Abstract
This paper examines the effect of trade sanctions on employment through their impact on total factor productivity by using Iranian industrial manufacturing data covering 7 years before and 7 years after the sanction. The first part of this study shows that the trade sanctions significantly reduced all industries’ total factor productivity both directly by reducing industries’ technology expenditure and indirectly by shrinking the magnitude of the effect of technology expenditure on total factor productivity. The second part of this study displays that there was remarkable job destruction, most notably in domestically active industries, during the sanctions years. Interestingly, the results from estimating a dynamic labor demand function depict that the job destruction during the sanction period can not be associated with the negative impact of trade sanctions on industries’ total factor productivity. In contrast, the results show that each 1% reduction in industries’ total factor productivity, which was indeed about 3.8% on average during the sanctions years, increases their employment by about 0.8% in the short-run and has no significant impact in the long-run.
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Notes
“Common Position 2008/652/CFSP.”
“Special Economic Measures (Iran) Regulations.”
The P5 + 1 refers to the UNSC’s five permanent members (the P5), namely China, France, Russia, the UK, and the USA, plus Germany.
The former president of Iran.
ADNKronos International, 24 December 2010.
BBC News Agency, 27 January 2017.
BBC interview, 3 October 2018.
Iran has 31 provinces now. Khorasan province was divided into three provinces (North Khorasan, South Khorasan, and Central Khorasan) in 2004, and Tehran province was divided into two provinces (Tehran and Alborz) in 2010. I combined these new provinces into the ones they were part of before the division.
Sum of imported raw materials and capital.
Many studies are mentioned in Isaksson (2007).
Haidar (2017)’ study covers the years between 2006 and 2011.
The only negative coefficient for the neither exports nor imports group is not statistically significant different from zero.
Assuming the capital and materials markets are perfect competition markets, the price of capital and materials will only change over time. Therefore, adding time dummies in estimation will capture the change in their prices over time.
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Nosratabadi, J. The effect of trade sanctions on employment through total factor productivity. Int Econ Econ Policy 20, 163–187 (2023). https://doi.org/10.1007/s10368-023-00555-y
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DOI: https://doi.org/10.1007/s10368-023-00555-y