Analyzing the Effects of Sanctions on Iran's Non-Oil Exports Using the Synthetic Control Method

Document Type : Research Paper

Authors

1 Ph. D. student in Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

2 Associate professor, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

3 Associate Professor of Economics, Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

Abstract

Sanctions have had a profound impact on inflation, exchange rates, economic growth, and economic stability in Iran. However, due to the opposing effects of sanctions—increasing the exchange rate on one hand and the impact of exchange rates on exports on the other—it is difficult to make a precise judgment regarding the effects of sanctions on non-oil exports. This study aims to examine the impact of sanctions on Iran’s exports from 2012 to 2019. The method employed in this research is the Synthetic Control Method (SCM). Using this method, the counterfactual trajectory of the target variable (non-oil exports) for Iran, had sanctions not been imposed, is simulated by constructing a weighted combination of similar units (countries). The difference between the simulated values and the actual trend is then attributed to the effect of sanctions. Based on the results, sanctions have increased the ratio of non-oil exports to gross domestic product (GDP) in every year since 2012. The most negligible positive effect of sanctions on exports occurred in 2014, with a 2.5% increase, while the largest impact was in 2018, with a 19.1% increase in exports. Additionally, from 2013 to 2019, sanctions caused an average annual growth in non-oil exports of approximately 14.10%. The placebo test also indicates that these results are statistically significant at the 10% significance level. According to the test results, the probability of any country in the sample achieving an intervention effect similar to that of Iran is 0.055%, which, considering the small sample size, represents a low level of significance below the 10% threshold, thereby allowing confidence in the results at the 90% confidence level. Finally, considering the positive effects of sanctions on the growth of non-oil exports through the exchange rate channel, it is recommended that, if sanctions are lifted, policies aimed at suppressing the exchange rate be avoided. Moreover, if sanctions persist, it is suggested that a greater share of exported goods be composed of products that have fewer substitutes for foreign countries, thereby minimizing the detrimental impact of sanctions.

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References

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