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

Abstract

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.