The impact of international sanctions on income mobility: Evidence from Iran

• Published date: 01 November 2024
• Author: Ali Reza Oryoie
• Date: 01 November 2024
• DOI: http://doi.org/10.1111/rode.13123

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The impact of international sanctions on

income mobility: Evidence from Iran

Ali Reza Oryoie

Faculty of Economics, University of Tehran, Tehran, Iran

Correspondence

Ali Reza Oryoie, Faculty of Economics,

University of Tehran, North Kargar St.,

Tehran 1411734115, Iran.

Email: oryoie1alireza@gmail.com;

oryoie@ut.ac.ir

Abstract

This article studies the impact of international economic

sanctions on income mobility at the Macro level. A series

of economic sanctions were imposed on Iran during

2008–2015 and lifted to some extent in 2015. Using some

pseudo-panel datasets, constructed based on 18 household

surveys during 2001–2018, we investigate the impact of

sanctions on four income mobility measures: directional

income movement, positional movement, time depen-

dence, and mobility as an equalizer of longer-term

incomes. The results show that in the sense of directional

income mobility, the sanctions are followed by welfare

losses for all income groups, with richer groups experienc-

ing larger losses than poorer ones. The rich face income

declines that are larger compared to those experienced by

the poor, and this causes: first, richer (poorer) groups to

face a higher probability of moving downward (upward)

in relative terms, thus we see an increase in positional

income mobility (and also time dependence) with the

sanctions; and second, an increase in mobility in the

sense of equalizer of longer-term incomes. We get the

opposite results with the removal of sanctions.

KEYWORDS

income distribution, income mobility, international

sanctions, Iran

JEL CLASSIFICATION

D31, F51, I31, N35

Received: 8 April 2023 Revised: 7 May 2024 Accepted: 22 May 2024

DOI: 10.1111/rode.13123

Rev Dev Econ. 2024;28:1695–1717. wileyonlinelibrary.com/journal/rode © 2024 John Wiley & Sons Ltd. 1695

1|INTRODUCTION

This study aims to analyze the impact of international economic sanctions on intragenerational

income mobility.

1

We use data from Iran to analyze the impacts of sanctions

2

imposed by the

United Nations Security Council (UNSC), the United States, the EU, and some other countries

between years 2008 and 2015. The UNSC imposed a series of resolutions and sanctions during

2008–2010, the United States imposed some sanctions between 2008 and 2013, and the EU

imposed some other sanctions between 2010 and 2015. The sanctions were very strong, such

that Iran was not even able to import food and medicine appropriately. The toughest sanctions

were imposed during 2010–2012 by the United States and the EU. The sanctions were lifted

3

to

some extent in 2015, when the P5 +1 countries

4

and Iran signed the Joint Comprehensive Plan

of Action (JCPOA). This imposition and removal of sanctions provides a natural experiment to

explore the impact of economic sanctions on different socioeconomic phenomena.

It is theoretically indeterminate whether sanctions cause the income mobility of all income

groups to decrease or not. This is because the beneficiaries and losers of sanctions differ

depending on the sectors of the economy that are sanctioned, the type and intensity of sanc-

tions, the structure of the economy, the geopolitical conditions of the sanctioned country, and

the political and economic power of the beneficiaries and losers among importers, exporters,

producers, and consumer groups. For example, Black and Cooper (1987) explain that the con-

sumers of imported goods may lose from sanctions, while the consumers of exported goods may

gain. The domestic producers of imported goods may gain. The producers of exported goods

may earn less than before or lose, but their loss can be compensated to some extent by operat-

ing in the import industry or by benefits derived from their role as consumers of exported

goods. Another example, Afesorgbor and Mahadevan (2016), found sanctions impact income

distribution unevenly, lowering low-income groups' share while increasing high-income groups'

share. Jeong (2020) also reached similar conclusions. However, Oryoie and Abbasinejad noted a

significant reduction in Iran's top income groups' share post-sanctions. Thus, how sanctions

affect different groups' mobility is an empirical inquiry.

There is a considerable body of literature on the effects of international sanctions on Iran.

Bove et al. (2021) study the impact of sanctions on trade flows in countries that share a border

with the sanctioned country. Shirazi et al. (2016) show that sanctions caused exports to decrease

significantly. Popova and Rasoulinezhad (2016) show that sanctions have shifted Iran's interna-

tional trade from Europe toward Asia. Gharehgozli (2017) shows that Iran's real GDP has been

significantly reduced by sanctions. Laudati and Pesaran (2023) indicate that sanctions lead to a

substantial reduction in oil export revenues and causing a notable depreciation of the Iranian

Rial. This, in turn, is followed by subsequent inflationary increases and declines in output

growth. Farzanegan and Hayo (2019) show that sanctions hurt both the informal and formal

economy, and that the informal economy is affected more than the formal one. Dizaji and

Farzanegan (2021) show that sanctions reduce military spending in Iran. Moghaddasi

Kelishomi and Nistico (2022) show that sanctions lead to a significant decrease in manufactur-

ing employment, especially in labor-intensive industries and industries that are dependent on

imported inputs. Demir and Tabrizy (2022) find that sanctions hurt female employment more

than male employment, especially in capital-intensive and import-intensive industries. For

more information on the impacts of sanctions on the economy and household welfare in Iran,

see Salehi-Isfahani (2020).

The study closest to ours is Ghomi (2022), in which the impact of sanctions imposed by the

EU and the United States between 2012 and 2015 on poverty dynamics in Iran was analyzed.

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