Tuesday, November 9, 2010

Determinants of Trade Misinvoicing

NIPFP Working Paper 75

Ila Patnaik, Abhijit Sen Gupta, Ajay Shah
October 2010


Traditional explanations for trade misinvoicing -- high custom duties and weak domestic economies - are less persuasive in a world of high growth emerging markets who have low trade barriers. We construct a 35 country data set over a 26 year span, covering both industrialised and developing countries, to study the phenomena of export and import misinvoicing. Capital account openness, differentials in interest rates, political stability, corruption, indebtedness and the exchange rate regime are identified as factors related to misinvoicing. Trade misinvoicing should be seen as one element of de facto capital account openness.