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

Mohammad Reza Farzanegan (Philipps-Universität Marburg)

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.

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

Mohammad Reza Farzanegan is a Professor of Economics of the Middle East in the Center for Near and Middle Eastern Studies (CNMS) and School of Business and Economics at Philipps-Universität Marburg since 2012. He graduated from Allameh Tabatabaei University with a B.A. in Theoretical Economics in 1999, and from the University of Tehran with an M.Sc. in Energy Economics and Marketing in 2002. With the support of the   German Academic Exchange Service (DAAD), he earned his PhD in Economics (Dr.rer.pol) from the Technische Universität Dresden in 2009 with summa cum laude. His doctoral dissertation (“Political Economy of Natural Resources and Governance in Iran: An Empirical Investigation") under the supervision of Professor Marcel Thum won the Dr. Feldbausch best dissertation prize in 2009. Following his PhD project, he received the Alexander von Humboldt Foundation's Georg Forster Research Fellowship for Postdoctoral Researchers for his research project at the Leibniz-Zentrum für Europäische Wirtschaftsforschung (ZEW) in Mannheim and at the Technische Universität Dresden.

He specializes in the political economy of developing countries and empirical development economics with reference to the MENA region. He focuses on the natural resource management, corruption and shadow economy, demographic transition and economics of sanctions with particular attention to Iran. He is co-edited a book titled Economic Welfare and Inequality in Iran: Developments since the Revolution with Pooya Alaedini (2016, Palgrave Macmillan). He has published numerous articles in scholarly journals, most recently “Do Sanctions Constrain Military Spending of Iran?,” with S. Dizaji in Defence and Peace Economics (2019), “Oil booms and inequality in Iran,” with T. Krieger in Review of Development Economics (2019); “Cognitive Ability and Corruption: Rule of Law (Still) Matters” in Empirical Economics (2019); “Sanctions and the Shadow Economy: Empirical Evidence from Iranian Provinces” with B. Hayo in Applied Economics Letters (2019); and “How Does the Flow of Remittances Affect the Trade Balance of the Middle East and North Africa?” with S. Hassan in Journal of Economic Policy Reform (2019).

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