Missing trade does capture smuggling

Does missing trade, i.e. the discrepancy between what exporters and importers report, capture smuggling activities? Indeed, it may be a too noisy measure. Imports include cost-insurance and freight costs whereas exports are free on board, exchange rates can be miscalculated, lax custom statisticians make mistakes and indirect trade can be confusing.

The figure shows the distribution of missing exports to Israel. From non-Muslim countries, missing trade appears as noise, beautifully distributed around zero. But when looking at Muslim countries, which ban trade with Israel, missing exports seem uniformly distributed at positive values. As I blogged a while ago, there are good reasons to believe the $50 million missing exports from Malaysia to Israel are actually smuggled out of Malaysia.