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Chapter 10. CAPITAL FLIGHT FROM LDCs: A STATISTICAL ANALYSIS
Abstract
This chapter presents a statistical analysis of capital flight from less developed countries (LDCs). Unlike with the imports of LDCs, a significant part of the export sector is usually free from very large subsidies and taxes and the export duties on traditional exports are usually well-balanced by subsidies on nontraditional exports. Hence, no pronounced effect of trade tax and subsidy policies need be expected to affect the trade declarations in the direction of either net overinvoicing or net underinvoicing of exports. Altogether 7 LDCs show a percentage excess of imports over exports, on exports, of over 10% for total trade, with 6 more LDCs having a positive (but less than 10%) excess and 15 LDCs having a negative excess figure. Imports are c.i.f. and exports are f.o.b., and this discrepancy may be taken at an average figure of 10% on f.o.b. value; 7 LDCs with excess on top of 10% are clear overinvoicers whereas all the rest are not, while those having negative figures are probably clear underinvoicer. However, if imports are overinvoiced (underinvoiced), the importer must sell (buy) in the black market an amount of foreign exchange equal to the difference between the correct and the faked price on the invoice. Hence, two critical variables in his decision will clearly be the duty and the black market premium on foreign exchange. The asymmetry of conduit behavior for capital flight, in the exports and imports of LDCs is, on the other hand, a conclusion of great interest to policymakers in these countries.
... Similarly, evidence focusing on trade mispricing is limited to aggregate estimates of partner-country trade gaps which are estimated using the differences between aggregate export and import statistics of trading partners after adjusting for transportation costs (Bhagwati et al., 1974;Fisman and Wei, 2004;Global Financial Integrity, 2017;(Kellenberg and Levinson, 2018); Ndikumana et al., 2015;V ezina, 2015). Based on the principle of mirror trade statistics, this method compares the source country's export statistics to the importing partner's corresponding import statistics adjusted for transportation costs. ...
... Finally, these price-filter estimates are compared to the asymmetries observed in annual, product-level trade data to contrast the micro-evidence with the more commonly used trade mispricing estimates based on partner-country trade gaps. This method relies on the principle of double counting in international trade statistics whereby the reported trade values of a country's trading partners are used as the arm's length value for the trade statistics of the exporting country (Bhagwati, 1964;Bhagwati et al., 1974;Global Financial Integrity, 2017). We explore whether the estimates of trade mispricing are consistent across methodologies and highlight the limitations of aggregated trade data compared to transaction-level trade microdata. ...
... In this section, we discuss two main methods used to estimate trade mispricing. First, we discuss the partner-country trade gap methodology introduced by Bhagwati (1964) and Bhagwati et al. (1974). This method still represents the dominant approach used by trade economists to estimate trade mispricing. ...
Mispricing of international trade in natural resources contributes to significant tax base erosion from developing countries but is difficult to measure using aggregate trade statistics. In this paper, we apply a novel approach motivated by legal rules for trade and transfer mispricing to estimate abnormal pricing in gold and cocoa exports from Ghana, i.e. exports valued outside an assumed arm's length price range that indicates fair market values. Using daily frequency, transaction-level data from Ghana Customs, our results indicate abnormally undervalued exports of gold and cocoa from Ghana equalled USD 8.8 billion in constant prices (base year 2011) or USD 4.1 billion in current prices between 2011 and 17. Approximately 11% of gold doré exports, 1% of cocoa bean exports and 7.2% of cocoa paste exports appear abnormally undervalued. The implied corporate tax base erosion equals USD 2.2 billion in constant prices (base year 2011) corresponding to an average annual decrease of 0.3% in Ghana's tax-to-GDP ratio.
... Perhaps more relevant are presumed overstatements of current account deficits (and thus understatement of the residual capital outflows) due to (i) trade misinvoicing, i.e. underinvoicing of exports and ovcrinvoicing of imports and (ii) underrecording of workers' remittances. Trade misim·oicing has long been seen as one of the most important vehicles of illegal capital exports from developing countries (Bhagwati 1964 andBhagwati ~ 1974). Recent comparative country estimates have been provided by Gulati (1987). ...
... The results show the strong sensitivity of the estimates to the applied definition. This is in itself of course hardly surprising, but given the often rather loosely applied concept of capital flight in discussions on adjustment and adjustment policies in developing countries with external debt problems, Table 2 19711972197319741975197619771978197919BO 1981 Table 2)7 but corrected for trade misinvoicing and underrecording of workers remittances. ...
