An Analysis of the Impact of Economic Sanctions on the Production Efficiency of Industrial Products in Iran

Document Type : Original Article

Authors

1 university of kurdistan

2 university of Kurdistan

3 University of Kurdistan

10.48308/jem.2026.241982.2009

Abstract

The present study examines the impact of economic sanctions on the efficiency of industrial production, employing a bimodal approach using annual time series data over the period 1990-2022, and two econometric methods including fully modified least squares to estimate long-run relationships and data envelopment analysis to measure technical efficiency. In order to better explain the complex dimensions of sanctions, an innovative index based on fuzzy logic is designed to examine the severity of sanctions. The estimates indicate a negative and statistically significant long-run relationship between economic sanctions and industrial productivity. This effect is mainly due to the limited access to advanced technologies, barriers to the import of critical production inputs, and inefficient use of domestic production capacities. In line with this finding, the envelopment model confirms a significant decrease in the technical efficiency of industrial units under sanctions, indicating a weakening of the ability of these units to convert inputs into outputs. The convergence of the results of these two econometric methods strongly confirms the adverse impact of sanctions on Iran's industrial efficiency. Also, the analysis of control variables shows that industrialization and exchange rate have had a positive and significant effect on industrial production, while inflation has shown a negative and significant effect. Trade openness has been identified as having no significant effect in this framework. The results of diagnostic tests confirm the validity and stability of the estimated models.

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Journal of Economics and Modelling
Volume 16, Issue 2 - Serial Number 62
September 2025
Pages 35-70

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