Investigating the effect of economic sanctions on Iran's economy with an emphasis on human capital

Subject Areas : Labor and Demographic Economics

Mohammad Rowshanroo ¹ , Mehrzad Ebrahimi ² , Hashem Zare ³

1 - PhD Candidate, Department of Economics, Faculty of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran. [e-mail]
2 - Associate Professor, Department of Economics, Faculty of Economics and management,Shiraz Branch, Islamic Azad University, Shiraz, Iran
3 - Assistant Professor, Department of Economics, Faculty of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran. [e-mail]

Received: 2023-07-01 Accepted : 2024-04-29 Published : 2024-04-29

Keywords: Economic Sanctions, Human Capital, Economic Growth, New Keynesian Model, Bayesian Estimation. JEL Classification: C11, E32, I25.,

Abstract :

This research investigates the impact of economic sanctions on Iran's economy, particularly focusing on human capital, using a dynamic stochastic general equilibrium model and a new Keynesian approach, from March 2001 to September 2021. The findings indicate that sanctions led to a decline in oil revenues, subsequently reducing public spending on education and hindering human capital development. This decline in human capital has far-reaching consequences, including diminished productivity, reduced investment, and slower economic growth, alongside an inflationary uptick. As inflation erodes real wages, households respond by reducing labor supply, which, in turn, dampens consumption. Given the critical role of human capital in Iran's economic growth, policymakers must safeguard public education spending, particularly during periods of decreased oil revenues. By prioritizing investments in education, the government can mitigate the adverse effects of sanctions and foster long-term economic resilience. In conclusion, the study underscores the importance of maintaining educational investments amidst economic challenges, emphasizing the need for strategic fiscal management to sustain human capital development and drive economic progress.

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