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Empirical Economics

, Volume 57, Issue 6, pp 2013–2041 | Cite as

Trade openness, political institutions, and military spending (evidence from lifting Iran’s sanctions)

  • Sajjad Faraji DizajiEmail author
Article

Abstract

Under the recent nuclear deal on Iran’s nuclear program, many of the most punishing sanctions are poised to be lifted. This study examines how trade openness (due to lifting the sanctions against trade) could affect the political institutions and military expenditure in Iran based on the available dataset for the period of 1960–2011. Using impulse response functions (IRF) and a variance decomposition analysis (VDC) on the basis of a vector autoregressive (VAR) model, the results imply that the response of political institutions to an improvement in international trade is negative and statistically significant, whereas that of military spending is positive and significant. Moreover, the shocks to trade openness influences military spending more than non-military spending over the all years after the initial shocks. These results are robust to other indicators of political institutions, different orderings of variables in the VAR and alternative specifications of trade, and government revenues and expenditures.

Keywords

Political institutions Military spending Sanctions Iran VAR modeling 

JEL Classification

F13 F14 F51 

Notes

Acknowledgements

This paper was written while I was a visiting scholar at the International Institute of Social Studies of Erasmus University Rotterdam. I would like to thank ISS for hospitality and support. Special acknowledgement is due to Prof. Peter A. G.van Bergeijk for comments and helpful suggestions. Also, I would like to thank the two anonymous reviewers for their reading of this manuscript and their insightful comments.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsTarbiat Modares UniversityTehranIran

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