Overinvoicing and Industrial Efficiency

  • Gordon C. Winston


Much of the corruption1 in Pakistan industry stems from an unrealistic official exchange rate. The dollar sells for Rs. 4·75 in the official market but for two to three times that much in the free market, allowing handsome profits for those who can trade in both. This paper describes how corruption works through overinvoicing of capital equipment imports. Moral dimensions of the problem are ignored; the central question is how over-invoicing affects the allocation of investment and therefore the structure of industry — how (and by how much) over-invoicing changes the costs of capital to the men who make investment decisions.2 The logic of the problem can be developed with simple equations but an understanding of overinvoicing and its consequences does not depend on algebra. The reader who finds equations more a hindrance than a help can omit them and still get a clear sense of the shape and magnitude of the problem.


Exchange Rate Foreign Exchange Capital Good Foreign Capital Black Market 
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Copyright information

© Pakistan Development Review and Gordon Winston 1972

Authors and Affiliations

  • Gordon C. Winston

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