Trade Misreporting: A Case of Zimbabwe Foreign Trade

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