Early Phase Success and Long Run Failure of Economic Sanctions: With an Application to Iran

Dizaji, Sajjad Faraji; Bergeijk, Peter van

doi:10.2139/ssrn.2073475

Cited by 4 publications

(4 citation statements)

References 20 publications

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“…On the other hand, import transaction costs and then imported goods inflation rises that cause a decline in household imported consumption and investment following Eyler (2007) and Gagnon and Ihrig (2004). A decline in domestic production, nonoil exports and oil production results in decreasing GDP and unemployment with an increasing inflation rate and altogether a condition of stagflation that is consistent with Rahmati et al (2016) and Dizaji and van Bergeijk (2012). CBI's priority is controlling the inflation rate as it causes a decline in monetary base growth.…”

Section: Conclusion and Policy Implicationssupporting

confidence: 70%

“…Farzanegan et al (2016) studied the effects of oil sanctions using computable general equilibrium (CGE) model based on social accounting matrix (Sam) table of Iran in 2001 which showed that oil sanctions brought about a GDP decline and a decline in trade, consumption and CPI and increased the exchange rate. Dizaji and van Bergeijk (2012) studied the effects of oil shock in the US and EU from 1965 to 2008 using vector autoregressive (VAR). The results showed that declining oil revenue changes Iran's political behavior toward democracy and leaves negative effects on the macroeconomic variables such as consumer price index, real exchange rate, real investment and real national product in the short run that disappears because of economic reforms in the long run.…”

Section: Introductionmentioning

confidence: 99%

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How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

Nakhli

Rafat

Dastjerdi

et al. 2020

JES

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PurposeThe purpose of the current paper is to analyze the simultaneous effects of oil sanctions and financial sanctions on Iran's macroeconomic variables in a small open economy in the dynamic stochastic general equilibrium (DSGE) framework.Design/methodology/approachA DSGE model with the new Keynesian approach has been designed for the above mentioned purpose giving consideration to households, production, trade, oil, government and central bank sectors. All of the parameters were calibrated by using geometric means of macroeconomic variables in 2004–2017 as the steady-state values of the variables in the static model.FindingsAmplifying the intensity of the oil sanctions reduces oil production due to decreasing investment, technology and export of oil and reduces the central bank's foreign reserves ratio to the money base that leads to an increasing exchange rate. Furthermore, oil sanctions decrease the government revenues due to a decrease in oil export and by the government imposing an expansionary fiscal policy in the form of increasing current expenditure and preserving construction expenditure to prevent deepening the recession, which causes budget deficit and then the issue of more bonds with a higher nominal interest rate. On the other hand, financial sanctions raise transaction costs and marginal costs in the trade sectors that lead to inflation and a decrease in nonoil export and various kinds of imports. Due to inflation and uncertainty, consumption of a household increases and investment expenditure of a household decreases.Originality/valueTo the best of the author's knowledge, few studies in the world have analyzed the economic effect of the sanctions in the framework of DSGE models. There is no study in Iran to date which investigates the effects of the sanctions in the form of a DSGE model. So, this paper is the first study in Iran and one of the few studies in the world using a DSGE model for analyzing the effects of sanctions. Imposing three kinds of oil sanctions in addition to a financial sanction is another innovation of the current paper.

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Section: Conclusion and Policy Implicationssupporting

confidence: 70%

Section: Introductionmentioning

confidence: 99%

How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

Nakhli

Rafat

Dastjerdi

et al. 2020

JES

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“…Therefore we also 5 Data on real oil and gas rents and defence expenditures are the limiting factors. Note that Dizaji & van Bergeijk (2012) …”

Section: Choice and Sequence Of Variablesmentioning

confidence: 99%

Potential early phase success and ultimate failure of economic sanctions

Dizaji

Bergeijk

2013

Journal of Peace Research

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116

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In order to explain why successes of economic sanctions predominantly occur in the first two years of a sanction episode, we analyse the dynamic economic and political impact of an economic sanction. Our theoretical analysis of the dynamics of adjustment gives us two important results: firstly, the strongest impact in terms of utility forgone occurs in the initial phase of the sanction episode and, secondly, the long-term gain of compliance decreases during a sanction episode and is lower in the long run than acknowledged by the usual comparative static analysis. On both accounts we expect that sanctions have a higher probability of success in the early phase and a lower probability of success in the long run. Next we build a comprehensive set of vector autoregressive (VAR) models that we apply to the case of a boycott of Iranian oil. An important innovation is that we include both economic and political factors in a VAR model of economic sanctions. Our VAR models find significant impacts of economic sanctions both on key economic variables (government consumption, imports, investment, income) and on two indicators of the political system (the Polity variable that describes shifts in the autocracy-democracy dimension and the Vanhanen Index of Democratization that describes political competition and participation). The impact of an oil boycott on the Iranian economy is considerable: oil and gas rents are important drivers of the Iranian key macroeconomic variables and ultimately of its political system. A reduction of oil and gas rents creates economic costs that act as incentives to move towards a more democratic setting. However, this effect is only significant in the first two years and turns negative after six to seven years, as adjustment of economic structures mitigates the economic and political impact of the sanctions.

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“…Sajjad Faraji Dizaji and Peter A.G. van Bergeijk conducted a study of changes in the impact of sanctions over time and came to the conclusion that for the imposed sanctions only the first few years are critical, and in the fourth or fifth year the country's economy is already adjusting to the sanctions and continues further development [8].…”

Section: Financial Sanctions and Investment Attractiveness Of Thementioning

confidence: 99%

The Impact of Anti-Russian Sanctions on the Regional Investment Climate of Russia

Kosobutskaya¹,

Ravohanginirina²,

Amosova³

2019

Proceedings of the 2nd International Conference on Economy, Management and Entrepreneurship (ICOEME 2019)

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The article discusses the impact of "sectoral" financial sanctions imposed against the Russian Federation on the investment climate of the country and its regions (using the example of the Voronezh region), as well as on foreign direct investment (FDI). Despite the fact that simultaneously with the restrictions imposed on the economy of Russia and its regions, a number of other factors influence their importance for investment activities can be determined reliably. It is concluded that the negative impact of sanctions on the Russian investment climate was in short-term. Using the example of the Voronezh region, the influence of specific features of the region and the investment policy used to attract foreign investors is shown.

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Early Phase Success and Long Run Failure of Economic Sanctions: With an Application to Iran

Cited by 4 publications

References 20 publications

How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

How do the financial and oil sanctions affect the Iran's economy: a DSGE framework

Potential early phase success and ultimate failure of economic sanctions

The Impact of Anti-Russian Sanctions on the Regional Investment Climate of Russia

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