Chapter 17: Economic diplomacy in Iran: reorientation of trade to reduce vulnerability
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This chapter considers Iran’s policies in reorienting its international trade towards new trading partners over the different sanctions episodes for the period 2000–14. For the purpose of this study the author extends the standard gravity model to investigate the impacts of limited US sanctions as well as extensive US-EU-UN sanctions on Iran’s bilateral trade, exports and imports in separate models. The results of pooled OLS panel, fixed- and random effects approaches show that Iran has changed its trading partners from EU and OECD countries towards new partners in East Asia and MENA. Moreover, although the limited US sanctions have increased Iran’s trade with third countries, the extensive sanctions have caused a serious reduction in Iran’s total trade, exports and imports. The recent changes in Iran’s political behavior in dealing with world powers on its nuclear program have mitigated the strong impacts of multilateral sanctions on its trade flows, exports and imports.

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