Investigation of short- and long-run impacts of economic sanctions of capital goods on GDP

Since countries need each other to achieve eligible economic growth, sanctions against Iran can slow down economic growth and prevent the country from achieving its visionary goals. Of course, the Iran’s economy may have been able to cope with these sanctions by relying on domestic capabilities and changing the main trading partners of the country and have found some ways to counteract or mitigate their effects, but it is clear that the imposition of this sanctions has a significant negative effect on the performance of the national economy that the evaluation of various aspects of it requires different studies. This study merely uses a distribute regression method to identify the likely short-term and long-term effect of capital goods sanctions on gross domestic product (GDP). What is clear is that the boycott of capital does not show its effects on production immediately and the occurrence of these effects is interrupted. The main goal of this study is on how and when the effect of “economic sanctions on capital goods” on “GDP” will occur.
The effect of sanctions on GDP can be explained more by the effect of these sanctions on investment. Therefore, this study will explain about the effects of sanctions on production through their effects on investment. Considering that the largest portion of the country’s investment that could have the greatest effect on sanctions is the import of capital goods, so, in this study, we examine the possible effects of the boycott of capital goods on the gross domestic product by using the data of the import of capital and GDP statistics from 1355 to 1391. The main goal is to show that, if the impost of capital goods decreases because of the economic sanctions, how long does it take for the country, or when can we see the maximum impact of the sanctions. To achieve this goal, we used a distributed regression method. On this basis, we assumed that the coefficients of interruptions are behavioral in the form of a quadratic polynomial. By this method, after estimating the model, we can predict the effects of sanctions of each of the preceding periods. Of course, the sanctions on the exports of capital goods by US and European countries to Iran have caused Iran’s attention to other countries, which could be accompanied by a decline in the quality of imported machines and an increase in import prices.
This study uses the regression method; because its purpose is to assess the effects of sanctions on the most important macroeconomic variables, namely, gross national products. Also, because the effects of economic sanctions appear over time and gradually, we need to use distracting models to explain these effects. The use of these models also provides an opportunity to examine the short-term, medium-term and long-term effects of economic sanctions on gross domestic products.
Since the import of capital goods affects on interrupted production, therefore, in order to determine the time of the effect of importing the aforementioned commodities on production, the variable has appeared with interruption in the model. More precisely, since there is a considerable time of installation and eventually their placement in the production process, it can be claimed that the effect of the change in capital goods on gross domestic product follows a similar U-inverse trend. Based on such assumption of the formation of sanctions on the country’s production, one can use a polynomial distributive breakdown model (Almon).
The length of the interruptions we are looking at is estimated to be 7 years based on the Akaike criterion and Schwarz criterion. In other words, the import of capital goods has an average of 7 years in gross domestic products.
In summary, the results show that a one percent decrease in imports of capital goods this year due to a boycott, assuming other factors are fixed, will reduce the annual GDP by 0.04753 percent this year, indicating an immediate effect of the boycott.
Also, a one percent decrease in importing capital goods this year will reduce the GDP by 0.08279 percent in the following year. The total effect of the first two periods will be equal to 0.1217.
What visible from the result and followed by the Almon method is that as the length of the interruption increases, first the incremental coefficients increases and them decreases. As it can be seen, the effect of the boycott of capital goods imports on the reduction of GDP in the third period reaches its maximum and then until the seventh year its effect continues to decline. Finally, with a sum of coefficients of independent variable with interruption, the long-term coefficient is 0.68034. So, a 1 percent decrease in the imports of capital goods due to sanctions, reduces GDP by 0.88 percent over an 8-year period.
The average gap is equal to 3/4, which indicates that the effect of each reduction unit on the import of capital goods on GDP is, on average, over a period of 3/4 years or 3 years and 146 days.
The mid-interruption indicator shows us that the period during which 50 percent of the total effect of a unit of change in the import of capital good occurs, is 3 years and 298 days.
The results of this model show that the decrease (increase) in the import of capital goods for any reason such as a boycott of the economy does not directly affects on GDP’s decreasing (increasing) and till many year after the boycott, the significant effects of this year’s boycott on GDP still can be seen.
This paper examines the whole economy as a unit, while the results for each section may vary. For instance, it is expected that the length and extent of the effect of the sanctions on capital goods on sectors such as agriculture and services, and the length and extent of the impact of sanctions on capital goods on sectors such as oil and gas, and industries and mines are more than what would have been achieved for the entire economy. However, the study of each of these sections can be an issue for independent research.