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Raymond Fisman, Peter Moustakerski, Shang-Jin Wei
NBER Working Paper No. 12818
Issued in January 2007
NBER Program(s): ITI
LE
POL
---- Abstract -----
Traditional explanations for indirect trade through an entrepot have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepots may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepot trade.
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