... 15 14 Cross-checking the result with the KPSS stationarity test confirms the I(0) finding -the two measures do not reject the null hypothesis of stationarity. 15 Alesina and Tabellini, 1989;Bhagwati et al., 1974;Boyce and Ndikumana, 2001;Cerra et al., 2008;Collier et al., 2001;Cuddington, 1987;Epstein, 2005;Fedderke and Liu, 2002;Lensink et al., 1998Lensink et al., , 2000Le and Zak, 2006;Mikkelsen, 1991, and others. An exception is Javorcik and Narciso (2008) who focuses on tariff evasion via trade misinvoicing between Germany and its trade partners. ...
We use two measures to study two capital flight channels for Germany. One measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the Eurosystem of central banks. For both measures, we propose refinements to enhance the assessment of capital flight. We find that capital flight towards Germany via these two channels has been quite sizable in the recent decade and can tally to about 2% of GDP annually. Regarding their determinants, we show that the two capital flight measures are driven by both common and measure-specific factors. Traditional determinants such as covered interest differentials only play a limited role, while crisis-specific factors such as economic policy uncertainty, the ECB collateral policy, as well as currency misalignment are driving factors of the investors’ apparent flight-to-safety behavior.
... The partner-country method compares declared import values against corresponding export values declared in partner countries to detect the presence of under-invoicing imports. See Bhagwati (1964), Bhagwati, Krueger, and Wibulswasdi (1974), Gulati (1987), Ndikumana andBoyce (1998), Hermes, Lensink, andMurinde (2003), Baker (2005), Almounsor (2005), Zhu, Li, and Epstein (2005), and Madinger (2006 for more detailed information on the partner-country method and its variation. theoretically and empirically show that this accuracy assumption is not adequate and suggest the price filter method as an alternative approach in measuring the amount of trade misinvoicing. ...
This study estimates the degree of trade mispricing in the form of undervalued import from the Democratic Republic of Congo (DRC) to the European Union (EU) and the U.S. between 2000 and 2010 based on a method using an inter-quartile price-filter approach. The study estimates that the undervalued amount of EU import from the DRC is €9.95 billion, exceeding the declared total import value of €8.06 billion. Almost all of the underpricing in the EU import from the DRC, 98% of the undervalued amount, is through underpriced non-industrial diamonds imported by Belgium and cobalt ore and mattes imported by Finland.
... Thirdly, we can divide the short-term and long-term capital flows according to illegality and legality (Bhagwati, 1964;Bhagwati, Krueger, & Wibulswasdi, 1974;Wang, 2010). After analyzing these criteria, Benu Schneider (2003) concluded that illegal capital flows are mainly reflected in the misinvoicing import and export of foreign trade, and that they should generally be regarded as short-term capital flows. ...
Short-term international capital flows are generally considered to have strong volatility, strong current scale changes, and easy flow direction reversal. Thus short-term international capital flows usually exert a negative influence on a country's real economy and the financial markets, and can produce financial crises. This article briefly examines the channels of short-term international capital flows through a comparative analysis of different methods for estimating the short-term capital flows based on the Chinese Balance of International Payments (BOP), and theoretically demonstrates the relationship between direct and indirect methods. China's short-term international capital flows are subsequently calculated based on the indirect method and the improved direct method. Finally, the paper tests the estimated results, and provides conclusions and recommendations.
... Literature is also often defined capital flight as illegal transaction which occurs when exporters and importers keep capital abroad by falsification of trade documents (Bhagwati, 1974). ...
... However, it is troubled by estimation errors, mainly because capital flight is estimated as a residual. Data of exports and imports are in general poor due to over and underinvoicing (Bhagwati, Krueger and Wibulswasdi 1974, Gultai 1987, Morgenstern 1950. Some authors (Lessard andWilliamson 1987, Vos 1990), therefore, adjust their capital flight estimates for trade misinvoicing. ...
Most studies treat capital flight as an exclusively Latin American problem. This paper estimates capital flight for six African countries and shows that the emphasis on Latin American capital flight is not correct. It appears that the burden of capital flight is also important for many African countries. Moreover, this paper tries to find some determinants for the African countries' capital flight. The increase of government and government-guaranteed foreign debt and the overvaluation of the real exchange rate appear to be the most important explanatory factors of capital flight for the African countries in this study.
