Trade Data Falsification and Informal Capita Movement: A Study of Bangladesh with Major Asian Trade Partners

Published date01 November 2023
AuthorSamir Kumer Das,Amit K. Biswas
Date01 November 2023
Subject MatterArticles
Trade Data Falsification
and Informal Capita
Movement: A Study of
Bangladesh with Major
Asian Trade Partners1
Samir Kumer Das1 and Amit K. Biswas1,2
The imposition of restrictive trade policies and consequent fabrication of for-
eign trade statistics acts as hindrance for effective policy formulations in the
developing countries. This article presents the trade misreporting scenario of
Bangladesh in relation to major Asian trade partner countries (China, India and
Singapore) between 1973 and 2018 and examines the possibilities of informal
capital movements across borders. Using the vector autoregression (VAR) and
autoregressive distributed lag (ARDL) models, we first build partner-level exer-
cise, followed by a combined panel, and find that spot and forward exchange
rates, custom duties and real interest rate differences between foreign and home
largely affect trade misreporting rates. Interestingly, we also find that the values
of past import under-invoicing might also lead to export under-invoicing and vice
versa, a two-way causal relationship.
JEL Codes: F14, F68, C10, C52
Trade misreporting, policy variables, ARDL, Granger causality
One distinct characteristic of international trade statistics is that it can be methodi-
cally cross-checked for data falsification. Fabrications of major economic data like
trade data pose enormous challenges to the economists and policymakers and hence
impede fruitful governance. This study takes up the trade misreporting phenomena
Foreign Trade Review
58(4) 467–483, 2023
© 2022 Indian Institute of
Foreign Trade
Article reuse guidelines:
DOI: 10.1177/00157325221120720
1 Department of Economics & Politics, Visva-Bharati University, Santiniketan, West Bengal, India
2 University of Bonn, Bonn, Germany
Corresponding author:
Samir Kumer Das, Department of Economics & Politics, Visva-Bharati University, Santiniketan, West
Bengal 731235, India.
468 Foreign Trade Review 58(4)
in Bangladesh (BD) with her three major Asian trading partners—China, India and
Singapore. We show that along with creating difficulties in policymaking, falsified
trade data might also lead to informal capital movements across borders. BD misre-
ports significant values of both exports and imports with these three major Asian
countries. Our findings show that BD mostly underreports both export and import
values with China, and in the case of India and Singapore, we find both under- and
over-reporting behaviours. Through our empirical exercises, we try to attribute
intentional fabrication of trade data to policy instruments such as spot and forward
exchange rates (ERs), high export taxes (ETs), customs duties on imports and inter-
est rate differentials between foreign and home among others. Comprising both
individual and panel exercises, our results demonstrate that in the case of import
under-invoicing, ERs and custom duty (CD) have a positive and highly significant
impact on BD’s underreporting rates with China, India and Singapore both in the
short and long runs. Forward premium (FP) and real interest rate difference (IRD)
between foreign and home have a negative impact on BD’s import underreporting
rates with China and India in the long run. So far as exports are concerned, we get a
negative relation between spot ERs and underreporting rates of BD with respect to
China and India in the long and short run. We also get a positive correlation between
export underreporting rates and FP of BD with respect to India both in the short and
long run, but in case of China and Singapore, FP has a significant impact during the
short run only. We get a positive correlation between BD’s export underreporting
rates and real interest difference with respect to Singapore in the long and short run.
Combining these three countries, we also run a panel to check the robustness of
individual country-based exercises. Finally, we find a bidirectional causal relation-
ship between export and import under-invoicing series at level values in the case of
China. In the case of India, we have got a unidirectional causal relationship.
This article is organised in the following manner. The second Section briefly
reviews the literature. The third Section discusses data, methodology and exam-
ines BD’s trade misreporting scenario. The fourth Section investigates the causal
relationship between export and import misreporting series, and, finally, the fifth
Section concludes the article.
Brief Literature Review
Morgenstern (1963) was the first to look into the issues of misreported domestic
trade statistics by enquiring the partner country statistics. Bhagwati (1974) used the
partner country statistics to cross-check the authenticity of Turkish trade data.
Biswas and Marjit (2005) and Marjit et al. (2000) were the first to take up the Indian
case of trade misreporting. They looked into India’s official export and import data
and attributed trade misreporting to restrictive trade and exchange policies. Biswas
and Marjit (2007) built a three-country trading framework to investigate cross-
border illegal capital movements. Marjit et al. (2008) showed that a controlled trade
environment might cause inaccurate policy projections through data fabrications.
Biswas (2012) proved that export might be underreported to finance hidden import
basket. Biswas et al. (2019) found that if trade statistics were distorted, the gross
domestic product (GDP) might be miscalculated too. Das Subhasish & Biswas

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