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SMUGGLING AS ANOTHER CAUSE OF FAILURE OF THE PPP

Mohsen Bahmani-Oskooee () and Gour Goswami ()

Journal of Economic Development, 2003, vol. 28, issue 2, 23-38

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 cointegration 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 Cointegration; LDCs (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2003
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