Sanctions and Exports Deflection: Evidence from Iran

I uncover the existence, extent, and mechanism of exports deflection, which followed exports destruction, after the imposition of exports sanctions against Iranian exporters. Using highly dis-aggregated data about Iranian non-oil exports, I show how exporter size, past export status, and pricing strategy matter in the process of exports deflection. The main findings are as follows: (i) two thirds of the value of Iranian non-oil exports thought to be destroyed by exports sanctions have actually been de?ected to destinations not imposing sanctions; (ii) exporters reduced their product prices as they deflected exports to new destinations; (iii) exporters deflected more of their core and homogeneous products; (iv) larger exporters deflected more of their exports than smaller exporters; (v) the new destinations are more politically-friendly with Iran; and (vi) the probability of an exporter to deflect exports to another destination rised if the exporter already existed in that destination, suggesting that cost of exporting matters too. I conclude that exports sanctions may be less effective in a globalized world as exporters can deflect their exports from one export destination to another.