Abstract

This paper investigates the relationship and the direction of causality between economic growth and financial development in the long and short runs in the Iraq over the period,1970-2013. Ratio of narrow money to GDP, ratio of broad money to GDP, the ratio of to GDP, the ratio of Quasi money to GDP, the ratio of total deposit to GDP, and the ratio of private sector credit to GDP used as a proxy of financial development, while the real per capita GDP used as a proxy of the economic growth. Co-integreation test indicates that there is no-long run between economic growth and financial development, whereas the Granger causality test based on Unrestricted Vector autoregressive (VAR) indicates that there is a bi-directional causality between , and economic growth, whereas, there is no relationship between economic growth and other indicators of financial development in the short run. Iraq is heavily dependent on the oil export, government policy must be directed to diversifying the economy through expansion to other sectors (e.g., agriculture, industry and tourism), which will engender the growth of the development sector, which will in turn boost economic growth.