... However, it is troubled by estimation errors, mainly because capital flight is estimated as a residual. Data of exports and imports are in general poor due to over and underinvoicing (Bhagwati, Krueger and Wibulswasdi 1974, Gultai 1987, Morgenstern 1950. Some authors (Lessard andWilliamson 1987, Vos 1990), therefore, adjust their capital flight estimates for trade misinvoicing. ...
In this paper we assess the effects of financial liberalization on capital flight in African economies. A portfolio model, in which capital flight is one of the assets, is estimated on a sample of nine African countries for 1970–91. The estimation results suggest that financial liberalization induces a reduction in capital flight. After augmenting the model with submodels for the banking sector, the government sector and the external sector, we conduct simulation experiments involving an interest rate deregulation, a decrease in reserve requirements and a change in exchange rate policy. The simulation results show that capital flight is reduced by all the three financial liberalization measures. The effects, however, are very small. Considering both the estimation and simulation results, we conclude that financial liberalization policies are useful in attempts to reduce capital flight in African economies, but per se the policies may not be the panacea.
International trade misinvoicing may facilitate tax avoidance, duty avoidance, money laundering, and capital transfer. It is critical for regulators to estimate the scope of trade misinvoicing correctly. This study examines three related methods of estimating trade misinvoicing: the price-filter method (PFM), the partner-country method (PCM), and a modified partner-country method (mPCM). This paper concludes that the PCM fails to estimate trade misinvoicing correctly unless all partner countries are proven to have no misinvoicing. The mPCM estimates correctly but is too costly to be practical. Only the PFM estimates trade misinvoicing correctly and efficiently.
This article identifies, based on reported trade data between India and its 19 trading partners, the major commodities exhibiting mis-invoicing during 2000–2018, the extent of mis-invoicing, major trade partners and the associated ports of trade in India. The computed differences in the trade values are too large to be explained by accounting or classification errors, presenting strong evidence of mis-invoicing; however, only a small percentage of commodities account for bulk of mis-invoicing consistently over the years. There is also evidence of the same commodities exhibiting under-invoicing (UI) in trade with some countries and over-invoicing (OI) in trade with others. The tariff rates seem to influence the type of import mis-invoicing—OI being mainly in commodities with higher tariff and UI in commodities with lower tariff. The article contributes to the existing literature by identifying the specific commodities with their 6-digit HS codes, and commodity groups prone to mis-invoicing, which can provide a robust framework for further investigation of transaction level data that may help pinpoint the parties involved in mis-invoicing and associated illicit flows. The findings of the article provide inputs for policies to mitigate the impact of illicit financial flows through trade mis-invoicing.
JEL Classification: F13, F14, C32, H26
Capital flight amounts to a substantial proportion of outward capital flow in emerging markets. This study, using a large sample of 2711 Chinese private firms, examines the relationship between family involvement and capital flight of family businesses. The results show that family involvement is positively associated with capital flight. And political connection weakens the positive effect of family involvement on capital flight. Further, our study investigates the moderating effects of political connection and local connection and their context-dependence on business environment. Generally, political connection weakens the positive effect of family involvement on capital flight. And such moderating effect of political connection is significantly negative in high-quality business environments and insignificant in low-quality business environments. More interestingly, moderating effect of local connection that is significantly negative in high-quality business environments turns into significantly positive in low-quality business environments. The effect of family involvement on OFDI and similar moderating effects of political connection and local connection are examined as comparisons. There are divergences of such effects in the case of OFDI and capital flight.
We analyze the differences between bilateral FDI and trade data reported by the US and by
China for the period from 1983 to 2017. Such differences can be interpreted as hidden capital
flows. We show that they are economically significant and analyze their dynamics using VAR
and ARDL models. We find that hidden capital flows occur in both directions: from China to the
US through the trade channel and from the US to China through the FDI channel. Only the latter
respond to financial market conditions. In the long run, an increase in hidden capital outflows
through the trade channel triggers a hidden capital inflow through the FDI channel.
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.
The first target of Goal 17 of the Sustainable Development Goal (SDG) emphasizes the need to strengthen domestic resource mobilization and improve revenue collection. However, the average tax‐to‐GDP ratio is much lower than the optimal threshold required to finance development. Meanwhile, Africa is losing a significant amount of its capital through illicit financial flows, primarily driven by trade misinvoicing, but at the same time offering fiscal incentives and improving governance to create an environment for increased domestic revenue. Using random and fixed effects models, the study examines the tax revenue effects of trade misinvoicing, and further examines the extent to which tax holidays and regulatory quality dilute or deepen the revenue effects of trade misinvoicing for 13 African countries over the period 2000 to 2015. The results suggest that trade misinvoicing reduces tax revenue. While tax holiday strengthens the effect of trade misinvoicing, regulatory quality dilutes the effect of trade misinvoicing on tax revenue. The study, therefore, recommends that the governments of SSA should promote good governance, reduce trade misinvoicing and review existing tax incentives as critical components of the ongoing efforts to increase domestic resource mobilization for development.
