Illegal Trade in the Iranian Economy: Evidence from a Structural Model

This study investigates the main causes and indicators of smuggling in both import and export sections of the Iranian Economy and estimates an absolute index of smuggling in Iran during the period 1970-2002. To this effect, Multiple Causes -Multiple Indicators (MIMIC) econometric modelling by LISREL software is applied. This model is ideal for providing a comprehensive analysis of the latent variable of smuggling. The main results of this paper indicate that the rate of fine on smuggling and the total unemployment rate have negative and significant effects on smuggling and that the tariff burden has a positive effect. Regarding the measurement part of the model, smuggling has a negative effect on real governmental revenues and the import price index. Furthermore, the positive effect of smuggling on the petroleum product consumption is also significant. The relative size of smuggling varied from about 6 to 25 percent of total trade in Iran.

Farzanegan, Mohammad Reza (2008), Illegal Trade in the Iranian Economy: Evidence from a Structural Model, Cairo