An Empirical Analysis of the Economic Effects of Sanctions: A Case Study of Iran and Russia

Abstract: Sanctions, as a foreign policy tool, are increasing in popularity and frequency. This study empirically assesses how different types of sanctions imposed by the European Union, United Nations, and the United States affect the sanctioned states’ GDP growth and degree of openness. Moreover, this study aims to address whether the economic costs of sanctions have undergone any notable changes in the context of contemporary geopolitical dynamics. The sample includes a total of 115 sanctioned countries over the period 1970-2021. I find that weakly significant results that suggest that arms and financial sanctions negatively affect GDP growth for the time period 1970-2000. No significant negative effect for any type of sanctions was found for the time period 2000-2021. Furthermore, this study delves into an in-depth analysis of the effect of sanctions in the contexts of Iran and Russia, two of the most heavily sanctioned countries at the present time. By applying the synthetic control method, I show that the sanctions imposed on Iran in 2011 led to a significant reduction in the country’s real GDP by more than 15 percent between 2012 and 2013. In contrast, the sanctions imposed against Russia in 2014 do not display to have any significant effect on its real GDP.