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Trade misinvoicing in OECD countries: what can we learn from bilateral trade intensity indices?

Carton, Christine and Slim, Sadri (2018): Trade misinvoicing in OECD countries: what can we learn from bilateral trade intensity indices?

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This paper aims to explore the extend of trade misinvoicing among OECD countries over the period 2006-2016. Following the standard approach developed by Morgenstern (1950), four categories of misreported bilateral transactions are estimated to highlight two channels used to shift illicit financial flows. The study is reinforced by an analysis in terms of bilateral intensity indices proposed by Kojima (1964) and extended by Kunimoto (1977) to determine trends and patterns in trade misinvoicing among bilateral relations for selected OECD countries. Some interesting findings can be pointed out: (i) the assessment of intra-OECD misinvoicing trade shows that the accumulated amount reaches more than 12 trillion US dollars over the period and is characterised by illicit inflows, although outflows tend to increase during the last years; (ii) significant amounts of illicit financial flows occur in the most advanced countries despite the quality of their statistical recording services; (iii) arguing against explanation based on tax evasion and capital flight, it is shown that countries with high GDP per capita are senders and recipients of illicit financial flows, while lower GDP per capita countries are also receivers of illicit inflows; (iv) the share of misreported imports in countries´ total imports is larger than for total exports, which seems to indicate that imports are the principal vehicle sustaining bilateral misinvoicing trade; and (v) geographical proximity appears to be an important factor in determining the channel used and the direction of illicit financial flows as well as in describing intense relations relative to bilateral misinvoicing trade.

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