This paper introduces and discusses a methodology for estimating the scale of illicit consumption of cigarettes at a national level. After reviewing current data gathering approaches and estimates, the paper delineates a methodology to estimate the consumption of each type of illicit cigarette (i.e., counterfeits, illicit whites, smuggled/trafficked genuine cigarettes). The proposed methodology is tested through estimating the size and characteristics of the illicit cigarette market in 27 Member States of the European Union in 2016. The results, which underline the heterogeneity in the quality and in the quantity of the illicit consumption of cigarettes in Europe, are presented along with considerations about the strengths and limitations of the proposed methodology in relation to extant approaches.
Smuggling, or illegal trade, has traditionally been consigned to a peripheral role in the theoretical analysis of international trade. The phenomenon was noted but not integrated into formal analysis, except for exotic, early efforts such as Beccaria’s (1764–5) which would surface after the demise of this neglect.
The increasing internationalization of production and finance puts higher demands on the availability and quality of data on external transactions. Domestic economic policies increasingly have to internalize global economic events and require full consistency of detailed information on the international economy with that of the national economy. One of the main goals of the revised System of National Accounts (SNA) of the United Nations has been to harmonize the system with related systems of macroeconomic accounts, such as the IMF’s balance of payments statistics (BOPS) and money and banking statistics (MBS). Conceptually the new SNA has come close to achieving this goal. In practice, in achieving greater harmony (and reliability) in the actual measurement of international economic transactions, there is still a long way to go. Where the SNA provides a framework for consistent accounting of supply and demand and of incomes and expenditures at the national level for individual countries, there is no standardized accounting system that cheeks such consistency at the global level.
The economy of Zambia, 1964–90, provides an example of a large and thriving black market for foreign exchange. The Zambian black market has survived a long sequence of policy reforms aimed at achieving a more flexible exchange rate and price system and liberalizing trade and financial flows. Despite aggressive policies in these areas, especially with regard to the exchange rate, the black market premium (defined as the ratio of the black rate to the official rate minus one) remains high. For the 1970–88 period, the premium averaged 100 percent; it exceeded 400 percent by 1990.
Argentina’s history of exchange controls and parallel exchange markets dates from the beginning of the 1930s and has persisted, with occasional episodes of liberalization, nearly to the present. The most recent unbroken period of exchange controls in Argentina lasted from early 1982 to the end of 1989 and coincided with one of the most turbulent periods of macroeconomic crisis in Argentina’s history. Faced with balance of payments problems, accelerating inflation, and severe private sector indebtedness, the authorities imposed exchange controls as an alternative to a mix of real devaluation and fiscal adjustment that would have secured long-term stability, but at the cost of short-term contraction. In the absence of fundamental reforms, the macroeconomic crisis deepened, leading to the hyperinflations of mid-1989 and the first quarter of 1990. This hyperinflation, in turn, generated balance of payments pressures so strong as to force the abandonment of exchange controls and the floating of the currency in December 1989.
This paper investigates the country-specific and cross-country magnitudes and determinants of capital flight in six Sub-Saharan African countries. Four methods of measuring the magnitude of capital flight are identified. A variant of the most widely-used method is proposed and implemented on the sample countries. It is found that the burden of capital flight for these African countries is rather high. A baseline model and its four augmented versions are used to tie down the determinants of capital flight. The models are then estimated and tested with a novel application of the Zellner procedure in order to generate country-specific as well as cross-country evidence. It is shown that there is no single determinant of capital flight for all the sample countries. However, some countries share common determinants. In particular, capital inflows do seem to lead to capital outflows in some of the countries in this study.
