Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade

Raymond Fisman, Peter Moustakerski and Shang-Jin Wei
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Peter Moustakerski: Booz Allen Hamilton

The Review of Economics and Statistics, 2008, vol. 90, issue 3, 587-592

Abstract: Traditional explanations for indirect trade through an entrepôt focus on savings in transport costs and the role of specialized agents in processing and distribution. We provide an alternative perspective based on the potential for entrepôts to 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, despite the absence of any legal tax advantage to sending goods via Hong Kong SAR. We present several robustness tests to rule out plausible alternative hypotheses based on existing explanations for entrepôt trade. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2008
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The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

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