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Estimating Trade Misinvoicing from Bilateral Trade Statistics: The Devil is in the Details

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  • Keejae P. Hong
  • Simon J. Pak

Abstract

Trade misinvoicing, an important channel of illicit financial flows, is frequently estimated by the partner-country trade data comparison method. However, this method relies on a critical but incorrect assumption that the trade statistics in partner countries exhibit no misinvoicing. This study proves that the assumption of no misinvoicing in partner countries cannot be supported, raising serious doubts about the reliability of the method and a possibility that inappropriate policy decisions may be made based on the erroneous estimates of trade misinvoicing. We introduce an alternative method to estimate trade misinvoicing which does not rely on the trade statistics of partner countries.

Suggested Citation

  • Keejae P. Hong & Simon J. Pak, 2017. "Estimating Trade Misinvoicing from Bilateral Trade Statistics: The Devil is in the Details," The International Trade Journal, Taylor & Francis Journals, vol. 31(1), pages 3-28, January.
    • Handle: RePEc:taf:uitjxx:v:31:y:2017:i:1:p:3-28
    DOI: 10.1080/08853908.2016.1202160
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    References listed on IDEAS

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    1. Mr. Simeon Inidayo Ajayi, 1997. "An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa," IMF Working Papers 1997/068, International Monetary Fund.
    2. Gaulier, Guillaume & Zignago, Soledad, 2004. "Notes on BACI (analytical database of international trade). 1989-2002 version," MPRA Paper 32401, University Library of Munich, Germany.
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    Cited by:

    1. Mianshan Lai & Jia Hou, 2023. "Let us misinvoice more? The effect of de jure capital controls on trade misinvoicing," The World Economy, Wiley Blackwell, vol. 46(7), pages 2157-2186, July.
    2. Carton, Christine & Slim, Sadri, 2018. "Trade misinvoicing in OECD countries: what can we learn from bilateral trade intensity indices?," MPRA Paper 85703, University Library of Munich, Germany.
    3. Mehrotra, Rahul & Carbonnier, Gilles, 2021. "Abnormal pricing in international commodity trade: Empirical evidence from Switzerland," Resources Policy, Elsevier, vol. 74(C).
    4. Daniel Dujava & Maria Siranova, 2017. "Getting the Measures of Trade Misinvoicing Right: Bilateral Panel Data Approach," Working Papers wp98, Institute of Economic Research, Slovak Academy of Sciences, revised 20 Dec 2017.
    5. Janus, Thorsten, 2024. "Does export underreporting contribute to the resource curse?," World Development, Elsevier, vol. 181(C).
    6. Sutrisno, Aziiz & Nomaler, Ӧnder & Alkemade, Floor, 2021. "Has the global expansion of energy markets truly improved energy security?," Energy Policy, Elsevier, vol. 148(PA).
    7. Dujava, Daniel & Siranova, Maria, 2022. "Is it me or you? A deeper insight into profile of misreporting economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 10-25.

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