thecostsofbureaucracyandcorruptionat customs...

The Costs of Bureaucracy and Corruption atCustoms: Evidence from the Computerization of

Imports in Colombia

Rachid Laajaj 1 , Marcela Eslava 1 & Tidiane Kinda 2

1 Universidad de Los Andes2 International Monetary Fund

June 25, 2018

Laajaj, Eslava, Kinda Corruption & Computerization of Customs

The Paper in a Nutshell

Between 2000 and 2005, Colombia computerized theimport process at different dates for different customsWe match customs level data and panel census data onmanufacturing firmsTriple difference using timing of computerization andexposure of firms > stimulated growthDouble difference to study the channels: value ofimportations, custom clearance time...Facilitated importations (faster, more and more value, fromfarther away)Tax collection at customs increasedData on judiciary cases from the National GeneralSuperintendency > corruption significantly reduced by thereform


Motivation and Related Literature

Effects of trade liberalization on firms productivity andgrowth (Eslava et al. 2010, Pierce and Schott 2012, Amiti andKonings 2007)Customs are prone to bureuacracy and corruption (Dollarset al. 2003; Clark et al. 2004; Yang 2006; Volpe Martincus etal. 2015; De Wulf and Sokol 2004; Engman 2005).Costs of Bureaucracy and corruption (Reinikka andSvensson, 2004; Ferraz et al., 2012; Ebeke et al., 2015...)In Uganda, bribes have three times the negative impact ofequivalent (Fisman and Svensson 2007)The use of IT can reduce bureaucracy and corruption(Muralidharan et al. 2014, Banerjee et al. 2016...)


Context: Governance and Customs in Colombia

World Government Indicators of Colombia increased from34th to 41st percentile between 2000 and 2006, then up to45th percentile in 2015Greatest improvements in the Rule of Law and Control ofCorruption indexesModernization of customs is one of the areas thatunderwent improvementsCustom clearance time for importation went down fromabout 17 days in 1995 to about 9 days in 2014


Custom Clearance Time of Importations to Colombia overTime


The Customs Reform in Practice

We asked DIAN management what reforms were mostinfluential : implementation of “Siglo XXI”All the processes can be done through the Internet, unlessselected for physical inspectionInstantaneous comparison of declarations made by exporter,transporter, importer, storage, and bankPhysical inspections went down from more than 50% to 9%,based on risk profile and inconsistenciesReduces discretionary power of customs agents and directinteractions with importersInternal doc claims reduced clearance time, increased taxcollection & reduced corruption (less complaints)


The Databases

EAM, about 3,500 manufacturing firms, variables includeSales, Value Added, Inputs, Labor, Capital,Productivity...DIAN importation data is a census of about 1,000,000importation transactions from 26 customs. Includes firmand custom identifiers, time, taxes, etc.Data from the General Prosecutor. We isolate judiciarycases involving DIAN at municipality levelUNCOMTRADE data to check effect on trade declared byexportersFrom DIAN data, we constructed a dummy for eachtransaction = 1 if digital


Computerization of Importations in Colombia Between 2000and 2005


Computerization of Importations in Bogota


Computerization of Importations in Medellin


Computerization of Importations in Cartagena


Computerization of Importations in Different Customs


The Assignment of Customs to Firms

We:1 match firms to their corresponding customs2 assigned Customs is the most likely custom for the firm3 calculated, for each firm the share of the value of its imports

that came from each customs in 1999.4 calculated for each municipality, the share of imports from

each customs (averaged accros its firms)5 associated each firm to the customs from which its

municipality had the greatest share of imports in 1999


Main Identification Strategy: Triple Difference

Computerization occurred in different customs at differentperiodsLikely that being close to customs with early computerizationis related to firm size, productivity, etc.Triple difference with year and firm fixed effects, and wherefirms’ degree of exposure to the reform depends onwhether they were importers in 1999The identifying assumption of triple diff.: the timing of thecomputerization of customs is not correlated with thedifference in the change in the outcomes of interest betweenimporting firms and non-importing firms


Triple Difference Regression

Yfct = α +β Tct ∗ If +δTct +Xctγ +λf +θt + εfct (1)

Yfct is the outcome of firm f in customs c at year tTct is a dummy = 1 if in custom c , + than 80% of importationswere digital at year t.If is a dummy =1 if firm f imported a positive quantity in year 1999or before.λf are firm FE and θt are year FE.Xct are Ln of Value Added, and Ln of Customs value of importsboth interacted with year dummiesStandard Errors clustered at customs level (and do Wild Bootstrap)


Effect of Customs Reform on Firm’s Growth


Effect of Customs Reform on Exportation and Productivity


Parrallel Trend and Dynamic Effects: Inputs


Parrallel Trend and Dynamic Effects: Sales


Parrallel Trend and Dynamic Effects: Value Added


Parrallel Trend and Dynamic Effects: Nb of Workers


Parrallel Trend and Dynamic Effects: TFP


Effect of Custom Reform on Firm’s Growth by Quartile


Summary of Results on Firms’ Economic Activity

Value Added of exposed firms increased by about 6.5%Also increased inputs, exports, workers and TFPConcentrated on medium size firms, not large onesResults robust to:

- Excluding Customs 1 by 1- Continuous treatment, depending on share ofassociated customs treated

- Continuous treatment, based on which customsinputs are likely to come from


Double Difference Effects of Changes at Customs (FirmLevel)


Effect of Custom Reform on Imports Outcomes by Quartile


Double Difference Effects of Changes at Customs (Customsyear)


Parrallel Trend and Dynamic Effects:Total Value of Imports


Parrallel Trend and Dynamic Effects: Total Value of Taxes


Double Difference Effects of Changes in (32) DIANCorruption Cases


Parrallel Trend and Dynamic Effects: Factor of Corruptioncases


Effects of Computerization on Predictability of Time toClear Customs and Tax Rate


Effects of Computerization on Imports to Colombia declaredby Exporters in Other Countries


Main Results on the Channells

Large Increase in number of transactions and value ofImports driven by:

- Reduction of smuggling and under-declarations(1/2)

- Facilitation and revealed preference (1/2)

More likely to pay what is due (for large firms)Decrease in Custom Clearance time & Importers are willingto travel from further away.Tax collection increased: important result for revenuemobilization.Reduction in corruption cases of the DIANIncreased predictability of time > reduction indiscretionary power


Conclusions and Further Research

Provides new evidence that computerization at customsstimulated importing firms’ growthThe computerization had an estimated total cost of 6 to 9million dollars, which is dwarfed by the benefitsIn line with literature that found: 1) trade barriers harmfirms 2) “corruption tax” can have effects that are manytimes larger than an equivalent formal taxCorruption harms middle sized plants in favor of large ones:implications for dynamics and political economyImportant lessons for low income countries who have notimplemented it, and even for Colombia, which badly needsimprovementsSpecific feature of this intervention was to use IT to limitconnections prone to corruption (not always +transparcenty at all levels is better)


Thank you!!!


Effect on Firm’s Growth excluding Customs 1 by 1


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