Offshoring Tariff Evasion: Evidence from Hong Kong as Entrepôt Trader
Coauthor(s): Peter Moustakerski, Shang-Jin Wei.
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Traditional explanations for high rates of indirect trade have focused on the role of specialized agents in
processing and distribution. We provide an alternative explanation based on the differential ability to
evade tariffs from some trade entrepôts. Using data on exports to mainland China, we find that the
fraction of goods that are routed through Hong Kong (rather than sent directly) is positively correlated
with the Chinese tariff rates, both in the cross section and in differences, even though there is no legal
tax advantage to sending goods via Hong Kong. Further, this pattern holds for both differentiated and
homogeneous products. As a control, we also examine indirect exports to China via Singapore, another
entrepôt with less scope for evasion; there is no correlation between indirect export rates and tariff rates
in this case.
Source: Working Paper
Fisman, Raymond, Peter Moustakerski, and Shang-Jin Wei. "Offshoring Tariff Evasion: Evidence from Hong Kong as Entrepôt Trader." Columbia Business School, January 2005.