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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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Abstract

This paper aims to explore the extent of trade misinvoicing among OECD countries and to determine trends and patterns 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 modified by Kunimoto (1977) to identify strong bilateral relations for selected OECD countries in terms of misinvoicing practices. Some interesting findings can be pointed out: (i) estimated values of intra-OECD misinvoicing trade indicate that accumulated amounts have reached more than 12 trillion US dollars over the period mostly through illicit financial inflows, although illicit outflows tend to increase during the last years; (ii) significant amounts of illicit financial flows occur between 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 both senders and recipients of IFFs, 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 facilitating 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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