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

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  • Mohammad Reza Farzanegan

Abstract

This study investigates the main causes and consequences of import and export smuggling and estimates the relative index of smuggling in Iran from 1970 to 2002. The Multiple Indicators - Multiple Causes (MIMIC) econometric modelling is used for a comprehensive analysis of the latent variable of smuggling. The main results of this paper indicate that the rate of fine for smuggling and the general level of education reduce smuggling, while the tariff burden increases the incentives for illegal trade. More trade openness accompanies more illegal trade for the case of Iran. On average, the relative size of smuggling is about 13% of the total trade in Iran. The absolute amount of smuggling per year is about $3 billion.

Suggested Citation

  • Mohammad Reza Farzanegan, 2008. "Illegal Trade in the Iranian Economy: Evidence from a Structural Model," CESifo Working Paper Series 2397, CESifo.
    • Handle: RePEc:ces:ceswps:_2397
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    More about this item

    Keywords

    smuggling; structural equation model; Iran; illegal trade;
    All these keywords.

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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