Brazil-united states trade: Capital flight through abnormal pricing

Detailed analysis of the statistics of merchandise trade between Brazil and the United States reveals extensive underpricing of exports and overpricing of imports, which has the effect of transferring large amounts of money out of Brazil and into the United States. Previous studies called attention to this possibility without being able to demonstrate convincingly the extent and amount of the practice. This paper reports the results of a systematic investigation of U.S. customs data at its most disaggregate level to document the amount of capital flows which may be hidden in commodity trade. Using deviations from average prices within commodity classes to identify abnormal prices produces conservative estimates of the amount of capital flight from Brazil to the United States of between $2 to $4 billion in 1995 alone, which would be between 10%-20% of total commodity trade between the countries in that year. Some suggestions are developed for using the results to more closely monitor international transactions in order to reduce this amount.