Market Impediments and Regulatory Arbitrage: Evidence from Chinas Trade Figure Manipulation
This paper investigates how economic agent circumvents market impediments via regulatory arbitrage, with evidence from Chinas exports/imports figure manipulation. We document dramatic under-statement of exports from China to Hong Kong and Thailand and over-statement of imports to China from Hong Kong and Thailand over a period of 1996 to 2004. We develop an integrated theoretical framework that funds harvested from under-reporting export earnings and over-reporting import earnings are retained overseas and then returned to China as foreign direct investment (round-tripping) to capture preferential tax incentives for foreign direct investment. Specifically, an exporting firm trades off the benefit of round-tripping against the cost of losing export rebate subsidies if it under-reports exports, and an importing firm trades off the benefit of round-tripping against the cost of paying more tariff if it over-reports imports. The empirical results, largely consistent with theoretical models, support several conclusions. First, the spurious transfer of funds to and out of China, via under-repor-ting exports and over-reporting imports, closely follows the preferential tax incentives such as tax breaks to foreign investors. Second, exports underreporting is negatively related to rebates forexport. Third, imports over-reporting is negatively related to import tariffs. Finally, under-reporting of exports and over-reporting of imports appear to be most common in state-owned firms.
Market Impediment Regulatory Arbitrage Foreign Direct Investment Trade
Hung Gay FUNG Jot YAU Gaiyan ZHANG
College of Business Administration,University of Missouri-St. Louis,U.S.A Albers School of Business and Economics,Seattle University,U.S.A
国际会议
南京
英文
265-289
2008-06-06（万方平台首次上网日期，不代表论文的发表时间）