, so that the speed of adjustment (16%) is seen as evidence of the return of the model to equilibrium after any disruption. Poverty, represented by the absolute poverty line, requires about a year to reach its equilibrium value in the long term.

2.3.4: Quality Assessment of the Estimated Standard Model:

First: Evaluating the quality of the model economically:

A: Evaluation of the parameters of the estimated model in the short and long term: It is clear from the results in Table 5 related to measuring the effectiveness of macroeconomic policies in addressing poverty in Iraq for the period (2004-2024) and according to the following (ARDL) model:

B. Measuring the Effectiveness of Macroeconomic Policies in Affecting Poverty in Iraq:

Macroeconomic policymakers focus on estimating long-term parameters to show the effectiveness of explanatory variables in the dependent variable, because these estimates reflect the total effect (direct and indirect) of the change in explanatory variables, whether external or internal, time-delayed in the dependent variable, while the short-term parameters are concerned with measuring the direct effect only, and Table 6 shows the effectiveness of independent variables in influencing the absolute poverty line in Iraq.

Table 6 shows that the highest effectiveness rate in changes in the absolute poverty line in Iraq is due to the broad money supply (monetary policy), as it reached in the short term (1017%) of the total impact, followed by the effectiveness of the average per capita foreign trade, which reached its effectiveness in the poverty rate in the short term (169%) of the total impact, while the effectiveness rate reached 169% of the total impact Both the inflation rate variable and government expenditure in the absolute poverty line in the short term (17%) of the total impact were the lowest effective compared to the other variables. It is inferred from this that monetary policy is the most effective in influencing poverty in Iraq, which confirms the validity of the research hypothesis.

Second: Evaluation of the Statistical Quality of the Estimated (ARDL) Model: Table 7 shows the descriptive statistical indicators that confirm the complete validity of the statistically estimated model, as all the independent variables were significant according to the (t) test in the short and long term, as well as the increase in the value of the corrected determination coefficient which reached ( ${\overline{\mathrm{R}}}^2=0.93$ ) which explains that the estimated model explains (93%) of the changes in the dependent variable (poverty rate), and that the remaining percentage (7%) is a effect of other variables that were not included in the model, and the value of the statistic (F) reached (90.55), which confirms the significance of the estimated model as a whole at a significant level of less than (1%), as well as the decrease in the value of the standard error (S.e) which reached (0.038).

Third: Evaluation of the quality of the model in terms of the standard: After estimating the parameters of the standard model for the short and long term relationship, and for the purpose of confirming the quality of the standard model used in measuring the effectiveness of macroeconomic policies in addressing poverty in Iraq and free from all standard problems, the following diagnostic tests are required:

Figure 2. Test the normal distribution of the residuals of the estimated poverty model in Iraq.

It is clear from Figure 3 that the graph of the above two tests was within the critical limits (upper and lower limits) at the level of significance (5%) and varies around the value of zero, and it is concluded from these two tests that there is stability and consistency in the model’s estimates between the results of the short and long term of the model (ARDL) of the poverty rate in Iraq during the research period.

Figure 3. Testing the structural stability of the ARDL poverty model coefficients in Iraq.

Figure 4. Results of the interpretive ability test of the (ARDL) model for poverty in Iraq.

3.1: Conclusions

3.2: Recommendations