Following the 9/11 terrorist attacks, the U.S. government instituted rigorous new rules and procedures for screening incoming cargo, with the aim of averting a future catastrophe delivered via the nation's global trade infrastructure. While the efficacy of these policies in curbing terrorism is difficult to assess, sophisticated statistical techniques can be used to help gauge the performance of homeland security policies in mitigating risks. Abnormal weight analysis is one such technique. This study examines the weight characteristics of import transactions processed by U.S. Customs before and after the terrorist attacks to identify patterns of abnormalities that could indicate foul play. Abnormalities are calculated by first determining average weights by commodity, and then estimating and analyzing dispersion among reported weights. Our results indicate that while the vast majority of import transactions are being reported more accurately since 9/11, a small percentage of extreme outliers exist, and this should be cause for concern for multinational managers, policymakers, and society at large. Based on these results, conclusions are drawn and recommendations for policy and practice are offered. © 2010 Wiley Periodicals, Inc.
Government authorities, international lending agencies, and private sector firms try to detect abnormal pricing in international trade. Abnormal prices in international trade may indicate capital flight, import-duty fraud, income-tax evasion, or money laundering. We developed a framework for filtering all annual trades between two countries, which includes thousands of harmonized commodity codes and millions of import-export transactions. It produces a prioritized list of commodities traded at potentially abnormal prices and can help auditors to identify such items ranked according to likelihood of abnormal pricing. We estimated the economic impact of overinvoiced imports to Greece from the United States and underinvoiced exports from Greece to the United States. These transactions shift as much as $400 million in income annually out of Greece to the US (and well over $5.5 billion out of Greece to all other countries or about four percent of the GDP of Greece), lowering the level of taxable income and the tax liability of firms operating in Greece, thus increasing the public deficit and reducing domestic investments. The treasury of Greece is losing an estimated $1.4 to $2 billion revenues annually from worldwide trade shifted income. By auditing only the top 25 income-shifting items with the US (identified through a pricing filter), the Greek treasury could capture about 3/4 of the income shifted from exports and over 1/2 of the income shifted from all imports.
This paper investigates the relationship between corruption and capital flight in developing countries. Part I tackles the challenge of defining and measuring capital flight, as well as the various root causes of expatriated savings. Our research contributes to the corruption and capital market literature in several ways. First, the issue of capital flight has attracted less attention than that of external capital inflows in emerging market countries. In particular, capital flight has kept a low profile in academic circles until the late 1990s. In addition, research often looks at capital flight as a portfolio issue, and very few studies consider corruption as a «push factor». Second, our paper looks at why capital flight deserves renewed interest, as the globalization of financial markets broadens investment diversification opportunities for domestic residents. Increasingly, official agencies express concern regarding the recycling of generous development aid flows and heavy borrowing in the international capital markets outside the developing countries’ economies. In the aftermath of the G-7 1996 Cologne meeting, larger and broader debt relief, coupled with a strong emphasis on sustainable development policies, focuses on the urgency of capital flight repatriation. Third, we assume that corruption combines two kinds of centrifugal forces for capital leakages: corruption-driven money leaves a country because of fear of being caught by the tax and judiciary authorities; in addition, money leaves a country because of fear that a corrupt government will not provide a stable and conducive environment for safe savings and profitable investment. In Part II of our research, we test the assumption that the higher the level of corruption, the less conducive the national environment for private investment, and the greater the capital leakages.
This is a concise summary of the author's Ph.D. Thesis at the Centre for Development Studies, University of Wales, Swansea (now known as University of Swansea) on the mechanisms, triggers, and the consequences of smuggling between Sri Lanka and India in the late-1990s.
Working Papers are published without a formal refereeing process, with the sole purpose of generating discussion and feedback. Abstract We employ a panel causality approach in order to examine whether financial liberalization affects the magnitude of capital flight, which measures unrecorded accumulation of foreign assets by the private sector. Our data from 21 emerging market economies for the period between 1980 and 2004 show no significant evidence of a causal relationship. Lagged values of capital flight, however, seem to increase its current level, indicating its self-reinforcing characteristic. Our results suggest that financial liberalization policies per se may not be helpful in reducing capital flight. As a result, emerging market economies should seek to prevent capital from fleeing abroad and encourage repatriation of capital by improving domestic policy environment instead.
