Regional economic policies implemented by the Kurdistan Regional Government (KRG) are an important factor in the economic success of the Kurdistan Region over the last decade. The KRG’s regional economic strategy constitutes a radical departure from the status quo in Iraq, a country that has always emphasized centralized policymaking. On a broad-based level of analysis, the regionalization of economic management is supported by the following factors:

  • 1. The global economy is undergoing two complementary structural changes:
    1. Micro-regionalism, or the decentralization of economic management to regions within countries, where economic policymaking is devolved to sub-state regional governments. The decentralization of economic management to smaller regional economies increases the competitiveness of these markets by enhancing their ability to adjust to rapid changes in the global economy.
    2. Macro-regionalism, or the pooling of national markets partially managed by suprastate entities (e.g. the European Union). Macro-regionalization enables national economies to become more competitive in the global economy by allowing them to access additional markets and affording them greater global market power.

  • 2. Developmental economic policymaking does not occur in a social or political vacuum. When ethno-cultural composition and other local attributes are considered in the establishment of economic micro-regions, a stable base for economic development is created. Ethno-culturally homogenous sub-state regions have both the sense of purpose and the flexibility for competitive engagement in broader regional and global markets. The implementation of micro-regional economic policies explains the economic success of many sub-state entities, including Scotland and Catalonia in Europe or Quebec in North America.
Kurdistan needs the Iraqi market, and Baghdad will benefit from an economically prosperous and politically stable Kurdistan. A misguided fear of Kurdistan’s economic success and its political autonomy is the remnant of a discredited political culture inherited from decades of centralist and militaristic rule in Iraq.

Favorable conditions for the development of a regional economy in the Kurdistan Region gradually emerged after the de facto separation of Kurdistan from the rest of Iraq in 1991. Prior to this, the Kurdistan Region had been locked in a hostile geopolitical environment that aimed more for its destruction than its successful economic development. In the years since the Region achieved autonomous status, though, its unity of purpose and relative ethno-cultural homogeneity have contributed to a developmental trajectory very different from that of other parts of Iraq. The developmental divergence between Kurdistan and the rest of Iraq was initially limited in light of the influence of common economic constraints such as dependency on the oil-for-food program. Nevertheless, divergent policies and a more democratic political context for development in Kurdistan gradually led to the establishment of unique regional economic conditions that would help lay the groundwork for ambitious economic regionalism.

In the wake of the 2003 Iraq War, the KRG was able to link Kurdistan’s market to the global economy by encouraging an influx of foreign investment, promoting the private sector, and paving the way for the marketization of the local economy. The smaller size of the Kurdistan Region’s economy and its relatively cohesive socio-political structure gave KRG decision-makers more flexibility. In the following years, Kurdistan’s oil and construction sectors attracted a substantial amount of global capital to the Region.

The KRG is also aware of its comparative advantage in other areas such as agriculture, water resources, and tourism. However, the development of non-oil sectors requires regionally adjusted policies that address the negative consequence of a dependency on oil income that often defines resource-based economies. Such policies could include channeling oil revenues towards the education and infrastructure sectors, in addition to capital investments in modernization efforts and human capacity development needed to build a productive and competitive labor force.

Closer Economic Ties with Turkey

After 2003, the Kurdistan Region became increasingly integrated with the rest of Iraq. Budgetary interdependence and political re-engagement encouraged the re-integration process. At the same time, the KRG actively consolidated the regionalization of its economy within the limits of the Iraqi constitution. It often faced fierce resistance in doing so from federal authorities in Bagdad who had a strong appetite for centralization, despite the socio-political restructuring that had occurred in post-Saddam Iraq. The Iraqi federal government failed to use the Kurdistan Region’s economic success as a model for the rest of Iraq and was more inclined towards re-centralizing policies designed to contain the KRG’s efforts to assert regional autonomy, particularly in the oil sector.

The global trend towards macro-regionalization required access to wider national and regional markets for the Kurdistan Region. The KRG promoted the Kurdistan Region as a largely independent economy with a distinctive ethno-historical character that was looking for greater recognition outside Iraq. In the meantime, the Iraqi government’s outdated and alienating centralist policies combined with the Kurdistan Region’s increasingly constructive economic ties with Turkey to produce a drift away from Baghdad on the part of Iraqi Kurdistan’s leaders that occurred in parallel with the warming of economic and political relations between the KRG and Ankara. Alongside the continuing marketization of Kurdistan’s economy, these changes produced significantly higher levels of economic growth and a developmental trajectory in the Kurdistan Region that diverged substantially from the rest of Iraq.

Small regional economies like that of the Kurdistan Region are more competitive because of their flexibility in adjusting to the rapid structural economic changes that characterize the modern global economy. Incorporating ethno-religious, cultural, and historical factors into regional economic development plans for the rest of Iraq would form a stable socio-economic base for the micro-regionalization of the Iraqi economy. This, in turn, would contribute to the overall economic development of the country. It would also deliver a platform to pursue local political ambitions and create an environment of healthy economic competition among the regions of Iraq. Furthermore, these policies follow current global economic trends and will pave the way for the healthy and mutually beneficial reintegration of all Iraqi regions in the long run.

Kurdistan needs the Iraqi market, and Baghdad will benefit from an economically prosperous and politically stable Kurdistan. A misguided fear of Kurdistan’s economic success and its political autonomy is the remnant of a discredited political culture inherited from decades of centralist and militaristic rule in Iraq.

The economic and socio-political empowerment of Iraq’s distinctive regions, not a policy of centralization designed for the purpose of domination and control, is the key to a successful and prosperous Iraq. Given the fundamental divisions reflected in the internal and external socio-political forces that are now pulling Iraq apart, any attempts at renewed centralization will be counterproductive.