Mohammad Reza Farzanegan

Effects of International Financial and Energy Sanctions on Iran's Informal Economy

This paper discusses the extent to which sanctions and the informal economy affect the political economy of Iran, and highlights some important transmission channels by which these sanctions affect the Iranian informal economy. The effects of the recent sanctions on Irans informal economy have been transmitted mainly through the foreign exchange market. This article concludes that despite economic reforms under the Mohammad Khatami government, financial pressures and the foreign exchange market could contribute to an increase in the size of Irans informal economy in the future. Though the financial and energy sanctions influence Irans fiscal policies and negatively impact economic growth, a moderately sized informal economy could improve political stability to the country by reducing income inequality.

Smuggling around the World: Evidence from a Structural Equation Model

This article uses a Multiple Indicators Multiple Causes (MIMIC) model to analyse the determinants of smuggling. The analysis reveals that higher corruption and a lower rule of law encourage smuggling. Tariffs and trade restrictions are important push factors, while a higher Black Market Premium (BMP) discourages smugglers. Based on the MIMIC estimates, we calculate an index of smuggling which provides a ranking for 54 countries. We find that smuggling is rampant in Cameroon, Pakistan and Kenya while it is least prevalent in Switzerland, Finland and Sweden.

Resource Curse and Power Balance: Evidence from Iran

Abstract Empirical research shows that natural resources have a detrimental effect on economic growth, a phenomenon known as the “resource curse”. Competition between influence groups for access to the resource rents, that is, rent-seeking, is often blamed for this curse. In this article, we dig deeper into the link between political competition and the resource curse by studying the case of Iran from 1960 to 2007. We present a theoretical model demonstrating how the effect of rents on the economy depends on the balance of political power. The model shows that an increase in rents may lead to a sharp reduction in income when the distribution of power between influence groups is relatively balanced. The empirical evidence confirms the predictions of the model.

Can oil-rich countries encourage entrepreneurship?

This study provides the first empirical investigation to test one of transmission channels of resource curse, i.e. marginalized entrepreneurship activities. Our panel data analysis of 65 countries from 2004 to 2011 shows a negative and statistically significant association between oil rents dependency and entrepreneurship indicator. This finding is robust to control of other major drivers of entrepreneurship, unobservable country- and time-fixed effects and a different measurement of oil rents dependency. In addition, our main results show that government effectiveness among other dimensions of good governance has a statistically significant moderating effect in entrepreneurship–oil rents nexus.

Resource rents, balance of power, and political stability

We study the association between natural resource rents and internal political stability, highlighting the importance of the distribution of political power as a mediating factor. We present a simple theoretical model demonstrating that increased rents are likely to be positively associated with the internal stability of a powerful incumbent while destabilizing a less powerful incumbent. Our empirical analysis confirms this prediction. Employing panel data for more than 120 countries from the period 1984–2009, our estimation results demonstrate that resource rents can promote political stability but only when political power is sufficiently concentrated. Indeed, if the incumbent is sufficiently weak, rents fuel instability. Our main results hold when we control for the effects of income, quality of institutions (rule of law, democratic accountability and corruption), persistence of political stability, time-varying common shocks, country fixed effects, possible endogeneity of rents and power balance to political stability, and various additional covariates. Our analysis departs from the existing literature by emphasizing not (only) the type of government, but rather the strength of government, as a key determinant of the impact of resource rents on political stability. This analysis sheds light on current political transformations and reconfigurations in the resource rich Middle East and North Africa.

Political Institutions and Government Spending Behavior: Theory and Evidence from Iran

This study examines how quality of political institutions affects the distribution of government budget in Iran. We first introduce a mechanism through which this can shift government expenditure from patronage to more constructive public spending. Using impulse response functions (IRF) and variance decomposition analysis (VDC) on the basis of Vector Autoregressive (VAR) model, our results imply that a positive shock towards more democratic institutions leads to negative and statistically significant response of military spending and positive and statistically significant response of education expenditures. Our results are robust to different political institutional quality indicators, ordering of variables in the VAR and different specifications of government spending categories.

Does real estate transparency matter for foreign real estate investments

The purpose of this paper is to examine the impact of real estate transparency ( RET ) on foreign real estate investments ( FREI ). Most of the previous studies have argued that the free flow of information and the fair and consistent application of local property laws could attract greater amounts of FREI . Using observations from 32 countries covering 2004, 2006, 2008 and 2010 and applying fixed-effect and the generalized method of moments ( GMM ) techniques, our empirical results reveal that RET is not a major determinant of FREI . However, we find that the effect of RET on FREI is dependent on its interaction with the level of income implying that the higher the level of income in the host country, the higher the effect of RET on FREI . Finally, the results show that foreign direct investment (FDI) in other sector, market size and property prices are important determinants of FREI .

Effects of Oil Sanctions on Iran’s Economy and Household Welfare: New Evidence from A CGE Model

This chapter1 treats the economic and welfare consequences of Western-backed oil-export sanctions2 against Iran. Oil sanctions were imposed on post-revolutionary Iran with the supposed goal of changing its government’s political behavior. We aim to answer the following questions: (a) What were the likely effects of oil sanctions on the Iranian macroeconomic variables? (b) What were the likely effects of oil sanctions on Iran’s household welfare?

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.

Does terrorism reduce life satisfaction

ABSTRACT We study the effect of terrorism on life satisfaction for a sample of 81 countries over the 1994–2009 period. We find that terrorism is robustly associated with less life satisfaction. This effect, however, translates into only modest social costs.