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Abnormal pricing in international commodity trade: Empirical evidence from Switzerland

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  • Mehrotra, Rahul
  • Carbonnier, Gilles

Abstract

Mispricing of international trade in natural resources poses a significant risk for tax base erosion from resource-rich, developing countries, while also contributing to regulatory and financial risks for commodity trading hubs. This paper presents a novel empirical approach which combines statistical price-filter analysis methods with commodity market research to provide evidence on the magnitude of abnormally priced Swiss commodity imports. Our analysis compares transaction-level import prices to an arm's length price range representing fair market value and defined using contemporaneous benchmark prices from commodity exchanges, adjusted for product-specific factors. We find a significant magnitude of abnormally under-valued unwrought gold doré imports as well as relatively smaller magnitudes of abnormally under-valued cocoa and coffee imports. Next, we contrast our new estimates with traditionally used proxies for trade mispricing based on aggregate mirror trade statistics to highlight the unreliability of widely used methods and data sources. Finally, we discuss the limitations in our analysis even using the best available administrative data which reinforces the urgency to improve the statistical infrastructure used to record international commodity trading in order to promote transparency and improve international trade governance.

Suggested Citation

  • Mehrotra, Rahul & Carbonnier, Gilles, 2021. "Abnormal pricing in international commodity trade: Empirical evidence from Switzerland," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721003615
    DOI: 10.1016/j.resourpol.2021.102352
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    Cited by:

    1. Catalin Dragomirescu-Gaina & Leandro Elia, 2022. "A look offshore: unpacking the routes of misinvoicing in international trade," WIDER Working Paper Series wp-2022-156, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Natural resource governance; International trade; Commodity trading; Trade mispricing; Switzerland;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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