Discrepancies in the data of trading partners concerning their trade with each other have frequently been used to infer the significance of illegal trade activities. Trade data discrepancies can, however, have many sources, including the poor quality of data in many countries. If discrepancies in trade data are in large part the result of illegal trade, a causal relationship could be expected between the incentive to smuggle and these discrepancies. The literature, however, contains no statistical analysis of the relationship between these two variables. This paper attempts such a statistical analysis of the export trade of ten developing countries. In the paper a measure of the incentive to smuggle is constructed using data for export taxation and the black-market exchange rate. The general nature of the results provides only limited support for the relationship hypothesized between trade data discrepancies and the incentive to smuggle. In most cases the simple correlation coefficient between the two variables is positive, but it is not very strong in many cases. Furthermore, in the regression analysis the coefficient on the smuggling incentive variable is significantly different from zero for only a relatively few countries at conventional levels of confidence. The results are also quite sensitive to the time period chosen for analysis. They therefore suggest that great caution should be exercised in using trade data discrepancies to infer the scale of smuggling activity. /// Les divergences dans les données des partenaires commerciaux concernant leurs échanges réciproques ont souvent servi à établir, par déduction, l'ampleur des activités commerciales illégales. Toutefois, les divergences dans les données relatives aux échanges peuvent avoir de nombreuses causes, notamment le manque de fiabilité des statistiques dans maints pays. Si les divergences dans les données sur les échanges sont en grande partie attribuables au commerce illégal, on peut s'attendre à ce qu'il existe une relation de cause à effet entre l'attrait de la contrebande et ces divergences. Toutefois, les études sur cette question ne donnent pas d'analyse statistique de la relation qui existe entre ces deux variables. La présente étude a pour objet de présenter une analyse statistique du commerce d'exportation de dix pays en développement. Dans cette étude, une mesure de l'attrait de la contrebande est construite à partir de données relatives à l'imposition des exportations et au taux de change sur le marché noir. La nature générale des résultats n'appuie que de façon limitée la relation hypothétique entre les divergences dans les données sur les échanges et l'attrait de la contrebande. Le coefficient de corrélation simple entre les deux variables est positif dans la plupart des cas, mais il ne l'est pas très fortement dans un grand nombre d'entre eux. En outre, dans l'analyse de régression, le coefficient de la variable de l'attrait de la contrebande n'est significativement différent de zéro que pour un nombre relativement faible de pays aux seuils de confiance conventionnels. Les résultats varient aussi considérablement selon la période choisie pour l'analyse, ce qui donne à penser qu'il convient de se montrer très prudent lorsqu'on cherche à évaluer par déduction le niveau de la contrebande à partir des divergences dans les données sur les échanges. /// Con frecuencia se han utilizado las discrepancias en las estadÃsticas de los paÃses que comercian entre sà referentes a su comercio recÃproco para deducir la importancia de las transacciones comerciales ilegales. Sin embargo, las discrepancias de las estadÃsticas del comercio exterior pueden tener muchos orÃgenes, incluida la mala calidad de las estadÃsticas de muchos paÃses. Si las discrepancias de las estadÃsticas del comercio exterior se deben en gran parte al comercio ilegal, podrÃa preverse una relación causal entre los incentivos al contrabando y estas discrepancias. Sin embargo, los estudios publicados sobre el tema no presentan un análisis estadÃstico de la relación entre ambas variables. En este estudio se trata de presentar ese análisis estadÃstico en relación con el comercio de exportación de diez paÃses en desarrollo. Empleando datos sobre la tributación de la exportación y el tipo de cambio del mercado negro se elabora una medida del incentivo al contrabando. Los resultados, por su carácter general, sólo confirman en forma limitada la hipótesis de que hay una relación entre las discrepancias de los datos sobre el comercio y el incentivo al contrabando. En casi todos los casos es positivo el coeficiente de correlación simple entre las dos variables, pero no muy elevado en muchos casos. Además, en el análisis de regresión, el coeficiente sobre la variable del incentivo al contrabando es significativamente distinto de cero sólo en el caso de un número relativamente reducido de paÃses a los niveles de confianza normales. Por otra parte, los resultados también son muy sensibles al perÃodo de análisis elegido. Hacen pensar, por lo tanto, que hay que tomar muchas precauciones si se quieren utilizar las discrepancias de las estadÃsticas del comercio exterior para deducir la magnitud de las actividades de contrabando.)
Governmental and international lending agencies, as well as private sector firms, who engage in international trade, have long been concerned with detecting and determining the magnitude of abnormal pricing in international trade. To detect such abnormal pricings, we present a framework analyzing millions of import/export transactions between the U.S. and Russia. The objectives of this study are to estimate the economic impact of over-invoiced/under-invoiced Russian imports/exports from/to the U.S. and to determine if capital movement/capital flight through trade is due to money laundering, tax evasion or some sort of portfolio consideration. Our results lead us to conclude that capital movement through trade in this case can be attributed to either money laundering and/or tax evasion.
