ABSTRACT
This chapter suggests that the Mexican economy generated substantially more foreign exchange and savings than could be reported. The simple identification of smuggling through aggregate statistical discrepancies in foreign trade data among trading partners misrepresents the nature of the problem. The misreporting of trade flows—smuggling—which constitutes an important vehicle for capital flight, has serious welfare implications for the various countries involved. In addition to the global effects, which seriously distort policy maker’s understanding of the economy, there is the differential sectoral incidence of smuggling. The increase in foreign debt in many countries has been used to finance the accumulation of private wealth abroad by a privileged few. As the falsified invoices are the basis for the reported statistics on trade, the consequence of these practices is the misreporting of trade. The chapter discusses that the current-account discrepancy is the statistical manifestation of an assault by small groups of wealthy individuals on countries with weak currencies.
