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Do oil sanctions reduce Dutch disease phenomenon? A quasi-experimental approach evidence from Iran

Author

Listed:
  • Saleh Ghavidel Doostkouei

    (Islamic Azad University)

  • Mir Hossein Mousavi

    (Alzahra University)

  • Mohammad Sharif Karimi

    (Monash University Malaysia)

Abstract

Economists have hypothesized that currency appreciation resulting from oil production in oil-rich countries can suppress the production of tradable goods, a phenomenon known as Dutch disease, often assessed using econometric models. This study leverages sanctions on Iranian oil exports, employing a quasi-experimental design with two distinct periods (1959–2020): one marked by sanctions (oil revenue recession) and the other by non-sanctions (oil revenue boom). The result shows a reversal of the Dutch disease effect during sanctions, leading to a real depreciation of the national currency and heightened production of tradable goods over non-tradable ones. The observed pattern of the real exchange rate aligns with Dutch disease dynamics, depreciating during sanctions and appreciating during non-sanction periods. Furthermore, the tradable sector exhibited increased share and real output growth compared to the non-tradable sector during the sanction period.

Suggested Citation

  • Saleh Ghavidel Doostkouei & Mir Hossein Mousavi & Mohammad Sharif Karimi, 2024. "Do oil sanctions reduce Dutch disease phenomenon? A quasi-experimental approach evidence from Iran," International Economics and Economic Policy, Springer, vol. 21(2), pages 385-410, May.
    • Handle: RePEc:kap:iecepo:v:21:y:2024:i:2:d:10.1007_s10368-024-00584-1
    DOI: 10.1007/s10368-024-00584-1
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    More about this item

    Keywords

    Sanction; Dutch disease; Oil export; Tradable and non-tradable; Real exchange rate; Iran;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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