Sanctions and the shadow economy: empirical evidence from Iranian provinces

ABSTRACT

Using Iranian province level data from 2001 to 2013, this study finds that the international sanctions of 2012/2013 had a significantly stronger negative impact on the growth rate of the shadow economy than they did on the official GDP growth rate. Thus, the international sanctions on Iran have damaged the informal economy even more than the formal economy.

KEYWORDS:

• Shadow economy
• sanctions
• Iran

JEL CLASSIFICATION:

• E26
• O11
• O19
• O47
• O53

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For a detailed review of these sanctions, see Farzanegan (2013).

² The price ($ per bbl.) was $111 in 2011/2012 and $109 in 2013 (EIA 2018).

³ A detailed descriptions of the variables can be found in the Appendix.

⁴ However, note that due to the low SEs, these coefficients are statistically significantly different at a 1% level when using a t-test for equal means with unequal variances.

⁵ Note that, by construction, the Hausman test is based on normal SEs.