Three Essays on Development Economics: Social Capital, Cost of the Sanctions and Group-based Inequality in Iran

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Virginia Tech


This dissertation contains three essays on the political economy and economic development in Iran. In the first paper, I investigate the political resource curse. The comprehensive literature on the relationship between democracy and income counts oil-rich countries in Middle East as outliers: the abundance of funds for the states and the absence of effective tax systems hold back the formation of democracy. But democracy is more than a purely political system. Sustainable democracy requires a set of social norms and intra-citizen relationships that is called social capital. Emphasizing the importance of the formation of social capital on the democratization of a society, I use female labor force participation as a proxy for social capital. Using survival analysis, I show that oil revenue delays the formation of the social capital required for the democracy.

In the second paper, I inspect the trend and patterns of group-based inequality in Iran. Inequality among groups can be a source of conflict and instability. Iran is a habitat of ethnic diversity and experiences stable peaceful relationships among its ethnicities, while its neighbors experience many ethnic conflicts. In this study, we compute three measures of group-based inequality for the following outcomes: education, assets, income, and expenditure per capita. The groups are defined based on gender, ethnicity/language (Persian, Azeri, and other ethnic minorities), and region (urban versus rural and capital city versus other places). The data are 23 years of annual Household Expenditure and Income Surveys (HEIS) from 1990 through 2012. Inequality between groups based on religion (Muslim, non-Muslim) and citizenship (Iranian, Non-Iranian) is also studied, using the 2006 census. The analysis of the trend of horizontal inequality reveals substantial reduction in between-group inequalities over the 1990–2012 period. On the other hand, gender based income inequality remains high. The implications and underlying reasons for these results are discussed.

The third paper studies one the most serious recent problems facing Iran’s economy: the economic cost of the recent US and UN sanctions. This paper measures the economic cost of the U.N. trade and financial sanctions on Iran’s economy. While there is a substantial literature studying how sanctions impact the economies of target states, the aggregate economic cost of sanctions remains underexplored. This study provides a new measure of the cost of sanctions at the aggregate level, defined as the gap between Iran’s actual GDP and what it would have been without sanctions. Using the synthetic control method of analysis, I replicate Iran’s GDP without sanctions. I demonstrate that, while previous sanctions had a negligible impact, Iran’s GDP fell markedly following the financial sanctions of 2010.



Democracy, Social Capital, Sanctions, Horizontal Inequality