Corrupt Importers, Domestic Producers & Welfare: Role of Trade Policy

Stringent regulatory foreign exchange and trade policies create distortions and lead to mis‐invoicing of imports and exports. Such legally prescribed opportunistic behavior is alleged to be common in LDCs because of their lack of openness and restrictive policies. This paper focuses on the impact of various trade and currency policies like tariffs, quotas, different exchange rates, and devaluation and administrative policy instruments like monitoring and penalties on import mis‐invoicing under Cournot quantity competition. A framework is developed to analyze the impact of those policies on importers and domestic producers both under fixed and flexible exchange rate regimes.