Using Synthetic Control Method to Explore Long-Run Effects of Institutional Change : An Application to the Impact of Iranian Revolution on Economic Growth

This article examines the importance of institutional shocks for long-run development with an application to the Iranian revolution. Our empirical method offers a clear test to distinguish between three models of institutional change. We define gradual institutional change without a major shock, temporary change imposed by a major shock, and structural breaks. Drawing on a large dataset of 66 countries for the period 1950-2016, we study the impact of the Iranian revolution on economic growth and construct a synthetic counterfactual scenario of long-run development in response to a shock. Our findings confirm that the Iranian revolution was a structural break with negative implications for growth trajectories; it was not a mere temporary change