Cross Border Fraud

Abstract

We build a theoretical framework for cross-border fraud in which international fraud complaints follow a gravity model. Using several large databases of consumer complaints, we find that complaints exhibit gravity; compared to trade volumes, cultural distance is more important for complaints and physical distance less important. We then use the gravity model estimates to estimate country-level fraud rates and identify clusters of countries with high fraud rates. Finally, in line with our model predictions, high fraud rates are negatively correlated with per-capita GDP and measures of strong regulatory institutions.

Keywords: gravity, fraud, complaints, international trade