Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade

Raymond Fisman, Peter Moustakerski, Shang-Jin Wei

NBER Working Paper No. 12818
Issued in January 2007
NBER Program(s):International Trade and Investment, Law and Economics, Political Economy

Traditional explanations for indirect trade through an entrepot have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepots may 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, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepot trade.

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Document Object Identifier (DOI): 10.3386/w12818

Published: Raymond Fisman & Peter Moustakerski & Shang-Jin Wei, 2008. "Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 587-592, 03. citation courtesy of

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