Smuggling As Another Cause of Failure of the PPP

Bahmani‐Oskooee, Mohsen; Goswami, Gour Gobinda

Smuggling As Another Cause of Failure of the PPP

Bahmani-Oskooee, M. and Goswami, G. G. (2003). "Smuggling as another cause of failure of the PPP", Journal of Economic Development, 28(2), 23-28.

16 Pages Posted: 25 Jul 2020

See all articles by Mohsen Bahmani‐Oskooee

Mohsen Bahmani‐Oskooee

University of Wisconsin - Milwaukee - Center for Research on International Economics

Gour Gobinda Goswami

North South University

Date Written: 2003

Abstract

In theoretical literature, smuggling is considered as a factor contributing to the deviation of the PPP-based exchange rates from the equilibrium exchange rates with little empirical support. In this paper, we used panel data for 33 developing countries over the period 1982-1995 and used panel unit root and panel co-integration technique along with pooled OLS, fixed effects, random effects, and Parks estimator in an augmented Balassa-Samuelson framework. Using two different proxies for smuggling it is found that smuggling into a country leads to an appreciation of domestic currency that can be considered as another cause of loosing competitiveness by many developing countries.

Keywords: Smuggling, PPP, Real Exchange Rate, Panel Data, Panel Unit Root, Panel Co-integration, LDC

JEL Classification: F31

Suggested Citation: Suggested Citation

Bahmani-Oskooee, Mohsen and Goswami, Gour Gobinda, Smuggling As Another Cause of Failure of the PPP (2003). Bahmani-Oskooee, M. and Goswami, G. G. (2003). "Smuggling as another cause of failure of the PPP", Journal of Economic Development, 28(2), 23-28., Available at SSRN: https://ssrn.com/abstract=3575507