Unpacking the hustles in illegal trade practices and control: evidences from the major contraband hotspots

Abstract

Abstract The increasing volume of illicit cross-border trades in the Horn of Africa, particularly in Ethiopia, has significant economic and social impacts. Regulatory measures to contain this issue face challenges, as many people in border areas rely on contraband trade and informal businesses for their livelihoods and access to essential goods. To shed light on this issue, this study examined contraband practices, the regulatory framework, and the socio-economic consequences in Oromia regional state. The study used both secondary and primary data, collected through a two-stage cluster sampling method, involving both private and public actors in illegal trade practices along major contraband corridors. Structural Equation Modeling (SEM) and logistic regression were applied to estimate latent theoretical constructs related to illegal trade activities and their inter-relationships. First, indices were estimated using SEM, and then the links between the obtained composite measures and key economic variables were estimated using logistic regression. The study findings reveal significant relationships between regulatory quality and illegality. A 10% increase in contraband trade corresponds to a 1.4% decrease in tax payment. The expansion of contraband trade from a lower to higher scale hampers local linkage development by 66 percentage points. Lack of coordination and collaboration among government structures and stakeholders is identified as a key issue. Addressing these gaps in the regulatory framework and fostering cooperation among governance structures are crucial for effective short and long-term solutions. Governments should take realistic actions, including collaboration with neighboring countries, to combat unregulated cross-border trade.