Sanctions and Export Deflection

Abstract

Different countries impose export sanctions. This article highlights conclusions from new research into Iranian export sanctions on whether and how export sanctions cause export deflection. The main findings are as follows: (1) two-thirds of the value of Iranian non-oil exports destroyed by export sanctions have been deflected to destinations not imposing sanctions; (2) exporters reduced their product prices and increased their product quantities as they deflected exports to new destinations; (3) exporters deflected more of their core products; (4) larger exporters deflected more of their exports than smaller exporters; (5) the new destinations of Iranian exports are more politically friendly with Iran; and (6) the probability of an exporter deflecting exports to another destination increased if the exporter already existed in that destination, suggesting that market entry costs matter too. These findings suggest that, if the goal of export sanctions is to reduce total exports of the targeted country, export sanctions may be less effective in a globalised world as exporters can deflect their exports from one export destination to another. However, if the goal of export sanctions is to put pressure on exporters in the targeted country, then export sanctions can be effective, as exporters incur welfare losses while deflecting exports to new destinations.

This chapter was originally published in The New Palgrave Dictionary of Economics, Online edition, 2016. Edited by Palgrave Macmillan

Note

This article is based on the paper ‘Sanctions and export deflection: evidence from Iran’, which is forthcoming in Economic Policy.