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Discussion Paper Details

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Title: Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade

Author(s): Raymond Fisman, Peter Moustakerski and Shang-Jin Wei

Publication Date: February 2007

Keyword(s): corruption, middleman and tax evasion

Programme Area(s): Development Economics and International Trade and Regional Economics

Abstract: Traditional explanations for indirect trade through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepôt trade.

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Bibliographic Reference

Fisman, R, Moustakerski, P and Wei, S. 2007. 'Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6078