Testing Exports Underinvoicing Under a Dual Exchange Rate Regime: Evidence for Brazilian Exports

João Issler

Brazilian Review of Econometrics, 1992, vol. 12, issue 1

Abstract: The paper uses an expected utility model to explain exports underinvoicing under a dual exchange rate regime. Econometric estimation is done using an Error Correction Model (ECM). The hypotheses of export price and quantity underinvoicing are tested and the model confirms the former but not the latter. Using the estimated ECM, consistent estimates of capital flight due to price underinvoicing are calculated. The sample lower bound of the hard currency "loss" due to the existence of a dual exchange rate regime is US$ 13.9 billion, sufficient to repurchase a large portion of the Brazilian external debt at today's market value.

Date: 1992
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