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Illegal trade in the Iranian economy: Evidence from a structural model

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  • Farzanegan, Mohammad Reza

Abstract

This study investigates the causes and consequences of import and export smuggling and estimates its relative size in Iran from 1970 to 2002. Multiple Indicators-Multiple Causes (MIMIC) modeling and trade misinvoicing are used to compute the latent variable of smuggling. The results indicate that the penalty rate for smuggling and the quality of economic and political institutions reduce smuggling, while tariffs and black market premia increase the incentives for illegal trade. More trade openness is associated with greater illegal trade in the case of Iran. On average, smuggling in Iran has been approximately 13% of total trade.

Suggested Citation

  • Farzanegan, Mohammad Reza, 2009. "Illegal trade in the Iranian economy: Evidence from a structural model," European Journal of Political Economy, Elsevier, vol. 25(4), pages 489-507, December.
    • Handle: RePEc:eee:poleco:v:25:y:2009:i:4:p:489-507
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    More about this item

    Keywords

    Smuggling Structural equation model Iran Illegal trade Institutions;

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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