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Illegal Trade in the Iranian Economy: Evidence from a Structural Model

  • Mohammad Reza Farzanegan

    ()

    (Dresden University of Technology, Faculty of Business Management and Economics.)

This study investigates the main causes and indicators of smuggling in both import and export sections of the Iranian Economy and estimates an absolute index of smuggling in Iran during the period 1970-2002. To this effect, Multiple Causes -Multiple Indicators (MIMIC) econometric modeling by LISREL software is applied. This model is ideal for providing a comprehensive analysis of the latent variable of smuggling. The main results of this paper indicate that the rate of fine on smuggling and the total unemployment rate have negative and significant effects on smuggling and that the tariff burden has a positive effect. Regarding the measurement part of the model, smuggling has a negative effect on real governmental revenues and the import price index. Furthermore, the positive effect of smuggling on the petroleum product consumption is also significant. The relative size of smuggling varied from about 6 to 25 percent of total trade in Iran.

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Paper provided by Economic Research Forum in its series Working Papers with number 409.

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Length: 31 pages
Date of creation: Jun 2008
Date of revision: Jun 2008
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:409
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