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Abstract
This article seeks to "demystify" the phenomenon of international informal trade, exploring its complex relationship with formal trade, using Bangladesh as a case study. It challenges the traditional view of informal trade (or smuggling) as a purely illegal and separate activity, arguing instead that the formal and informal trade economies are deeply intertwined. The study examines the scale and nature of informal trade across Bangladesh's land borders, particularly with India. The research analyzes the key drivers of this trade, which include high tariffs, non-tariff barriers, and cumbersome official procedures in the formal channel, which create a powerful incentive for traders to operate informally. The paper posits that informal trade is not just a problem to be suppressed but is also a complex socio-economic phenomenon that provides livelihoods for millions of people in the border regions. The analysis concludes that a more nuanced understanding of the linkages between the formal and informal sectors is needed to develop more effective and realistic trade and border management policies.
Full Text
The official statistics on international trade tell only part of the story. Alongside the formal channels of trade, a vast and vibrant informal trade economy often flourishes. This paper provides a case study of Bangladesh to "demystify" this phenomenon and its intricate connections with the formal trade sector. The study begins by providing a conceptual clarification, distinguishing informal trade from other forms of cross-border crime. The core of the article is an in-depth analysis of the drivers and dynamics of the massive informal trade between Bangladesh and India. It argues that this trade is not random but is a highly organized and rational economic activity, a direct response to the high costs and barriers that exist in the formal trading system. The paper details how the combination of high import tariffs on certain goods and the extensive non-tariff barriers in both countries creates a powerful "price wedge" that makes smuggling highly profitable. A key argument of the paper is that the formal and informal economies are not separate but are deeply interconnected, with many of the same actors and networks involved in both. The findings suggest that a purely law-enforcement-based approach to suppressing informal trade is likely to be ineffective as long as the underlying economic incentives remain so powerful. The paper concludes by advocating for a two-pronged strategy: on the one hand, a continued effort to crack down on the criminal aspects of smuggling; on the other hand, a much greater focus on trade facilitation and the removal of non-tariff barriers in the formal sector, which is the most effective way to reduce the incentives for informal trade.