Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade

20 Pages Posted: 12 Jan 2007 Last revised: 12 Jul 2010

See all articles by Raymond J. Fisman

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Peter Moustakerski

affiliation not provided to SSRN

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

Date Written: January 2007

Abstract

Traditional explanations for indirect trade through an entrepot 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 entrepots 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 entrepot trade.

Suggested Citation

Fisman, Raymond and Moustakerski, Peter and Wei, Shang-Jin, Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade (January 2007). NBER Working Paper No. w12818. Available at SSRN: https://ssrn.com/abstract=956857

Raymond Fisman (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
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Peter Moustakerski

affiliation not provided to SSRN

No Address Available

Shang-Jin Wei

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Tsinghua University - School of Economics & Management

Beijing, 100084
China

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