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Creating the illicit capital flows network in Europe – Do the net errors and omissions follow an economic pattern?

Mária Širaňová, Menbere Workie Tiruneh and Boris Fisera

International Review of Economics & Finance, 2021, vol. 71, issue C, 955-973

Abstract: This paper uses the Net errors and omissions, a standard measure of illicit capital flows, to create a Europe-wide network of illicit capital flows by the rolling window Granger causality method. In the second stage, we investigate the factors that determine the creation of links among country pairs in the illicit capital flow network by Cragg’s two-stage Tobit model. Our results suggest that the process of link creation is conducive to the long-term interest rate differential, while the frequency of link occurrence is determined by the strength of trade linkages, exposure to FDI flows and differences in economic development associated with overall institutional quality and corporate tax rates.

Keywords: Illicit capital flows; Net errors and omissions; Two-stage tobit model; Financial network (search for similar items in EconPapers)
JEL-codes: F2 F4 F43 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2020.10.020

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