Trillion Dollar Estimate: Illicit Financial Flows from Developing Countries

Volker Nitsch

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Recent estimates suggest that developing countries lose about 1 trillion US dollars each year due to illicit financial flows. This paper reviews the empirical methodology that underlies those estimates. Various critical aspects of the analytical approach are highlighted, focusing in particular on deficiencies in the use of mirror trade statistics to quantify the extent of capital outflows due to trade misinvoicing. Serious issues in the empirical analysis include, among others, arbitrary assumptions, mixed methodologies and skewed sampling. As a result, it is argued that the quantitative results obtained from those exercises have no substantive meaning. The trillion-dollar estimate of illicit financial flows from developing countries, therefore, lacks evidence and is uncorroborated.

Date: 2016-12
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Published in Darmstadt Discussion Papers in Economics . 227 (2016-12)

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Working Paper: Trillion dollar estimate: Illicit financial flows from developing countries (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:80589

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