draining development.pdf - Khazar University

60 Draining Developmentpolicies in Brazil and the Republic of Korea from the 1960s to the 1980s.Both authors argue that trade misinvoicing in these countries during thisperiod followed an unusual pattern in that imports tended to be underinvoiced.Both authors explain this in terms of domestic producers andtraders, “rather than being preoccupied with evading controls to earnforeign exchange, may be more concerned about meeting export andproduction targets and maximizing government plans” (Gordon Nembhard1996, 187). In these two countries (but not necessarily in others),there were potentially avoidable losses from trade misinvoicing, andthese flows were therefore illicit. Nonetheless, the losses were significantlysmaller than the gains from the incentives created for higher investmentsin sectors promoted by the industrial policy. To decide whether or not toblock illicit trade misinvoicing in these circumstances (and, if so, how),the most important aspect of policy design is to prepare a microlevelanalysis of the impact of different ways of blocking these flows on theoverall economy. This analysis has to take account of economic andpolitical circumstances and the likely impact of particular regulatorystrategies. Figure 2.2 illustrates the iterative process required to arrive atpolicy decisions that avoid unintended negative consequences.Figure 2.2. Choosing Attainable Benchmarks for Policy Design1. Policy regimeINTERVENTION2. New policy regimeILLICITPRACTICES4. New policy regimeINTERVENTION3. New policy regimeILLICITPRACTICES5. New policy regimeINTERVENTION6. New policy regimeSource: Author compilation.