Determinants of Trade Misinvoicing

Trade misinvoicing should be seen as an element of de facto capital account openness. Traditional explanations for trade misinvoicing-high custom duties and weak domestic economies-are less persuasive in a world of high growth emerging markets that have low trade barriers. We construct a 53-country data set over a 26 year span, covering both industrialized and developing countries, to study the phenomena of export and import misinvoicing. Capital account openness, differentials in interest rates, political stability, corruption, indebtedness and the exchange rate regime are identified as factors related to misinvoicing.