Smuggling around the World: An Empirical Investigation of Causes and Indicators

Zainab Wajid, Babar Aziz and Zahid Iqbal

Abstract

Smuggling is a criminal activity which has been a problem around the world. Keeping in line with the issue, the current study explores the causes and indicators of smuggling for developed and developing countries over the time period 1990-2009 by using MIMIC model. This is the first time that any study has made a comparison of smuggling for developed and developing countries. The results indicate that increase in tariff burden intensifies smuggling, whereas unemployment rate and trade openness has a negative effect on smuggling for both sets of countries. Rule of law and corruption leads to increase in smuggling for developing countries while the same have a negative impact on smuggling in case of developed countries. Education leads to a fall in smuggling for developing countries, while unexpectedly, the same stimulates smuggling in developed countries. Turning to indicator, the labor force participation rate is positively affected by smuggling in developed countries and negatively in developing counties. Smuggling could be reduced while giving incentives to work in the official economy and disincentives to operate in the informal economy.