Estimating the Volume of Goods Smuggling Using Structural Equations and its Impact on Economic Growth in Iran: An Empirical Study in the Last Half Century

Zarra Nezhad, Mansour; Karimi Kanouleh, Maryam; Eebrahimi, Salah

doi:10.22054/joer.2024.75290.1155

Document Type : Research Paper

Authors

¹ Professor and Faculty Member, Faculty of Economics and Environmental Sciences, Shahid Chamran University, Ahvaz, Iran

² Master of Economics, University, Tabriz , Iran

³ Ph.D. in Economic Sciences, Shahid Chamran University, Ahvaz. Iran

https://doi.org/10.22054/joer.2024.75290.1155

Abstract

Examining the factors affecting the smuggling of goods as well as its effects on macroeconomic variables has been one of the most important issues in the field of macroeconomics. Examining this issue and its results has an important role in policy making in the field of goods smuggling. Considering this issue, the purpose of this article is to investigate the economic smuggling of goods as one of the obstacles to production using an empirical approach. Therefore, in this study, in addition to estimating the volume of smuggling in Iran during the period from 1971 to 2020, and investigating its impact on the gross domestic product, structural equation modeling was used. The findings of this study show that the average volume of goods smuggling in the period under review was about 22.53% of the official GDP. Also, based on other results of this study, smuggling as an obstacle to production has had a negative and significant impact on GDP at the 95% confidence level over the past 50 years.

Introduction
Smuggling of goods is a part of economic activities that shows its presence in society with an invisible hand. Smuggling of goods is not registered in the official statistics and causes part of the economic performance to be hidden. This issue makes statistics and economic data unclear and reduces the efficiency of the available information due to the concealment of part of the economic performance. Smuggling of goods is done with the aim of avoiding paying taxes and bypassing border controls. Smuggling causes the government to be deprived of a large part of its tax revenues, and the government may face challenges in providing funds and paying the government's consumption and capital expenditures. A reduction in tax revenue can hinder the government's ability to provide essential services such as health care, education, and infrastructure that are critical to sustainable economic growth. Also, due to the fact that contraband does not pay import taxes and other official business costs, it will have a competitive advantage over official importers and domestic producers. This issue can cause a decrease in the level of domestic production and a negative impact on economic growth. Smuggling of goods can also undermine the effectiveness of official and governance institutions. Informal businesses, such as smuggling, often operate outside legal frameworks, which can erode trust in the government and the formal sector. Weak institutions can discourage foreign investment, hinder economic development, and negatively affect GDP growth. Also, the smuggling of goods will cause the transfer of a part of the labor force from the formal market to the informal market and will disrupt the supply of labor in the formal sector, which may increase the cost of hiring labor and reduce the producer's profit margin. In general, by depriving the government of a large part of the tax revenues, smuggling of goods poses a challenge to investment in infrastructure and will have negative effects on production in the long run. Considering this issue, the main question of this research is what is the amount of smuggling in Iran and how does it affect the GDP?
Methods and Material
Due to the fact that goods smuggling is a hidden variable and is not recorded in official statistics, in this study, the method of multiple indicators and multiple causes (MIMIC), which is a special form of structural equation modeling, was used to estimate the volume of goods smuggling in Iran and its effect on the gross domestic product will be investigated. In this study, according to the structure of the model and research objectives, many models will be examined and analyzed, and finally, the model that is in a better condition in terms of significance and fit indices of Lisrel has been selected as the superior model. In the next section, according to the optimal model, the smuggling index is calculated and by using calibration, this index will be expressed as a percentage of GDP.
Results and Discussion
Analysis of the model and its estimation has been done using Lisrel software. The results of the Optimal model have shown that the variables of income distribution inequality, tax burden, unemployment rate and inflation rate have been the most important determinants of goods smuggling in Iran. Based on the calibration and calculation of the volume of smuggling for the years under review, the volume of smuggling in the period under review as a percentage of GDP was 22.53%. Also, the lowest amount of smuggling volume was related to 1361 with about 15.59% of GDP. Also, based on the estimated results, smuggling of goods has a very high correlation with the unemployment rate and inflation. This shows the importance of price stability and employment in the economy to control the amount of smuggling and reduce its negative effects on economic growth.
Conclusion
The findings of this study hioghlight the persistent high volume of goods smuggling in Iran, despite extensive measures aimed at control and reduction. Using the capacity of border markets, creating employment and developing economic infrastructure in the border provinces-where most smuggling is detected- could be effective strategies for mitigating this issue. Also, the stability of prices and financing the government's budget deficit from sources that have less inflationary effects can be useful in reducing the tendency to smuggle goods. Finally, improving the business environment and reducing the costs of official trade can reduce the profit margin of smuggling goods and cause an increase in the trend towards imports and official exports instead of smuggling trade.

Keywords

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[1]

استناد به این مقاله: زراءنژاد، منصور، کریمی کندوله، مریم و ابراهیمی و صلاح. (1402). برآورد حجم قاچاق کالا به روش معادلات ساختاری و تاثیر آن بر رشد اقتصادی در ایران: بررسی تجربی در نیم قرن اخیر. پژوهشنامه اقتصادی، 23(89)، 90-130.

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Economics Research

Estimating the Volume of Goods Smuggling Using Structural Equations and its Impact on Economic Growth in Iran: An Empirical Study in the Last Half Century

References

References

Volume 23, Issue 89 - Serial Number 2
July 2023
Pages 90-130

Estimating the Volume of Goods Smuggling Using Structural Equations and its Impact on Economic Growth in Iran: An Empirical Study in the Last Half Century

References

References

Volume 23, Issue 89 - Serial Number 2July 2023Pages 90-130

Volume 23, Issue 89 - Serial Number 2
July 2023
Pages 90-130