Profit seeking and risk aversion are characteristics of both domestic and foreign investors. Faced with an unacceptable business risk, domestic capital may flee the country. Therefore, capital flight could be a barometer of political instability. To verify such a hypothesis, the relationship between capital flight, and political instability in 17 Latin American countries was examined. In addition to political instability, many other factors influence capital flight. To isolate the impact of political instability, with the use of a statistical procedure capital flight data were decomposed into the political instability component, and the component related to other factors. The data representing the effect of political instability were regressed on political instability variables. The findings indicate that political disturbances in some Latin American countries are associated with changes in capital flight from these countries. J BUSN RES 1994. 30.187–195
This paper develops a positive theory of two-way capital flows—the outward flight of productive capital, and inward foreign direct investment that acquires ownership of local production units. The model exploits insights from decision-making under uncertainty, and traces out how entrepreneurial incentive to engage in risky production impacts equilibrium returns on capital. Contrary to expectation, productive assets tend to flow from capital-poor to capital-rich economies, while foreign direct investment follows the reversed pattern. By examining the nature of optimal interventions, the paper also demonstrates the inherent conflict of interests between host and source countries engaged in capital market liberalization.
Analyses of the possible contractionary effects of exchange rate devaluation typically assume the foreign exchange market to be unified, thereby ignoring the large fraction of transactions taking place in the black markets for foreign exchange that exist in many developing countries. This paper explores how the existence of these black markets may alter the impact of an official devaluation on aggregate output. It is argued that devaluation will be followed by less immediate contraction in a black market economy than in a unified market economy, both because the black market exchange rate will depreciate by less than the official rate, and because many of the devaluation's contractionary effects will occur in anticipation of the official devaluation itself. These propositions are tested using a simple numerical simulation model.
This paper examines how a system of multiple exchange rates can give rise to unreported exports and imports and a black market for foreign exchange. Risk aversion rather than an assumed smuggling or detection technology generally guarantees the coexistence of legal and illegal trading. Evidence for Brazil suggests that enforcement of the exchange rate and trade regime is an important fundamental of the black market exchange rate that has so far invariably been left out of empirical work.
This paper re-examines the tests of international capital mobility based on saving-investment regressions originated by Feldstein. While analyses of various measures of capital controls provide some support for the Feldstein hypothesis, it is shown that the existence of nontraded goods can independently lead to a saving–investment correlation. This theoretical critique is supported empirically. An analysis of the stability of the coefficients resolves the oft-reported puzzle in the literature that economies appear to have become increasingly closed financially over time.
We model capital flight as the outcome of a non-cooperative differential game between workers (who control the wage share) and capitalists (who control investment at home and abroad). There are three equilibria for such a game. Along the interior equilibrium, the domestic economy becomes "decapitalized" as investors build up their holdings of foreign assets, in a situation reminiscent of the experience of several developing countries. Copyright 1991 Blackwell Publishers Ltd..
Cuddington and World Bank-method are modified with trade credits and trade misinvoicing to estimate the short-term and total capital flight (CF) from China. Trade Misinvoicing are adjusted with the transit trade through Hong Kong. It is shown that the short-term is the main component of the CFs from China. Export under-invoicing is the main channel of CFs since 1994, and illegal capital inflow and CF exist simultaneously in China.
It is hypothesized that commercial and payments policies enacted by governments tend to raise the incomes of higher income individuals and thus to lower rates of emigration. The degree of a country's intervention in its international finance and trade sectors is proxied by the black market premium for US dollars in the country. It is argued that more extensive protection of domestic industry, reflected in higher black market US dollar premiums, raises highly skilled workers' incomes, reflected by a reduction in emigration. Using data on immigration to the USA by country, it is found that higher black market premiums are related to lower US immigration rates, consistent with the hypothesis.
Zusammenfassung Alternative Theorien des illegalen Handels: Wirtschaftliche Folgen und statistische Ermittlung. — In dem Artikel werden verschiedene
Formen des illegalen Handels im Modell dargestellt und dabei verschiedene Wege, auf denen illegaler Handel in der Wirklichkeit
entsteht, aufgezeigt. Untersucht werden die Modelle auf ihre Implikationen für die in konventioneller Weise definierte Wohlfahrt
und auΒerdem im Hinblick auf die beobachtbaren Daten der Preise, Mengen und Werte im internationalen Handel, so daΒ der empirische
Forscher die verschiedenen Arten des illegalen Handels ausmachen und möglicherweise zwischen ihnen aufgrund des statistischen
Befunds diskriminieren kann.
