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The Effects of International Sanctions on Military Spending of Iran: A Synthetic Control Analysis

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  • Mohammad Reza Farzanegan

Abstract

We use the synthetic control method to estimate the effect of international banking and energy sanctions from 2012 to 2015 on military spending of Iran. We create a synthetic control group that mimics the socioeconomic characteristics of Iran before the international sanctions of 2012. We then compare the military spending of the counterfactual Iran without sanction to the factual Iran with sanction for the period of 2003-2015. Over the entire 2013–2015 period, per capita military spending was reduced by about 119 US$ per year on average, which amounts to approximately 54% of the 2012 baseline level. Our findings are robust to a series of tests, including placebo tests.

Suggested Citation

  • Mohammad Reza Farzanegan, 2019. "The Effects of International Sanctions on Military Spending of Iran: A Synthetic Control Analysis," CESifo Working Paper Series 7937, CESifo.
    • Handle: RePEc:ces:ceswps:_7937
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    References listed on IDEAS

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    1. Farzanegan, Mohammad Reza, 2011. "Oil revenue shocks and government spending behavior in Iran," Energy Economics, Elsevier, vol. 33(6), pages 1055-1069.
    2. Alberto Abadie & Alexis Diamond & Jens Hainmueller, 2015. "Comparative Politics and the Synthetic Control Method," American Journal of Political Science, John Wiley & Sons, vol. 59(2), pages 495-510, February.
    3. Mohammad Reza Farzanegan & Bernd Hayo, 2019. "Sanctions and the shadow economy: empirical evidence from Iranian provinces," Applied Economics Letters, Taylor & Francis Journals, vol. 26(6), pages 501-505, March.
    4. Mohammad Reza Farzanegan & Pooya Alaedini (ed.), 2016. "Economic Welfare and Inequality in Iran," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-95025-6, July.
    5. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    6. Mohammad Reza Farzanegan, 2014. "Military Spending and Economic Growth: The Case of Iran," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 247-269, June.
    7. Kaul, Ashok & Klößner, Stefan & Pfeifer, Gregor & Schieler, Manuel, 2015. "Synthetic Control Methods: Never Use All Pre-Intervention Outcomes Together With Covariates," MPRA Paper 83790, University Library of Munich, Germany.
    8. Gharehgozli, Orkideh, 2017. "An estimation of the economic cost of recent sanctions on Iran using the synthetic control method," Economics Letters, Elsevier, vol. 157(C), pages 141-144.
    9. Sajjad F. Dizaji & Mohammad R. Farzanegan, 2021. "Do Sanctions Constrain Military Spending of Iran?," Defence and Peace Economics, Taylor & Francis Journals, vol. 32(2), pages 125-150, February.
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    Cited by:

    1. Gutmann, Jerg & Neuenkirch, Matthias & Neumeier, Florian, 2023. "The economic effects of international sanctions: An event study," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1214-1231.
    2. Dario Laudati & M. Hashem Pesaran, 2023. "Identifying the effects of sanctions on the Iranian economy using newspaper coverage," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 271-294, April.
    3. Zareei, Afsaneh & Wadensjö, Eskil, 2024. "Sanctions and Their Effects on the Labor Market and the Economy," IZA Discussion Papers 17467, Institute of Labor Economics (IZA).
    4. Safoura Moeeni, 2022. "The Intergenerational Effects of Economic Sanctions," The World Bank Economic Review, World Bank, vol. 36(2), pages 269-304.
    5. Omid Zamani & Mohammad Reza Farzanegan & Jens-Peter Loy & Majid Einian, 2021. "The Impacts of Energy Sanctions on the Black-Market Premium: Evidence from Iran," Economics Bulletin, AccessEcon, vol. 41(2), pages 432-443.

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    Keywords

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    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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