Political actors have assumed that economic sanctions hinder a nation’s stability by reducing its economic growth, though history has shown otherwise. One potential explanation for this phenomenon is that any decline in a growth is offset by the economic benefit they receive from a response of increased militarization. Using a defense-driven model, we test this explanation with data Iranian from 1959 to 2007. The findings show that economic sanctions have limited the development of Iran, but the influence of an increasing defense sector offsets the sanctions, suggesting sanctions may be ineffective due to the substitution effect from defense expenditures.