The goal of this paper is to examine evidence for co-integration between nominal exchange rates for Canada, the UK, Japan, Germany, Italy and France (G6) vis-�-vis the US dollar, and the relative price ratios using monthly data over the period 1973:01 to 1997:04. Motivated by the fact that exchange rate adjustment may be asymmetric, we allowed for asymmetric adjustment in exchange rates by using the threshold autoregressive model and the momentum threshold autoregressive model. We do not find any evidence of a co-integrating relationship; hence, we fail to establish long-run purchasing power parity. Copyright � 2007 The Economic Society of Australia.
Unlike Latin America, there have been no detailed estimates of capital flight or its determinants in Africa. The author addresses this problem and, using several concepts, provides"bands"or a"range"for capital flight in Nigeria. A significant proportion of capital flight can be estimated from recorded data in the balance of payments and debt statistics - but these estimates are only as good as the data are reliable. Significant amounts of capital flight, relative to external debt, took place between 1970 and 1989. Trade-faking was an important vehicle: exports were under-invoiced to the tune of about US $8.1 billion and imports were over invoiced about US $6.0 billion. Econometric analysis shows that the culprit to be domestic macroeconomic policy - in the form of inflation, exchange rate misalignment, fiscal deficit, and the lack of opportunities for profitable domestic investments - combined with the relative attractiveness of foreign investments. Eliminating distortions in the economy could minimize substantially externally held foreign claims and minimize capital flight. Among things that need to be done: (a) ensure that the nation's currency is not overvalued; (b) establish an integrated, unified tariff structure to reduce the rewards for trade-faking; (c) establish fiscal discipline, to maintain macroeconomic stability and reduce inflation; (d) ensure a positive real rate of interest - high enough to attract funds but not so high as to stifle investment initiatives; (e) adopt a realistic exchange rate determined by market forces; and (f) foster attitudinal changes that contribute positively to honest government.
The general objective of this study is to analyze the external debt and debt burdens of the severely indebted sub-Saharan African countries, estimate the magnitude of capital flight from them, and relate the estimate of capital flight to some macroeconomic aggregates. The study also contains policy implications of international efforts to deal with the high levels of external debt in sub-Saharan Africa in conditions of extreme poverty, and stagnant and declining exports. It questions the theoretical foundation in which the external debt strategy has been based and offers solutions to the external debt problem.
This paper surveys the development and operation of the parallel exchange market in Argentina during the 1980s, and evaluates its impact upon macroeconomic performance and policy. The historical evolution of Argentina's exchange market policies is reviewed in order to understand the government's motives for imposing exchange controls. The parallel exchange market engendered by these controls is then analyzed, and econometric methods are used to evaluate the behavior of the parallel exchange rate and its impact upon the balance of payments. ; The main conclusion of the paper is that exchange controls were never effective enough in Argentina to allow the authorities to set the commercial exchange rate independently of the parallel market rate. Attempts to set the commercial exchange rate at too appreciated a level consistently prompted widespread evasion of exchange controls that undermined the government's international reserve position. Econometric evidence supports the hypothesis that important components of the balance of payments were negatively correlated with the parallel market premium during the 1980s. The evidence also confirms that the parallel market premium was influential in the determination of the commercial exchange rate.
This paper examines the problem of capital flight in Europe. The authors calculate the volume of capital flight experienced by five European countries--France, Greece, Italy, Portugal, and Spain--and discuss its importance. A model of the short-run determinants of capital flight is developed, which places particular emphasis on factors reflecting uncertainty, and is then tested.for the five countries. Political risk and expected depreciation were significant for all countries and, in addition, rates of return were significant in the case of Portugal and Spain. The authors conclude by discussing the implications of these results for the process of European integration. Copyright 1993 by Blackwell Publishers Ltd and The Victoria University of Manchester
We explore a model where smuggling and a parallel currency market arise, owing to government restrictions that prevent agents from legally holding foreign exchange. Despite such restrictions, agents are able to diversify their savings, holding both domestic and parallel foreign cash, basing their portfolio allocation on current and prospective parallel exchange rates. We attribute movements in parallel rates to non-fundamental uncertainty. The model generates equilibria with both positive and negative parallel premia and correlations between illegal trade and the premium. The model has the novel implication that currency speculation drives smuggling, affecting real activities in all sectors of the economy.