Trade Misinvoicing and Macroeconomic Outcomes in India

Raghbendra Jha and Truong Duc Nguyen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper has two main objectives. First, it computes capital flight (CF) through trade misinvoicing from India using data from UNCOMTRADE, MIT Observatory of Economic Complexity and IMF E-library. India’s trade with 17 countries over the period 1988-2012 is considered. We find that CF has accelerated since 2004 and particularly sharply since 2007. It peaked at nearly $40 billion in 2008 with the total outflow between 1988-2012 exceeding $186 billion. Second, we model the mutual dependence of GDP growth, CF, and various risk factors in a VAR framework. We find that the VAR models chosen fit the data well. We conduct impulse response function analysis, forecast the key variables until 2020 and forecast error variance decomposition. Broadly we find that, if left undisturbed, CF through trade misinvoicing will continue to be high and play a significant macroeconomic role. Thus, CF needs to be checked urgently not only because it is a drain of the country’s resources but also because it continues to have a significant and, by its very nature, uncontrollable effect on the economy. At least some of the failures of current macroeconomic policy in India could be attributed to CF.

Keywords: Trade Misinvocing; VAR; Impulse Response; Forecasting; India (search for similar items in EconPapers)
JEL-codes: E17 F32 F47 K42 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-04
New Economics Papers: this item is included in nep-for, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Trade Misinvoicing and Macroeconomic Outcomes in India (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-31

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