Indexed on: 28 Feb '07Published on: 28 Feb '07Published in: Environmental and Resource Economics
This paper studies the effects of corruption, rule of law and tariffs on illegal trade in chlorofluorocarbons (CFCs) controlled by the Montreal Protocol. Since data on illegal trade is not available, it is not possible to test any theoretical conclusions about smuggling. The paper, however, attempts to circumvent the problem by developing a model of illegal trade in CFCs that derives predictions about the effects of corruption, rule of law and tariffs on both legal and illegal imports of CFCs. Then the theoretical predictions concerning legal imports are tested using panel data on CFC consumption. Using the estimates of legal imports, inferences about illegal trade are made. The basic findings indicate that knowledge about the degree of rule of law, corruption and the level of tariffs is needed for the correct interpretation of the data on environmental performance reported to international monitoring agencies.