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Estimates of Trade Mis-invoicing and Their Macroeconomic Outcomes for the Indian Economy

Author

Listed:
  • Raghbendra Jha

    (Arndt-Corden Department of Economics, College of Asia and the Pacific, Coombs Building (09), Australian National University, Acton, ACT 2601, Australia)

  • Duc Nguyen Truong

    (Arndt-Corden Department of Economics, College of Asia and the Pacific, Coombs Building (09), Australian National University, Acton, ACT 2601, Australia)

Abstract

This paper has two main objectives. First, it computes capital flight (CF) through trade mis-invoicing from India for the period 1988-2012. India¡¯s trade with 17 major trading partners is considered. We find that CF has accelerated since 2004 and particularly sharply since 2007. It peaked at nearly $40 billion in 2008 with the total outflow between 1988 and 2012 exceeding $186 billion. Second, we model the mutual dependence of GDP growth, CF, and various risk factors in a VAR framework. We find that, if left undisturbed, CF through trade mis-invoicing will continue to be high and play a significant and, by its very nature, an uncontrollable macroeconomic role. Hence, reducing, if not eliminating CF, is essential for its own sake as well as for the proper conduct of macroeconomic policy.

Suggested Citation

  • Raghbendra Jha & Duc Nguyen Truong, 2015. "Estimates of Trade Mis-invoicing and Their Macroeconomic Outcomes for the Indian Economy," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 19-34, May.
    • Handle: RePEc:bap:journl:150202
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    References listed on IDEAS

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    1. Jagdish Bhagwati & Bent Hansen, 1973. "A Theoretical Analysis of Smuggling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(2), pages 172-187.
    2. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, number 9780198283393, Decembrie.
    3. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    5. Andreas Buehn & Stefan Eichler, 2011. "Trade Misinvoicing: The Dark Side of World Trade," The World Economy, Wiley Blackwell, vol. 34(8), pages 1263-1287, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Raghbendra Jha, 2019. "Modinomics: Design, Implementation, Outcomes, and Prospects," Asian Economic Policy Review, Japan Center for Economic Research, vol. 14(1), pages 24-41, January.

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    More about this item

    Keywords

    Trade Mis-invoicing; VAR; Impulse Response; Forecasting; India;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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