Job Market Paper
Adapting to Sanctions: Evidence from Firm Response and Market Reallocation in Iran
Abstract: How do targeted firms respond to international trade sanctions? While the macroeconomic effect of trade sanctions has been extensively studied, little is known about how trade sanctions shape firm dynamics and their asymmetric effects in a targeted country. Exploring detailed Iranian manufacturing firm surveys, I examine microeconomic effects of the 2012-2013 U.S. and EU trade sanctions against Iran due to Iran’s nuclear program. Empirical analysis shows that the sanctions cut Iranian firms’ exports in half and imports by over 30 percent and, on average, reduced firm-level productivity, profit, revenue, and employment. However, intriguingly, exporting firms were found to mitigate negative effects of sanctions through increased presence in the domestic market, transferring sanction shocks to non-exporting firms. At the same time, importing firms responded to sanctions by sourcing more domestic inputs at the expense of non-importing firms. Based on a stylized model featuring heterogeneous firms with capacity constraints, I show that the export sanctions increased consumer welfare by 4.35 percent by decreasing domestic prices for a given income level. In contrast, import sanctions led to a 7.5 percent consumer welfare loss by increasing prices. The stylized model implies alleviating exporting firm capacity constraints during adverse trade shocks increases positive impacts through export channels.
"Distribution of Strongest Players' Free Riding Strategy in Networks" (with Ghahreman Abdoli), Journal of Economic Researches (Tahghighate Eghtesadi Journal), Volume 50, Issue 4, Winter 2016, Page 925-958.
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Other Working Papers
"How do SOEs Adjust During Downturns? Evidence From Iranian Manufacturing Firms" (With Priscilla Toffano)
Abstract: This paper investigates the role that Iranian SOEs played when international economic sanctions were imposed on the country. Using difference-in-difference techniques and exploiting rich Iranian manufacturing surveys' data, our analysis shows that sanctions reduced revenues and profits of both SOEs and private firms in targeted industries, with larger impacts in SOEs. We find that revenues, profits, and productivity dropped in SOEs, but wages and employment levels were increased in the aftermath of the sanctions. Men were hardest hit by the sanction in private firms but benefited the most from the increase in wages in SOEs. Women in SOEs did not benefit from the same dynamics.
"Heterogeneous effects of large currency depreciation on the Iranian labor market" (With Priscilla Toffano)
Abstract: Sanctions against Iran have often been accompanied by large devaluations of the local currency, the rial. The standard macroeconomic theory has claimed that the effect of a devaluation could be positive for the domestic labor market through a decline in real wages that could boost employment, especially in the tradable sector, and a shift in demand from foreign to domestic goods. In this paper, we test if there is such a silver lining in Iran and if the devaluation that occurred after the 2012 sanctions increased employment. We find that the negative impact of sanctions was stronger than the beneficial effects of the devaluation and that employment in Iran declined after 2012. Our results show that a one percent increase in the real exchange rates reduced employment by 1.1 percent and real wages by 0.2 percent in the aftermath of the sanctions. This negative impact was stronger for young, college-educated men, and it differed by province.
"Good from far but far from good: The Impact of a Female Employment Reform in Iran" (With Maggie X. Chen) - work in progress
In 2016, Iran's Parliament ratified an amended law that reduces the working hours of female employees with specific family obligations by eight hours per week. Although the law requires employers to pay these women full-time wages, the law will harm the employment prospects of women entering the job market and reduce the job security of those already employed, as the costs the legislation will incur upon employers (Center for Human Rights in Iran, July 2016). Our preliminary results show a drop in women's employment and income, especially in female-headed households, after the amendment.
"The Impact of Oil Revenue Shocks on Local Labor Markets" - work in progress
I explore Iranian household, expenditure, income surveys during 2008-2015 to measure the impact of the oil sanctions on the earning profiles in oil-producing provinces and counties. Preliminary results show consistent and robust evidence that the provinces more dependent on government spending experienced a reduction in their earnings. At the same time, there is no evidence that the oil sanctions had a significant impact on employment, unemployment, and labor force levels.
"Targeted Firms' Responses to Economic Sanctions: Losers and Winners!" - work in progress
I explore a unique new data set on the shareholder profile and financial metrics of the publicly traded firms in Iran during 2007-2015 to study the government and the firms' choices in diluting the government shares during the time of the sanctions. Policy evaluation models are used to show the changes in government shares in the firms.
"Demand Estimation of Iranian Automobile Industry: The effect of prices against quality improvements" - work in progress
I use logit, nested logit models, and BLS estimation technique to estimate the market demand and elasticities for each type of automobile, exploring a unique data set on the Iranian automobile industry at the firm-level data during 2004-2014. Results show high markups for low-quality cars in the Iranian automobile market.