The Impact of Trade sanctions on the Iranian Economy

Abstract

This study investigates the effect of economic sanctions on Iran’s macroeconomy. To achieve particular objectives, the US and UN often choose sanctions over war and most politicians believe that these two options have the same level of effectiveness. Moreover, sanctions are used more and more to put pressure on the target country and force the country to meet the particular objectives. However, the literature and history has demonstrated that the effectiveness of sanctions tends not to be high. This study determines the effectiveness of the sanctions imposed on Iran and investigates the effects of sanctions on important macroeconomic variables during a specific time period. The variables included are the main variables in the macroeconomy, in particular, oil exports are included due to the fact that its is an important aspect of Iran’s economy as it is a large oil exporting country and also the main target for the sanctions. Because of the importance of the oil sector, the sanctions imposed on Iran have focused more and more on Iran’s oil exports. Sanctions on Iran were started by the US unilaterally and later accompanied by the UN and the EU and became multilateral. In this study `I have presented a brief history of the Iranian economy and how the Central Bank of Iran operates. In the three empirically based chapters, different approaches are used to analyses the effect of sanctions on the economy. First the vector autoregressive approach is used with impulse response functions and variance decompositions and the findings shows that shocks to oil exports have more effect on the exchange rate than the other variables and the budget deficit and imports are less likely to be affected. Next a two regime Markov switching model is used to determine the reaction of the variables in two states of sanctions and where there are no sanctions. Thirdly I have investigated the exchange rate misalignment in Iran and determined the existence of the deviation. In general, the findings show that the main macroeconomic variables that have been affected the most are the exchange rate and also inflation. But GDP and oil exports are affected less in comparison with the exchange rate.

Date of Award	23 Aug 2021
Original language	English
Awarding Institution	University of Bath
Supervisor	Bruce Morley (Supervisor) & Christopher Martin (Supervisor)