Trade Misreporting A Case of Zimbabwe Foreign Trade

Theoretically it is presumed that Zimbabwe’s exports to Malawi should be the sameas Malawi’s imports from Zimbabwe. However, if we look at the data reported by the twocountries, we find shocking dispersion. In principle, the two reported trade values shoulddiffer systematically only by transport costs, because the values reported by importersinclude freight and insurance. These double reports provide an opportunity for audit. Thispaper presents a methodology to measure misreported trade in a consistent way acrosscountries and over time. The methodology does not require any assumptions about whichcountries may be more or less likely to misreport – rather, all indices are derivedendogenously with available trade data. This study derived two specific indices which areexports and imports misreporting. Applying this method to existing bilateral trade data onthe SITC 0+1+22+4 level from 2000-2016, the study was able to determine factors whichcauses misreported trade for Zimbabwe’s bilateral trade using Feasible Generalized LeastSquares (FGLS) method. As predicted by economic theory, case studies, and economicintuition, the study find a significant correlation for tariff, corruption, gross domestic productrates and foreign direct investment with import and export misreporting. The studyrecommend reduction of misreporting after the application of policy to reduce tariff rates,implementation of the policy of increasing the maximum financial penalties and switchingfrom exports of raw materials and semi-manufactured goods to high valued-added goods.