# The Intergenerational Effects of Economic Sanctions<sup>∗</sup>

Safoura Moeeni<sup>†</sup>

## **1 Introduction**

Economic sanctions have become the defining foreign policy tool of the 21<sup>st</sup> century, sometimes as a prelude to warfare, and sometimes as an alternative to it.<sup>1</sup> While humanitarian impacts often feature prominently in the debate about economic sanctions, traditional estimates of the effects of sanctions have mainly focused on the effectiveness of sanctions in achieving political objectives (Ahn and Ludema (2020); Draca et al. (2019); Hufbauer et al. (2010)). More recent literature investigates the adverse consequences of sanctions on the civilian population while sanctions are in place (Petrescu (2016)). However, as the effects of sanctions may last in the subsequent period, effects on the current generation may not fully capture the negative impacts of sanctions. In particular, if sanctions reduce the educational attainment of young people, the effects of sanctions may last long after they are lifted. As early human capital investment is hard to substitute with the investment in later life (Heckman (2011)), sanctions could put children at a disadvantage for the rest of their lives. Moreover, human capital is an important factor in productivity growth and economic development. These negative externalities caused by disinvestment in human capital are not documented in the current literature of adverse consequences of sanctions. This paper studies these negative externalities of economic sanctions, in particular, it evaluates how targeted sanctions affect investment in children’s education by using Iranian data.

The theoretical effect of sanctions on children’s education is ambiguous. Sanctions significantly reduce household income, which is the major source of education funding in Iran.<sup>2</sup> How household income matters for children’s

> ∗This paper is a revised and expanded version of a chapter of my PhD dissertation, submitted to University of Calgary in June 2019 and previously circulated under the title “Family Income and Children’s Education: Evidence from Targeted Economic Sanctions ”. I am deeply indebted to my advisors Atsuko Tanaka and Alexander Whalley for their guidance and valuable suggestions during the planning and development of this research. I wish to thank Joseph Altonji, Pamela Campa, Yu (Sonja) Chen, Eugene Choo, David Eil, Kelly Foley, Jean-William Laliberté, Karen Macours, Christine Neill, Stefan Staubli, Leslie Stratton, Scott Taylor, and Trevor Tombe for their helpful feedback. I also benefited from feedback by conference participants at the 2018 Canadian Economics Association, 2021 CSWEP CeMENT Workshop, 2021 Canadian Economics Association, 2021 International Workshop on Applied Economics of Education, Hamburg University, Mount Allison University, Nazarbayev University, Umea University, University of Calgary, University of Naples Federico II, University of New Brunswick, University of Regina, and University of Saskatchewan. All remaining errors are mine.

> †Department of Economics, University of Regina, E-mail: Safoura.Moeeni@uregina.ca

> 1Economic sanctions are trade and financial restrictions imposed against a targeted country by one or more countries. Sanctions are designed to pressure the targeted countries to change offending policies, and/or to weaken the ability of them to govern (Askari et al. (2001)). For the first time, the United Nations (UN) applied multistate sanctions to Southern Rhodesia in 1966. Since that date, the Security Council has imposed 25 sanctions regimes, in South Africa, the former Yugoslavia, Haiti, Al-Qaida and the Taliban, Iraq, Iran, etc. There are 14 ongoing sanctions which focus on conflicts, nuclear programs, and terrorism.

> 2Household expenditure on education as a percentage of GDP is 5% and government expenditure on education is 4% of GDP in 2006.

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