Trade sanctions and international market integration: Evidence from the sanctions on Iranian methanol exports

Abstract

AbstractThis paper examines the impact of trade sanctions, imposed against large exporting nations, on the degree of spatial integration achieved between non‐sanctioned importing markets. The analysis is conducted under a parity bounds framework based on Negassa and Myers (American Journal of Agricultural Economics, 89, 2007, 338). We apply this model to investigate the effects of the 2012–2016 sanctions against Iran's petrochemical exports on the main importing markets in Asia and we use it to measure the degrees of spatial integration attained outside and during the sanction period. Our findings document a complete reconfiguration of the spatial extent of the methanol markets. Outside of the sanction period, a high degree of market integration was achieved among the main Asian markets. In contrast, we observe the emergence of two little integrated market areas, China and India on one side and South Korea and South‐East Asia on the other, when sanctions are imposed.