Traders’ War Against Trade Walls: Evidence from Import Prohibition in Iran

Kowsar Yousefi () and Samad Alaamati ()
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Kowsar Yousefi: Sharif University of Technology

No 1717, Working Papers from Economic Research Forum

Abstract: While governments justify trade bans in terms of home protection and controlling currency crises, traders employ different circumvention tactics. We evaluate the impact of a substantial import prohibition policy in Iran since 2018 on the trade evasion. The prohibition was enforced after a currency crisis, led by sanctions, and banned the importation of more than 1300 HS8 products. Our methodologies are difference-in-difference (DiD) and event studies. Covariates like tariffs, value-added tax, and product trends are controlled. Findings indicate that the prohibition caused a substantial rise in evasion, with an estimate of about 20%. As a piece of advice to policymakers who aim to control the demand for foreign currency in a crisis, our results show that evasion neutralizes a considerable part of the prohibition. Though, other means of circumventions like misclassifications and barter informal trade have an additional role in neutralization, that could be measured in future studies.

Pages: 32
Date: 2024-08-20, Revised 2024-08-20
New Economics Papers: this item is included in nep-ara, nep-int and nep-iue
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Published by The Economic Research Forum (ERF)

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