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Trade Mispricing and Illicit Flows

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  • Nitsch, Volker

Abstract

A potential vehicle to move capital unrecorded out of a country is the misinvoicing of international trade transactions. Exporters may understate the export revenue on their invoices and importers may overstate import expenditures, while their trading partners are instructed to deposit the balance for their benefit in a foreign account. Aiming to quantify the extent of trade mispricing, studies have analyzed asymmetries in matched partner trade statistics or examined price anomalies in transaction level price data. This paper critically reviews these empirical approaches and briefly describes an alternative methodology. Overall, the accuracy and reliability of estimates of illicit financial flows based on trade mispricing are questioned. In particular, it is argued that estimates of trade mispricing are critically dependent on assumptions on how to interpret observed asymmetries in trade statistics. For instance, various reasons for discrepancies in bilateral trade statistics are discussed, and incentives for faking trade invoices other than capital flight are highlighted. Also, aggregate trade data may mask considerable variation in trade discrepancies at the transaction level. Most notably, the importance of trade mispricing as a method for the unrecorded cross-border transfer of capital is generally unclear.

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Bibliographic Info

Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 54540.

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Date of creation: 15 Sep 2011
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Publication status: Published in Darmstadt Discussion Papers in Economics . 206 (2011-09-15)
Handle: RePEc:dar:ddpeco:54540

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  1. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 69-86, 02.
  2. Javorcik, Beata S. & Narciso, Gaia, 2008. "Differentiated products and evasion of import tariffs," Journal of International Economics, Elsevier, vol. 76(2), pages 208-222, December.
  3. Dean Yang, 2004. "Can Enforcement Backfire? Crime Displacement in the Context of Customs Reform in the Philippines," Working Papers 520, Research Seminar in International Economics, University of Michigan.
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  5. Maria de Boyrie & Simon Pak & John Zdanowicz, 2005. "The impact of Switzerland's money laundering law on capital flows through abnormal pricing in international trade," Applied Financial Economics, Taylor & Francis Journals, vol. 15(4), pages 217-230.
  6. Gabriela Inchauste & Mark Gradstein & Era Dabla-Norris, 2005. "What Causes Firms to Hide Output? the Determinants of Informality," IMF Working Papers 05/160, International Monetary Fund.
  7. Jagdish N. Bhagwati, 1978. "Appendix to "Anatomy and Consequences of Exchange Control Regimes"," NBER Chapters, in: Anatomy and Consequences of Exchange Control Regimes, pages 219-221 National Bureau of Economic Research, Inc.
  8. Rozanski, Jerzy & Yeats, Alexander, 1994. "On the (in)accuracy of economic observations: An assessment of trends in the reliability of international trade statistics," Journal of Development Economics, Elsevier, vol. 44(1), pages 103-130, June.
  9. Susan M. Collins & Won-Am Park, 1989. "Introduction to "Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey"," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey, pages 153-158 National Bureau of Economic Research, Inc.
  10. Robert S. Dohner & Ponciano Intal, Jr., 1989. "Introduction to "Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey"," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 3: Country Studies - Indonesia, Korea, Philippines, Turkey, pages 373-400 National Bureau of Economic Research, Inc.
  11. Clemens Fuest & Nadine Riedel, 2010. "Tax Evasion and Tax Avoidance in Developing Countries: The Role of International Profit Shifting," Working Papers 1012, Oxford University Centre for Business Taxation.
  12. Jagdish N. Bhagwati, 1978. "Anatomy and Consequences of Exchange Control Regimes," NBER Books, National Bureau of Economic Research, Inc, number bhag78-1, octubre-d.
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