A computable general equilibrium model of international sanctions in Iran

Mohammad Reza Gharibnavaz and Robert Waschik

The World Economy, 2018, vol. 41, issue 1, 287-307

Abstract: We detail recent international sanctions against the Iranian economy and its government imposed by a subset of developed countries. The effects of these sanctions on the Iranian economy in general and upon upper and lower†income rural and urban Iranian households, as well as the Iranian government, are modelled using a computable general equilibrium (CGE) model. We supplement the Global Trade Analysis Project 8 data set using income and expenditure shares from the Urban and Rural Household Income and Expenditure Survey from the Statistical Centre of Iran (SCI). The model is calibrated to simulate the effects of international sanctions as closely as possible. We use endogenous trade taxes to simulate the effects of sanctions on Iranian oil and petrochemical exports and Iranian imports of petroleum products, metal products and motor vehicles. Our study finds that international sanctions reduced aggregate Iranian welfare by 14%–15%. Rural households in Iran suffered welfare losses which were almost double those experienced by urban households, and the poorest urban and rural households experienced the largest welfare losses, in the order of 5%–10%. But the government of Iran sees a decrease in real revenue of 40%–50%, due to the large negative effect of sanctions on the Iranian oil sector.

Date: 2018
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