Estimating Trade Misinvoicing from Bilateral Trade Statistics: The Devil is in the Details |
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Authors: | Keejae P Hong Simon J Pak |
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Institution: | 1. Belk College of Business, The University of North Carolina at Charlotte, Charlotte, North Carolina, USA;2. School of Graduate Professional Studies, Penn State University, Malvern, Pennsylvania, USA;3. Trade Research Institute, Inc., Downingtown, Pennsylvania, USA |
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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. |
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Keywords: | Faked invoicing illicit financial flows partner-country method trade misinvoicing |
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