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AbstractThis paper investigates the effect of targeted economic sanctions by the United States and the European Union on the performance of intra‐industry non‐sanctioned firms. Using data of non‐sanctioned firms listed on the Zimbabwe stock exchange during the period 2009–2018, our regression results show that non‐sanctioned firms in the same industry as sanctioned firms perform better than ordinary non‐sanctioned firms, signalling the positive competitive effect. A mediating test suggests that sanctions increase the market share of non‐sanctioned firms in the same industry as sanctioned firms and subsequently increase their performance.