Market Integration through Smuggling: China's Sanction on Norwegian Salmon

Abstract

Popular press accounts and the political-economics literature link awarding the 2010 Nobel Peace Prize to a Chinese dissident to China's trade sanction on Norway's whole, fresh/chilled salmon exports. Norway lost its dominant supplier share of the Chinese market as its total salmon exports to China decreased. Then, in 2011, Vietnam dramatically increased its imports of Norwegian salmon. A structural break divides the data series into two sub-periods: July 1997 to February 2011, and March 2011 to December 2018 (the sanction period). This provides statistical evidence of China imposing an unannounced trade sanction. During the sanction period, Vietnam's current monthly imports are negatively affected by China's lagged monthly imports. A decrease in China's previous monthly salmon imports from Norway "Granger causes" an increase in Vietnam's current imports. No such relationship existed before the sanction, implying that China and Vietnam's salmon markets became integrated through smuggling.