Abstarct: In this thesis, the effect of illegal farmlands conversion on variables of production, employment, and economic participation rates in provinces of Iran. For this purpose, data from the period of 2011-2015 have been used and the econometric model was estimated using a panel data approach and panel VAR method. The results of model estimation showed that increasing illegal farmlands conversion reduces agricultural production on one hand and increases economic participation and employment rates on the other hand. Conversion though causing increased soil erosion, environmental and ecological changes, hazardous occurrences such as flood, the decline in agricultural production, etc. but if the land use is changed optimally, it could lead to employment, increase in production and other positive results as well as economic growth. Therefore, it is suggested that the prohibition law of farmlands conversion be considered accompanied by notes, including licensing for lands that can have a more suitable land use. The government can also increase the farmers' inclination to continue agricultural activities by adopting encouraging and supportive policies.