Evaluating the Effect of Sanctions imposed on the Economy in Iran on Foreign Direct Investment Using Synthetic Control Method

Foreign direct investment (FDI) is considered as an inseparable features of an open and influential global economic system and a key factor for growth and development between countries. Due to having huge amount of oil and gas resources as well as relatively large markets, Iran has a great potential for attracting FDI far more than its performance. However, various sanctions imposed on the country in recent years has led to a decrease in FDI by creating a hostile psychological environment and high risk for economic activities. In this paper, we are going to examine the widespread impacts of economic sanctions imposed by the US on the FDI of Iran between 1980 and 2020 through a model called the synthetic control (SCM). Through SCM we estimate the difference in FDI between the treated country (Iran) and the counterfactual (Synthetic Iran). The results show that the sanctions leads to almost 12 billion $ reduction in the FDI compared to the no-sanctions situation. Following the escalation of sanctions under the Trump administration and the withdrawal of the US from the JCPOA, the adverse effects of declining FDI peaked at 20 billion $ in 2020.The placebo tests also show that the there are statistical significance in findings (at the 10%