Nader Habibi

This study examines the impact of international economic sanctions, imposed on Iran due to its nuclear program, on the development of its middle class. Specifically, it investigates how Iran's middle class would have evolved absent sanctions post-2012. Using the Synthetic Control Method (SCM) with nested optimization, we construct a counterfactual scenario for Iran based on a weighted average of comparable countries that mirror pre-2012 Iran but without significant sanctions. Our SCM results indicate that sanctions led to an average annual reduction of 17 percentage points in the size of Iran's middle class from 2012 to 2019. Our Synthetic Difference-in-Differences (SDID) analysis, however, provides a more conservative estimate of a 12 percentage points average annual loss, reinforcing the robustness of the findings. These estimates capture the total effect of sanctions, encompassing both their direct economic shocks, and Iran's policy responses. These results are validated through extensive sensitivity checks, including in-space and in-time placebo tests, leave-one-out analyses, and bias-corrected SCM. We also identify real GDP per capita, merchandise imports and exports, investment, industry value added, informal and vulnerable employment as key channels through which sanctions negatively impact the middle class. •Sanctions significantly contracted Iran's middle class.•The study uses counterfactual analysis to isolate the causal effect of sanctions.•It applies Synthetic Difference-in-Differences for robustness.•It traces the economic pathways of sanctions' impact on Iran's middle class.

After the second World War, the Middle East has experienced more conflict and war than any other region in the world. In this essay I ask whether the three dominant tribes that make up the Middle East -Arabs, Turks, and Iranians- have the capacity to reduce their tensions and
move toward regional cooperation. These tensions and conflicts have deep historical and cultural roots that need to be addressed. Furthermore, Arabs, Turks and Iranians can learn from the experience of other regions of the world such as Europe and South America, which have managed to overcome conflict and develop strong regional bonds. I argue that the first step in this direction is to transition from the current state of cold war and proxy wars to cold peace, which can be followed by a warm peace. As a practical first step I recommend the creation of regionalist advocacy groups in Iran, Turkey, and Arab countries.

This study examines the impact of international economic sanctions, imposed on Iran due to its nuclear program, on the development of the middle class. Specifically, it investigates how the middle class in Iran would have developed in the absence of these sanctions post-2012. To address this question, we employ a synthetic control model to create a counterfactual scenario for Iran, using a weighted average of other comparable countries that mirror pre-sanction Iran, but did not experience significant international sanctions. By comparing the middle-class size of this counterfactual Iran with the actual Iran that faced major economic sanctions, our results indicate that the annual middle-class size would have been approximately 11 percentage points larger, on average, without the post-2012 sanctions. Our findings are robust across various tests, including placebo tests and synthetic difference-in-difference analyses. The latter analysis shows that the estimated average effect of sanctions on the middle-class size of Iran from 2012 to 2019 is highly statistically significant. Finally, we provide evidence on the relevance of real GDP per capita and merchandise imports as key selected channels through which sanctions negatively affect the size of the middle class.