Does illicit financial flows crowd‐out domestic investment? Evidence from Sub‐Saharan Africa economic regions

Joshua Afolabi

International Journal of Finance & Economics, 2024, vol. 29, issue 2, 1417-1431

Abstract: The effect of illicit financial flows (IFFs) on macroeconomic performance has been subjected to debates in the academic and policy arena, albeit with little evidence on its investment effect. This study contributes to the IFF‐investment literature by focusing on the four economic regions in Sub‐Saharan Africa (SSA), where IFFs have been growing consistently. The Pooled Mean Group (PMG) and panel dynamic ordinary least square (DOLS) estimators were utilized to analyse data for the period, 2008–2020. The result signalled inter‐connection among Sub‐Saharan African countries and affirmed the existence of a long‐run relationship among the variables considered. The empirical findings showed that IFFs crowd‐out domestic investment among the four SSA economic regions in the short and long time dimensions. This study, therefore, advocates for synergy among the stakeholders in each economic region to devise deliberate strategies to fight against the menace of IFFs toward successfully achieving Sustainable Development Goals by 2030.

Date: 2024
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