Sandra Sequeira (LSE)

Title: "Corruption, Trade Costs and Gains from Tariff Liberalization:  Evidence from Southern Africa"

Abstract:  An extensive trade literature assumes that the dismantlement of complex tariff schemes can reduce trade costs and increase trade flows, especially in the developing world. The impact of a reduction in tariffs on trade flows depends however on whether tariffs represented a significant cost to firms in the first place. This paper presents new evidence on how corruption, by substantially reducing tariff payments, can dampen the impact of tariff liberalization schemes on imports. Based on direct evidence of bribe payments associated with a random sample of over 1,000 shipments imported to Mozambique, before and after a tariff liberalization scheme, I find that the removal of tariffs significantly reduced bribes (by 30%) but had a limited impact on imports. At the micro-level, firms do not appear to adjust the extensive or intensive margins of import behavior. At the macro level, both the volume and the value of imports (as reported by Mozambique's trading partners) remains insensitive to the tariff change. Consistent with the corruption hypothesis, imports reported by Mozambique converge to the level of export volumes and values reported by its trading partners, following the tariff change. These findings suggest that a substantial part of the gains associated with tariff liberalization in the developing world may result from the removal of wasteful corruption schemes and the more accurate reporting of trade flows.