Chinese Networks and Tariff Evasion

Authors


  • We thank Richard Baldwin, Nicolas Berman, Marco Fugazza, Marcelo Olarreaga, Ben Shepherd, Zheng Wang, the editor and two anonymous reviewers for very helpful comments as well as seminar participants at the Paris School of Economics, PEGGED workshop 2011, ITSG 2011 at the University of Milan, GEP Postgraduate Conference at Nottingham University and RIEF 2011 at the University of Nice for helpful discussions. This research was supported by SNSF subsidy PDAMP1-123125.

Abstract

Chinese networks are known to act as trade catalysts by enforcing contracts and providing market information. This paper shows they also play a role in import-tariff evasion. As illegal trade activities occur outside the law, market information is scant and formal contract enforcement institutions are non-existent. This renders networks the more important for the matching of illicit-minded traders, identification of corrupt customs agents and enforcement of informal contracts. In this paper, we find robust evidence that Chinese networks, proxied by ethnic Chinese migrant populations, increase tariff evasion, that is, the tariff semi-elasticity of China’s missing trade.

Ancillary