Evaluating the Impact of Preferential Trade Agreements on Iran's Market Share

Preferential trade agreements are a limited contract in which reciprocal tariff cuts are offered. Each party selects among its own exporting goods seeking for market share maximization and improving terms of trade. This study investigates the impact of Iran’s PTAs (with Bosnia, Cuba, Kyrgyzstan, Pakistan, Tunisia). Results show that two PTAs with Cuba and Bosnia has had no impact on Iran’s market share, mainly due to the fact that these are not natural trade partners. The agreement with Kyrgyzstan and Tunisia has had a negative effect. The Pakistan-Iran PTA is the only one which causes more market share; the impact has been pronounced in 2011, when UN imposed sanctions on Iran. Results are robust to controlling aggregate shocks. Overall, based on the results of this study, Iran’s PTAs are of very limited impact. Future studies could address replacement trade policies, which effectively liberalize the export market while adding to the knowledge accumulation of Iranian trade negotiators.