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A Computable General Equilibrium Model of International Sanctions

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  • Gharibnavaz, Mohammad Reza
  • Waschik, Robert

Abstract

We detail recent international sanctions against the Iranian economy and its government imposed by a subset of developed countries. The effects of these sanctions on the Iranian economy in general and upon upper- and lower-income rural and urban Iranian households, as well as the Iranian government, are modelled using a Computable General Equilibrium (CGE) model. We begin with the benchmarked equilibrium dataset for Iran extracted from the GTAP8 (2007) database. Since we are interested in the effects of international sanctions on the Iranian government as well as differentiated households in Iran, we supplement the GTAP8 dataset using income and expenditure shares from the Urban and Rural Household Income and Expenditure Survey from the Statistical Center of Iran (SCI). The model is calibrated to simulate the effects of international sanctions as closely as possible. We use endogenous trade taxes to simulate the effects of sanctions on Iranian oil and petrochemical exports and Iranian imports of petroleum products, metal products and motor vehicles. We also use an endogenous tax on oil purchases by the Iranian government to incorporate the stockpiling of Iranian oil by the Iranian government after international sanctions are imposed on Iranian oil exports. Results suggest that international sanctions reduced aggregate Iranian welfare by 6-7 percent. Rural households in Iran suffered welfare losses which were almost double those experienced by urban households, and the poorest urban and rural households experienced the largest welfare losses: almost 5 percent and 9 percent by the lowest-income urban and rural households, respectively. But the Government of Iran sees a welfare loss of 25-30 percent, due to the large negative effect of sanctions on the Iranian oil sector. These welfare losses are exacerbated by the Iranian governments stockpiling of Iranian oil. ...

Suggested Citation

  • Gharibnavaz, Mohammad Reza & Waschik, Robert, 2015. "A Computable General Equilibrium Model of International Sanctions," Conference papers 332633, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332633
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    1. Esfahani, Hadi Salehi & Mohaddes, Kamiar & Pesaran, M. Hashem, 2013. "Oil exports and the Iranian economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 221-237.
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    Cited by:

    1. Ianchovichina,Elena & Devarajan,Shantayanan & Lakatos,Csilla, 2016. "Lifting economic sanctions on Iran : global effects and strategic responses," Policy Research Working Paper Series 7549, The World Bank.
    2. Konstantins Benkovskis & Eduards Goluzins & Olegs Tkacevs, 2016. "CGE model with fiscal sector for Latvia," Working Papers 2016/01, Latvijas Banka.

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    More about this item

    Keywords

    International Relations/Trade; Research Methods/ Statistical Methods;

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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