draining development.pdf - Khazar University

326 Draining Development?should become more representative, the greater the number of priceobservations available. For many products, however, there are typicallyfew bilateral trade transactions.Price variations over time. Prices above or below a certain threshold aremechanically classified as faked, but the results are potentially difficult tointerpret. Differences in prices at the transaction level may arise for variousreasons. These reasons may be trivial, such as mistakes in filling theform. However, there may also be differences in prices across markets(within the United States or internationally). Also, if variations in pricesare analyzed over a longer time horizon, transaction dates may matter.For instance, seasonality may lead to considerable price fluctuations. 15Quantity faking. An issue that remains untouched by the Pak and Zdanowiczapproach is misinvoicing of quantities. Instead of faking prices orunit values, a trader may fake the invoice by misstating the quantityshipped, that is, the container holds a quantity that is different from theinvoiced quantity. Although the method is perhaps more detectable thanunit value faking, Bhagwati (1981, 417) notes that this is a “rather commonform of illegality.” In addition, there are other ways of misinvoicing,including, for instance, the omission of invoiced spare parts.Trade pairs. Since Pak and Zdanowicz’s results are exclusively based ondata from U.S. customs, it is unclear to what extent they can be generalized.Anecdotal evidence suggests that the faking of trade invoices occursespecially in trade with a main trading partner that is not necessarily theUnited States. For instance, Celâsun and Rodrik (1989) find strong evidenceof misreporting only in Turkey’s trade with Germany. For Africancountries, trade with South Africa, the regional economic and financialcenter, may be the preferred target for misdeclaration.Trade Asymmetries: An Empirical AnalysisFor illustration, this section briefly examines trade asymmetries at thecommodity level. 16 This empirical exercise relies on the United NationsComtrade database for export and import data at the 4-digit (harmonized