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Preferential Trade, Mis-invoicing and Capital Flight

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  • Biswas, Amit K.

Abstract

This paper examines how preferential trade policy affects the degree of capital flight. It builds up a three-country preferential – non-preferential trade model where low or zero tariff prevails in the preferential trade channel and higher tariff is exercised in the nonpreferential trade channel. We show that the preferential trade channel is likely to encourage capital flight and non-preferential trade channel is conducive for illegal transactions in foreign exchange in the local market. We attempt to crosscheck our result with the Mexico – US and Canada and Mexico – Japan trade data.

Suggested Citation

  • Biswas, Amit K., 2002. "Preferential Trade, Mis-invoicing and Capital Flight," Conference papers 330969, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:330969
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    References listed on IDEAS

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    1. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    2. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    3. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
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