Oil Revenue Volatility, Supply Chain Digitization, and Logistic Performance: Impact on Foreign Exchange Reserves in Iraq

Abstract

Academic researchers closely follow oil revenues since it's significantly important in helping central foreign exchange reserves. Since these revenues, which accrue from the exports of crude oil, depend on a variety of factors including international prices of oil and volumes of exports, these revenues are subject to considerable volatility. The economy of Iraq, which has been defined as a rentier economy based on a single source, requires holding sufficient foreign exchange reserves to cushion against internal and external shocks in the economy. Moreover, the factors like logistic performance and supply chain digitalization have also been observed as macroeconomic indicators in determining the trends in the foreign exchange reserves. Considering this idea, the current research examines the nexus between oil revenue volatility, supply chain digitalization, logistic performance and foreign exchange reserves for the region of Iraq during 2007-2023. For this purpose, the study considers the quarterly time series observations during the given period for which the advanced econometric estimations entitled Autoregressive Distributed Lag (ARDL) model has been applied.  The ARDL results show that foreign currency reserves (FER) are mainly affected by past reserves, oil revenue changes, and logistic performance. When reserves were higher before, they tend to be higher now. Oil revenue changes and better logistics also lead to more reserves. On the other hand, past oil revenue changes and logistics do not seem to have any real effect on the foreign exchange reserves of the given economy. Besides, the results indicate that supply chain digitalization only affects reserves after some time, meaning digital improvements help increase reserves in the future. The study also provides some meaningful policy suggestions for the targeted region along with the limitations and future directions.